UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





Amendment
No. 1





FORM
10-Q/A




(Mark
One)





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





For the
quarterly period ended June 30, 2009





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





For the
transition period from ______________ to _____________




Commission
file number: 000-51516





UNIVERSAL
TRAVEL GROUP


(Exact
name of registrant as specified in its charter)




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




Shennan
      Road, Hualian Center
                  Room
      301 - 309
                  Shenzhen,
      People’s Republic of China(Address
      of principal executive offices)
                (Zip
      Code)





86 755 836
68489


(Registrant’s
telephone number, including area code)











Indicate
by check mark whether the registrant (1) has filed reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes x  No  ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).    Yes    ̈  No   ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer
             ̈
            Accelerated
      filer
             ̈Non-accelerated
      filer
             ̈
            Smaller
      reporting company
            x





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





APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY


PROCEEDINGS
DURING THE PRECEDING FIVE YEARS





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





APPLICABLE
ONLY TO CORPORATE ISSUERS





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





As of
August 11, 2009, there are 13,680,294 shares of $0.001 par value common stock
issued and outstanding.





EXPLANATORY NOTE





In this Amendment No. 1 to Quarterly
Report on Form 10-Q (this “Form 10Q/A”), we refer to  Universal Travel
Group, a Nevada corporation, as “we,” “us,” “our” or “our company.”




We are
filing this Amendment No. 1 to Quarterly Report on Form 10-Q to amend certain
disclosures in our Quarterly Report on Form 10-Q for the quarter ended June 30,
2009, as originally filed with the Securities and Exchange Commission (the
“SEC”) on  August 12, 2009 and (our “Report”).  The
principal changes to our Report in this amendment are as follows:




We have
identified certain accounting errors related to the omission of the accounting
for a derivative liability upon the adoption of EITF 07-5 effective January 1,
2009, and the subsequent accounting for the changes in the associated liability
from the marked to market; in our previously filed Quarterly Report we also
erroneously accounted for cancelled common stock in connection with disposition
of its discontinued operations as treasury stock; we erroneously presented the
dividends from its discontinued operations as income from discontinued
operations; we erroneously presented the dividends receivable associated with
its discontinued operations as an investing cash outflow; and we also identified
an error in our weighted average common shares and stock-based compensation
computation.  In addition, we omitted the reclassification of balance sheet
items of the discontinued operations separately from continuing operations for
the prior year presented, and omitted the segregation of cash flow of
discontinued operations from continuing operations.  We have added
Note 15 to our consolidated financial statements to disclose the net effect and
further information regarding the above correction of errors.





We have
also reclassified and included all costs directly associated with the generation
of revenue in our cost of services. These costs were erroneously classified as
selling, general, and administrative expenses in the consolidated financial
statements previously filed. This reclassification has resulted in no change in
the Company’s reported Consolidated Balance Sheet as of June 30, 2009 and
Consolidated Statement of Cash Flows for the six months ended June 30,
2009.  The reclassification did affect the individual components of
the Company’s cost of services and selling, general and administrative expenses
as reported on its Consolidated Statement of Income for the three and six months
ended June 30, 2009. However, this reclassification had no effect on the
reported consolidated net income.





In
addition, for clarification purposes, the Company also modified and expanded its
disclosures of the following significant accounting policies:





·
            Revenue
      Recognition accounting policy was modified to present revenue recognition
      criteria for each source of revenues and the related significant
      assumptions, judgments and estimates associated with these revenues. The
      Company also added the disclosure of the impacts of sales returns and
      cancellations, as well as the pass through nature of pricing within the
      air-ticketing and hotel reservations segments. The modification of
      disclosures of revenue recognition policy had no impact on the Company’s
      consolidated financial statements and the results of
      operations,





·
            Costs
      of Services accounting policy was added to describe the nature of the
      costs considered to be cost of revenue attributable to each of the
      respective sources of revenue.  The addition of disclosures of
      costs of services accounting policy incorporated the reclassification as
      described above,





·
            Net
      Income Per Share accounting policy was modified to reflect correct
      computation of basic and diluted weighted average shares outstanding. The
      modification of net income per share accounting policy incorporated the
      correction of errors as described
above,





·
            Goodwill
      accounting policy was modified to exclude the goodwill of discontinued
      operations from thebeginning
      balance. The modification of disclosures of goodwill accounting policy had
      no impact on the Company’s results of
  operations,





·
            Derivative
      Liability accounting policy was added to disclose the accounting for a
      derivative liability upon the adoption of EITF 07-5 effective January 1,
      2009, and the subsequent accounting for the changes in the associated
      liability from the marked to market. The addition of disclosures of
      derivative liability incorporated the correction of errors as described
      above,


2





·
            Discontinued
      Operations accounting policy was added to disclose the terms of the
      disposition transaction and reflect the operating results and balance
      sheet items of the discontinued operations separately from continuing
      operations for all current and prior periods presented in accordance with
      SFAS 144. The addition of disclosures of discontinued operations
      incorporated the correction of errors as described
  above,





·
            Reclassification
      accounting policy was added to clarify that certain reclassifications have
      been made to prior periods’ data to conform with the current year’s
      presentation, and the reclassifications had no effect on the result of
      operations.





We have
also modified and expanded our disclosures on Note 3, Trade Deposits and
Advances, to provide a summary of the Company’s deposits outstanding by each of
its subsidiaries and the nature and purpose of each deposit. The modification of
the disclosures of this footnote is for clarification purposes and had no impact
on the Company’s consolidated financial statements and the results of
operations. In addition, Note 8 Stock Warrants, Options, and Compensation was
modified to reflect the above mentioned correction of errors.





The
Company has also revised its Management’s
Discussion and Analysis Results of Operations included its Form 10Q/A for
the quarter ended June 30, 2009 accordingly to reflect all the above changes. In
addition, the Company expended its analysis of the changes in revenues, costs of
services, gross profit and gross profit margin for each of the segments for all
periods presented, including the relative impact of each segment to the
Company’s consolidated results as well as the factors affecting the results of
each segment, including adding a tabular presentation outlining the segment
effect in gross margin.





The
Company has amended Item 4 Controls and Procedures to disclose ineffectiveness
in its disclosure controls and procedures as of June 30, 2009.




As
required by Rule 12b-15 of the Securities Exchange Act of 1934, as amended, new
certifications by our principal executive officer and principal financial
officer are being filed as exhibits herewith, and as such, we have included Item
6 of Part II, “Exhibits,” as part of this Form 10-Q/A.  As further
required by Rule 12-b-15, this Form 10-Q/A sets forth the complete text of each
item as amended.




This
Amendment No. 1 to Quarterly Report on Form 10-Q does not contain our auditor’s
review report as it is not required pursuant to SEC
RegS-X.T.Rule10-01(d).





Other
than the correction of typographical and the errors described above, all other
information in our original Form 10-Q remains unchanged. For the convenience of
the reader, this amendment includes, in their entirety, those items in our
original filing not being amended and restated. Except to the extent relating to
the restatement of our consolidated financial statements and other financial
information described above, this amendment continues to describe conditions as
of our original filing, and does not update disclosures contained herein to
reflect events that occurred at a later date. Accordingly, this Form 10-Q/A
should be read in conjunction with our other filings made with the SEC
subsequent to the filing of our Report.


3





FORM
10-Q/A


.UNIVERSAL
TRAVEL GROUP


INDEX





PagePART
      I.
                  Financial
      Information
                  5Item
      1.  Financial Statements ( Unaudited)
                  5Consolidated
      Balance Sheets as of June 30, 2009 (Unaudited) and December 31,
      2008
                  7Consolidated
      Statements of Income for the Three and Six Months Ended June 30, 2009 and
      2008 (Unaudited)
                  8Consolidated
      Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008
      (Unaudited)
                  10Consolidated
      Statements of Stockholders' Equity (Unaudited)
                  11Notes
      to Consolidated Financial Statements as of June 30, 2009
      (Unaudited)
                  12Item
      2.  Management’s Discussion and Analysis of Financial Condition or
      Plan of Operation
                  43Item
      3.  Quantitative and Qualitative Disclosures About Market
      Risk.
                  53Item
      4.  Controls and Procedures
                  53PART II.
                  Other
      Information
                  54Item
      1.  Legal Proceedings
                  54Item
      1A. Risk Factors.
                  54Item
      2.  Unregistered Sales of Equity Securities and Use of
      Proceeds
                  54Item
      3.  Defaults Upon Senior Securities
                  54Item
      4.  Submission of Matters to a Vote of Security
    Holders.
                  54Item
      5.  Other Information
                  54Item
      6.  Exhibits
                  54


4





PART
I - FINANCIAL INFORMATION





Item
1. Financial Statements (Unaudited)




UNIVERSAL
TRAVEL GROUP





CONSOLIDATED
FINANCIAL STATEMENTS





JUNE
30, 2009


5





TABLE
OF CONTENTS





ConsolidatedBalance
      Sheets
                        7ConsolidatedStatements
      of Income
                        8-9ConsolidatedStatements
      of Cash Flows
                        10ConsolidatedStatements
      of Stockholders’ Equity
                        11Notes
      to Consolidated Financial Statements
                        12-42


6


UNIVERSAL
TRAVEL GROUP


CONSOLIDATED
BALANCE SHEETS


JUNE
30, 2009 AND DECEMBER 31, 2008





6/30/2009
                    
                    
                    12/31/2008(Unaudited)
                      RestatedASSETSCurrent
      AssetsCash
      and cash equivalents
                    
                    $
                    18,388,175
                    
                    
                    $
                    15,720,182Accounts
      receivable, net
                    
                    
                    11,708,758
                    
                    
                    
                    8,991,849Other
      receivables and deposits, net
                    
                    
                    67,272
                    
                    
                    
                    62,547Trade
      deposit
                    
                    
                    3,402,948
                    
                    
                    
                    6,571,164Advances
                    
                    
                    439,226
                    
                    
                    
                    438,468Escrow
      deposits
                    
                    
                    162,301
                    
                    
                    
                    762,800Prepaid
      expenses
                    
                    
                    279,618
                    
                    
                    
                    312,409Note
      receivable
                    
                    
                    2,773,411
                    
                    
                    
                    -Current
      assets held of discontinued operations
                    
                    
                    -
                    
                    
                    
                    2,459,777Total
      Current Assets
                    
                    
                    37,221,709
                    
                    
                    
                    35,319,196Property
      & equipment, net
                    
                    
                    6,183,786
                    
                    
                    
                    242,648Intangible
      assets
                    
                    
                    420,718
                    
                    
                    
                    307,335Goodwill
                    
                    
                    9,896,270
                    
                    
                    
                    9,896,270Non-current
      assets held of discontinued operations
                    
                    
                    -
                    
                    
                    
                    3,661,23116,500,774
                    
                    
                    
                    14,107,484Total
      Assets
                    
                    $
                    53,722,483
                    
                    
                    $
                    49,426,680LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      LiabilitiesAccounts
      payable and accrued expenses
                    
                    $
                    3,293,448
                    
                    
                    $
                    1,691,689Customer
      deposits
                    
                    
                    879,515
                    
                    
                    
                    1,039,942Income
      tax payable
                    
                    
                    882,555
                    
                    
                    
                    1,731,246Current
      liabilities held of discontinued operations
                    
                    
                    -
                    
                    
                    
                    562,931Total
      Current Liabilities
                    
                    
                    5,055,518
                    
                    
                    
                    5,025,808Derivative
      liability
                    
                    
                    7,261,178
                    
                    
                    
                    -Total  liabilities
                    
                    
                    12,316,696
                    
                    
                    
                    5,025,808Stockholders'
      EquityCommon
      stock, $.001 par value, 70,000,000 shares authorized, 13,676,994 and
      13,873,969 issued and outstanding at June 30, 2009 and December 31, 2008,
      respectively
                    
                    
                    13,676
                    
                    
                    
                    13,873Additional
      paid in capital
                    
                    
                    11,484,350
                    
                    
                    
                    15,861,116Other
      comprehensive income
                    
                    
                    1,568,753
                    
                    
                    
                    1,520,166Statutory
      reserve
                    
                    
                    372,144
                    
                    
                    
                    372,144Retained
      earnings
                    
                    
                    27,966,864
                    
                    
                    
                    26,633,573Total
      Stockholders' Equity
                    
                    
                    41,405,787
                    
                    
                    
                    44,400,872Total
      Liabilities and Stockholders' Equity
                    
                    $
                    53,722,483
                    
                    
                    $
                    49,426,680





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


7





UNIVERSAL
TRAVEL GROUP


CONSOLIDATED
STATEMENTS OF INCOME


FOR
THE THREE MONTHS ENDED JUNE
30,


(UNAUDITED)




2009
                  
                  
                  2008RestatedGross
      revenues,
                  
                  $
                  18,405,473
                  
                  
                  $
                  11,802,974Cost
      of services
                  
                  
                  11,875,779
                  
                  
                  
                  8,106,437Gross
      Profit
                  
                  
                  6,529,694
                  
                  
                  
                  3,696,537Selling,
      general and administrative expenses
                  
                  
                  1,564,919
                  
                  
                  
                  908,736Income
      from operations
                  
                  
                  4,964,775
                  
                  
                  
                  2,787,801Other
      Income (Expense)Other
      income
                  
                  
                  2,591
                  
                  
                  
                  5,504Loss
      on change in fair value of derivative liabilities
                  
                  
                  (5,819,481
                  )
                  
                  
                  -Interest
      income
                  
                  
                  12,358
                  
                  
                  
                  10,307Interest
      expense
                  
                  
                  -
                  
                  
                  
                  (28,297
                  )Total
      Other Income (Expense)
                  
                  
                  (5,804,532
                  )
                  
                  
                  (12,486
                  )Income
      before income taxes –continuing operations
                  
                  
                  (839,757
                  )
                  
                  
                  2,775,315Provision
      for income taxes
                  
                  
                  (1,020,955
                  )
                  
                  
                  (701,374
                  )Income (Loss) 
      from continuing operations
                  
                  $
                  (1,860,712
                  )
                  
                  $
                  2,073,941Income
      from discontinued operations
                  
                  
                  46,282
                  
                  
                  
                  39,752Loss
      on disposition of discontinued operations
                  
                  
                  (770,595
                  )
                  
                  
                  -Net
      loss from discontinued operation
                  
                  
                  (724,313
                  )
                  
                  
                  39,752Net
      Income (Loss)
                  
                  
                  (2,585,025
                  )
                  
                  
                  2,113,693Comprehensive
      IncomeNet
      Income (Loss)
                  
                  
                  (2,585,025
                  )
                  
                  
                  2,113,693Foreign
      currency translation gains
                  
                  
                  13,880
                  
                  
                  
                  220,231Total
      Comprehensive income (loss)
                  
                  
                  (2,571,145
                  )
                  
                  
                  2,333,924Income
      (Loss) per common share from continuing operationsBasic
                  
                  $
                  (0.14
                  )
                  
                  $
                  .17Diluted
                  
                  $
                  (0.13
                  )
                  
                  $
                  .17Net
      loss per common share – discontinued operationsBasic
                  
                  $
                  (0.05
                  )
                  
                  $
                  -Diluted
                  
                  $
                  (0.05
                  )
                  
                  $
                  -Total
      net income (loss) per common shareBasic
                  
                  $
                  (0.19
                  )
                  
                  $
                  .17Dilute
                  
                  $
                  (0.18
                  )
                  
                  $
                  .17Weighted
      average common shares outstandingBasic
                  
                  
                  13,829,091
                  
                  
                  
                  12,306,715Diluted
                  
                  
                  14,301,057
                  
                  
                  
                  12,362,271





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


8





UNIVERSAL
TRAVEL GROUP


CONSOLIDATED
STATEMENTS OF INCOME


FOR
THE SIX MONTHS ENDED JUNE
30,


(UNAUDITED)




2009
                  
                  
                  2008Restated
                  
                  
                  RestatedGross
      revenues,
                  
                  $
                  33,916,152
                  
                  
                  $
                  18,755,352Cost
      of services
                  
                  
                  21,614,649
                  
                  
                  
                  12,886,250Gross
      Profit
                  
                  
                  12,301,503
                  
                  
                  
                  5,869,102Selling,
      general and administrative expenses
                  
                  
                  3,097,716
                  
                  
                  
                  1,557,612Income
      from operations
                  
                  
                  9,203,787
                  
                  
                  
                  4,311,490Other
      Income (Expense)Loss
      on disposal of assets
                  
                  
                  -
                  
                  
                  
                  (1,104
                  )Other
      income
                  
                  
                  6,419
                  
                  
                  
                  8,378Loss
      on change of fair value of derivative liabilities
                  
                  
                  (5,706,217
                  )
                  
                  
                  -Interest
      income
                  
                  
                  23,296
                  
                  
                  
                  11,722Interest
      expense
                  
                  
                  -
                  
                  
                  
                  (65,004
                  )Total
      Other Income (Expense)
                  
                  
                  (5,676,502
                  )
                  
                  
                  (46,008
                  )Income
      before income taxes –continuing operations
                  
                  
                  3,527,285
                  
                  
                  
                  4,265,482Provision
      for income taxes
                  
                  
                  (2,138,151
                  )
                  
                  
                  (1,007,246
                  )Income
      from continuing operations
                  
                  $
                  1,389,134
                  
                  
                  $
                  3,258,236Income
      from discontinued operations
                  
                  
                  177,975
                  
                  
                  
                  319,321Loss
      on disposition of discontinued operations
                  
                  
                  (770,595
                  )
                  
                  
                  -Net
      income (loss) from discontinued operation
                  
                  
                  (592,620
                  )
                  
                  
                  319,321Net
      Income
                  
                  
                  796,514
                  
                  
                  
                  3,577,557Comprehensive
      IncomeNet
      Income
                  
                  
                  796,514
                  
                  
                  
                  3,577,557Foreign
      currency translation gains
                  
                  
                  48,587
                  
                  
                  
                  571,402Total
      Comprehensive income
                  
                  
                  845,101
                  
                  
                  
                  4,148,959Income
      per common share from continuing operationsBasic
                  
                  $
                  .10
                  
                  
                  $
                  .26Diluted
                  
                  $
                  .10
                  
                  
                  $
                  .26Loss
      per common share from discontinued operationsBasic
                  
                  $
                  (.04
                  )
                  
                  $
                  .03Diluted
                  
                  $
                  (.04
                  )
                  
                  $
                  .03Total
      net income (loss) per common shareBasic
                  
                  $
                  .06
                  
                  
                  $
                  .29Dilute
                  
                  $
                  .06
                  
                  
                  $
                  .29Weighted
      average common shares outstandingBasic
                  
                  
                  13,851,530
                  
                  
                  
                  12,306,715Diluted
                  
                  
                  14,277,656
                  
                  
                  
                  12,362,271





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


9





UNIVERSAL
TRAVEL GROUP


CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR
THE SIX MONTHS ENDED JUNE
30,


(UNAUDITED)




2009
                          
                          
                          2008RestatedCASH FLOWS FROM OPERATING
      ACTIVITIESNet
      Income
                          
                          $
                          796,514
                          
                          
                          $
                          3,577,557Add
      (deduct):Net
      loss (income) from discontinued operations
                          
                          
                          592,620
                          
                          
                          
                          (319,321
                          )Income
      from continuing operations
                          
                          
                          1,389,134
                          
                          
                          
                          3,258,236Adjustments
      to reconcile net income to net cash provided by(used in) operating
      activities:Depreciation
      and amortization
                          
                          
                          190,739
                          
                          
                          
                          33,798Provision
      for doubtful accounts
                          
                          
                          10,905
                          
                          
                          
                          -Stock
      based compensation
                          
                          
                          495,725
                          
                          
                          
                          155,802Loss
      on change in fair value of derivative liabilities
                          
                          
                          5,706,217
                          
                          
                          
                          -Loss
      on asset disposal
                          
                          
                          -
                          
                          
                          
                          1,105(Increase)
      / decrease in assets:Accounts
      receivable
                          
                          
                          (2,716,909
                          )
                          
                          
                          (1,773,325
                          )Other
      receivable
                          
                          
                          (4,725
                          )
                          
                          
                          1,032,862Advances
                          
                          
                          (758
                          )
                          
                          
                          (39,116
                          )Due
      from shareholder
                          
                          
                          -
                          
                          
                          
                          1,177,763Prepaid
      expenses
                          
                          
                          32,791
                          
                          
                          
                          (37,704
                          )Trade
      deposits
                          
                          
                          3,168,216
                          
                          
                          
                          (2,122,588
                          )Escrow
      deposits
                          
                          
                          600,499
                          
                          
                          
                          -Increase
      / (decrease) in current liabilities:Accounts
      payable and accrued expenses
                          
                          
                          1,601,759
                          
                          
                          
                          (978,999
                          )Customer
      deposits
                          
                          
                          (160,426
                          )
                          
                          
                          210,032Income
      tax payable
                          
                          
                          (848,691
                          )
                          
                          
                          57,511Net
      cash provided by continuing operations
                          
                          
                          9,464,475
                          
                          
                          
                          975,377Net
      cash provided by discontinued operations
                          
                          
                          435,259
                          
                          
                          
                          392,325Net
      cash provided by operating activities
                          
                          
                          9,899,734
                          
                          
                          
                          1,367,702CASH
      FLOWS FROM INVESTING ACTIVITIESPurchase
      of property & equipment
                          
                          
                          (6,076,248
                          )
                          
                          
                          (17,063
                          )Purchase
      of intangibles
                          
                          
                          (168,955
                          )
                          
                          
                          -Proceeds
      from asset disposals
                          
                          
                          -
                          
                          
                          
                          663Proceeds
      of disposition of subsidiary – net of cash sold
                          
                          
                          (1,035,125
                          )
                          
                          
                          -Acquisition
      deposits
                          
                          
                          -
                          
                          
                          
                          1,453,050Net
      cash (used in) provided by continuing operations
                          
                          
                          (7,280,328
                          )
                          
                          
                          1,436,650Net
      cash (used in) provided by discontinued operations
                          
                          
                          -
                          
                          
                          
                          -Net
      cash (used in) provided by Investing activities
                          
                          
                          (7,280,328
                          )
                          
                          
                          1,436,650CASH
      FLOWS FROM FINANCING ACTIVITIESRepayments
      of bank loan
                          
                          
                          -
                          
                          
                          
                          (180,682
                          )Proceeds
      of equity financing
                          
                          
                          -
                          
                          
                          
                          599,994Note
      payable – others
                          
                          
                          -
                          
                          
                          
                          (977,013
                          )Net
      cash (used in) provided by continuing operations
                          
                          
                          -
                          
                          
                          
                          (557,701
                          )Net
      cash (used in) provided by discontinued operations
                          
                          
                          -
                          
                          
                          
                          -Net
      cash used in financing activities
                          
                          
                          -
                          
                          
                          
                          (557,701
                          )Effect
      of exchange rate changes on cash and cash equivalents
                          
                          
                          48,587
                          
                          
                          
                          571,402Net
      change in cash and cash equivalents
                          
                          
                          2,667,993
                          
                          
                          
                          2,818,053Cash
      and cash equivalents, beginning balance
                          
                          
                          15,720,182
                          
                          
                          
                          2,671,684Cash
      and cash equivalents, ending balance
                          
                          $
                          18,388,175
                          
                          
                          $
                          5,489,737SUPPLEMENTAL
      DISCLOSURES:Cash
      paid during the period for:Interest
      payments
                          
                          $
                          -
                          
                          
                          $
                          28,297Income
      Taxes
                          
                          $
                          3,043,089
                          
                          
                          $
                          719,906Net
      assets sold of discontinued operations
                          
                          $
                          1,659,292Goodwill
      attributable to sold discontinued operations
                          
                          
                          3,630,539Notes
      received on disposition
                          
                          
                          (2,773,411
                          )Fair
      value of Treasury stock received
                          
                          
                          (2,780,950
                          )Loss
      on Disposition
                          
                          
                          (770,595
                          )Cash
      of discontinued operations
                          
                          $
                          (1,035,125
                          )





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


10





UNIVERSAL
TRAVEL GROUP


CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY


FOR
THE SIX MONTHS ENDED JUNE 30, 2009 AND THE YEAR ENDED DECEMBER 31,
2008


(RESTATED)


Common
      Stock
                                                          
                                                          
                                                          Additional
                                                            Paid
      In
                                                          
                                                          
                                                          Other
                                                            Comprehensive
                                                          
                                                          
                                                          Retained
                                                          
                                                          
                                                          Statutory
                                                          
                                                          
                                                          Total
                                                            Stockholders’Shares
                                                          
                                                          
                                                          Amount
                                                          
                                                          
                                                          Capital
                                                          
                                                          
                                                          Income
                                                          
                                                          
                                                          Earnings
                                                          
                                                          
                                                          Reserve
                                                          
                                                          
                                                          EquityBalance
      December 31, 2008
                                                          
                                                          
                                                          13,873,969
                                                          
                                                          
                                                          $
                                                          13,873
                                                          
                                                          
                                                          $
                                                          15,861,116
                                                          
                                                          
                                                          $
                                                          1,520,166
                                                          
                                                          
                                                          $
                                                          26,633,573
                                                          
                                                          
                                                          $
                                                          372,144
                                                          
                                                          
                                                          $
                                                          44,400,872Cumulative
      effect of a change in accounting principle-adoption of EITF 07-05
      effective January 1, 2009
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (2,091,738
                                                          )
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          536,777
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (1,554,961
                                                          )Foreign
      currency translation adjustments
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          48,587
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          48,587Stock
      Based Compensation – Net of warrants exercise
                                                          
                                                          
                                                          41,120
                                                          
                                                          
                                                          
                                                          42
                                                          
                                                          
                                                          
                                                          495,683
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          495,725FMV
      Of Treasury Stock received and retired
                                                          
                                                          
                                                          (238,095
                                                          )
                                                          
                                                          
                                                          (239
                                                          )
                                                          
                                                          
                                                          (2,780,711
                                                          )
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (2,780,950
                                                          )Income
      for the six months ended June 30, 2009
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          796,514
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          796,514Balance
      June 30, 2009
                                                          
                                                          
                                                          13,676,994
                                                          
                                                          
                                                          $
                                                          13,676
                                                          
                                                          
                                                          $
                                                          11,484,350
                                                          
                                                          
                                                          $
                                                          1,568,753
                                                          
                                                          
                                                          $
                                                          27,966,864
                                                          
                                                          
                                                          $
                                                          372,144
                                                          
                                                          
                                                          $
                                                          41,405,787Balance
      December 31, 2007
                                                          
                                                          
                                                          12,270,326
                                                          
                                                          
                                                          $
                                                          12,269
                                                          
                                                          
                                                          $
                                                          8,626,075
                                                          
                                                          
                                                          $
                                                          545,164
                                                          
                                                          
                                                          $
                                                          12,101,396
                                                          
                                                          
                                                          $
                                                          372,144
                                                          
                                                          
                                                          $
                                                          21,657,048Foreign
      currency translation adjustments
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          975,002
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          975,002Forfeited
      options
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (683,437
                                                          )
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (683,437
                                                          )Stock
      Based Compensation
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          207,588
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          207,588Equity
      Financings
                                                          
                                                          
                                                          74,074
                                                          
                                                          
                                                          
                                                          74
                                                          
                                                          
                                                          
                                                          599,920
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          599,994Equity
      Financings
                                                          
                                                          
                                                          1,529,569
                                                          
                                                          
                                                          
                                                          1,530
                                                          
                                                          
                                                          
                                                          7,110,970
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          7,112,500Income
      for the  year ended December 31, 2008
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          14,532,177
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          14,532,177Balance
      December 31, 2008
                                                          
                                                          
                                                          13,873,969
                                                          
                                                          
                                                          $
                                                          13,873
                                                          
                                                          
                                                          $
                                                          15,861,116
                                                          
                                                          
                                                          $
                                                          1,520,166
                                                          
                                                          
                                                          $
                                                          26,633,573
                                                          
                                                          
                                                          $
                                                          372,144
                                                          
                                                          
                                                          $
                                                          44,400,872





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


11


UNIVERSAL
TRAVEL GROUP


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009


(UAUDITED
AND RESTATED)





Note
1 - ORGANIZATION





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





On June
12, 2009, the Company entered into a termination agreement with Shenzhen Speedy
Dragon Enterprise Limited. Accordingly, the Company has accounted for Shenzhen
Speedy Dragon Enterprise Limited as discontinued operations. The Company is now
engaged in the travel business, including airline ticketing, hotel reservation
services and technological solutions to travel reservations, and tour planning
and tour guide services.





Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES





Basis of
Presentation





The
accompanying unaudited consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America. The Company's functional currency is the Chinese Renminbi; however the
accompanying unaudited consolidated financial statements have been translated
and presented in United States Dollars.





Reclassification





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





Discontinued
Operations





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





12





UNIVERSAL
TRAVEL GROUP


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009


(UAUDITED
AND RESTATED)





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 confirm with current year’s presentation of the discontinued
operations. The following table summarized the operating result of the
discontinued operations for the three and six months ended June 30, 2009 and
2008, respectively:





Six months
                                              ended
                                            
                                            
                                            Six months
                                              ended
                                            
                                            
                                            Three months
                                              ended
                                            
                                            
                                            Three months
                                              endedJune 30,
                                            
                                            
                                            June 30,
                                            
                                            
                                            June 30,
                                            
                                            
                                            June 30,2009
                                            
                                            
                                            2008
                                            
                                            
                                            2009
                                            
                                            
                                            2008Sales
                                            
                                            $
                                            3,631,545
                                            
                                            
                                            $
                                            5,665,690
                                            
                                            
                                            $
                                            1,772,566
                                            
                                            
                                            $
                                            2,541,764Cost
      of sales
                                            
                                            
                                            (3,218,140
                                            )
                                            
                                            
                                            (4,896,575
                                            )
                                            
                                            
                                            (1,613,857
                                            )
                                            
                                            
                                            (2,287,954
                                            )Gross
      profit
                                            
                                            
                                            413,405
                                            
                                            
                                            
                                            769,115
                                            
                                            
                                            
                                            158,709
                                            
                                            
                                            
                                            253,810Operating
      expenses
                                            
                                            
                                            (190,989
                                            )
                                            
                                            
                                            (340,294
                                            )
                                            
                                            
                                            96,057
                                            
                                            
                                            
                                            (179,310
                                            )Income
      from discontinued operation before income tax
                                            
                                            
                                            222,416
                                            
                                            
                                            
                                            428,821
                                            
                                            
                                            
                                            62,652
                                            
                                            
                                            
                                            74,500Income
      tax
                                            
                                            
                                            (44,441
                                            )
                                            
                                            
                                            (109,500
                                            )
                                            
                                            
                                            (16,370
                                            )
                                            
                                            
                                            (34,748
                                            )Net
      Income from discontinued operations
                                            
                                            $
                                            177,975
                                            
                                            
                                            $
                                            319,321
                                            
                                            
                                            $
                                            46,282
                                            
                                            
                                            $
                                            39,752




13





UNIVERSAL
TRAVEL GROUP


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009


(UAUDITED
AND RESTATED)





Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Discontinued Operations
(Continued)





The
following summarized the assets and liabilities of discontinued operations as of
December 31, 2008:





Cash
      and cash equivalents
                  
                  $
                  484,349Accounts
      receivable, net
                  
                  
                  1,723,357Other
      receivables and deposits, net
                  
                  
                  78,866Trade
      deposit
                  
                  
                  6,848Prepaid
      expenses
                  
                  
                  166,357Current
      assets held of discontinued operations
                  
                  $
                  2,459,777Non-current
      assets held of discontinued operations
                  
                  
                  3,661,231Total
      assets held of discontinued operations
                  
                  $
                  6,121,008Accounts
      payable and accrued expenses
                  
                  $
                  527,467Customer
      deposits
                  
                  
                  7,308Income
      tax payable
                  
                  
                  28,156Current
      liabilities held of discontinued operations
                  
                  $
                  562,931





Translation
Adjustment





As of
June 30, 2009 and December 31, 2008 the accounts of Universal Travel Group were
maintained, and its financial statements were expressed, in Chinese Yuan
Renminbi (CNY). Such financial statements were translated into U.S. Dollars
(USD) in accordance with Statement of Financial Accounts Standards (SFAS) No.
52, Foreign Currency Translation 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 SFAS No. 130, Reporting Comprehensive
Income as a component of shareholders equity. Transaction gains and losses are
reflected in the income statement.





Use of
Estimates





The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.


14





UNIVERSAL
TRAVEL GROUP


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009


(UAUDITED
AND RESTATED)





Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Principles of
Consolidation





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





Risks and
Uncertainties





The
Company is subject to substantial risks from, among other things, intense
competition associated with the industry in general, other risks associated with
financing, liquidity requirements, rapidly changing customer requirements,
limited operating history, foreign currency exchange rates and the volatility of
public markets.





Contingencies





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





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





Cash and Cash
Equivalents





Cash and
cash equivalents include cash on hand and cash in time deposits, certificates of
deposit and all highly liquid debt instruments with original maturities of three
months or less.


15





UNIVERSAL TRAVEL
GROUP


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009


(UAUDITED
AND RESTATED)





Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Accounts
Receivable





The
Company maintains reserves for potential credit losses on accounts receivable.
Management reviews the composition of accounts receivable and analyzes
historical bad debts, customer concentrations, customer credit worthiness,
current economic trends and changes in customer payment patterns to evaluate the
adequacy of these reserves. Terms of the sales vary. Reserves are recorded
primarily on a specific identification basis. Allowance for doubtful accounts
amounted to $221,044 and $210,139 as of June 30, 2009 and December 31, 2008,
respectively.





Description
                    
                    Balance
                      at
                      beginning
                      of
                      year
                    
                    
                    Charged to
                      expenses
                    
                    
                    Deductions
                    
                    
                    Balance at end
                      of periodAllowance
      for doubtful receivables 2009
                    
                    $
                    210,139
                    
                    
                    $
                    10,905
                    
                    
                    $
                    -
                    
                    
                    $
                    221,044





Reverse
Split





On March
31, 2009 the Company effected a three-for-one (3:1) reverse split of the
Company’s issued and outstanding shares of common stock, decreasing the number
of outstanding shares from 41,619,966 to 13,873,969. These statements have been
adjusted to reflect this reverse split on a historical pro-forma
basis.





Property, Plant &
Equipment




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





Furniture
      and Fixtures
                  
                  5
      yearsTransportation
      equipment
                  
                  5
      yearsOffice
      equipment
                  
                  5
      yearsLeasehold
      Improvements
                  
                  5 –
      10 years




16





UNIVERSAL
TRAVEL GROUP


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009


(UAUDITED
AND RESTATED)





Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Property, Plant &
Equipment (Continued)





As of
June 30, 2009 and December 31, 2008 Property, Plant & Equipment of consist
of the following:





June
      30,
                    2009
                  
                  
                  December
                    31,
      2008Furniture
      & fixture
                  
                  $
                  18,247
                  
                  
                  $
                  18,247Transportation
      equip
                  
                  
                  183,024
                  
                  
                  
                  143,332Office
      equipment
                  
                  
                  2,880,093
                  
                  
                  
                  360,145Leasehold
      improve
                  
                  
                  3,548,464
                  
                  
                  
                  31,3746,629,828
                  
                  
                  
                  553,098Accumulated
      depreciation
                  
                  
                  (446,042
                  )
                  
                  
                  (310,450
                  )$
                  6,183,786
                  
                  
                  $
                  242,648





Depreciation
expense for the three months ended June 30, 2009 and 2008 was $77,997 and
$8,345, respectively, of which $70,197 and $7,511 was included as part of cost
of services for the three months ended June 30, 2009 and 2008,
respectively.





Depreciation
expense for the six months ended June 30, 2009 and 2008 was $135,167 and $
16,937, respectively, of which $121,650 and $15,243 was included as part of cost
of services for the six months ended June 30, 2009 and 2008,
respectively.





Goodwill





Goodwill
represents the excess cost of a business acquisition over the fair value of the
net assets acquired.  In accordance with Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets (Statement
142), indefinite-life identifiable intangible assets and goodwill are not
amortized. Under the provisions of Statement 142, we are required to perform an
annual impairment test of our goodwill. Goodwill impairment is determined using
a two-step process.  The first step of the goodwill impairment test is
used to identify potential impairment by comparing the fair value of a reporting
unit, which we define as our business segments, with its net book value or
carrying amount including goodwill. If the fair value of a reporting unit
exceeds its carrying amount, goodwill of the reporting unit is considered not
impaired and the second step of the impairment test is
unnecessary.  If the carrying amount of a reporting unit exceeds its
fair value, the second step of the goodwill impairment test compares the implied
fair value of the reporting unit's goodwill with the carrying amount of that
goodwill. If the carrying amount of the reporting unit's goodwill exceeds the
implied fair value of that goodwill, an impairment loss is recognized in an
amount equal to that excess.  The implied fair value of goodwill is
determined in the same manner as the amount of goodwill recognized in a business
combination.  The fair value of the reporting unit is allocated to all
of the assets and liabilities of that unit including any unrecognized intangible
assets as if the reporting unit had been acquired in a business combination and
the fair value of the reporting unit was the purchase  price paid to
acquire the reporting unit.  See Note 7, Purchase of Subsidiary, for
additional information regarding goodwill.


17





UNIVERSAL
TRAVEL GROUP


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009


(UNAUDITED
AND RESTATED)





Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)





As of
June 30, 2009 and December 31, 2008, Goodwill consists of the
following:





June 30, 2009
                  
                  
                  December
      31,
                    2008Shanghai
      Lanbao Travel Service Co., Ltd.
                  
                  
                  3,081,799
                  
                  
                  
                  3,081,799Foshan
      International Travel Service Co., Ltd.
                  
                  
                  6,049,576
                  
                  
                  
                  6,049,576Xian
      Golden Net Travel Serve Services
                  
                  
                  764,895
                  
                  
                  
                  764,895$
                  9,896,270
                  
                  
                  $
                  9,896,270





Long-Lived
Assets




The
Company adopted Statement of Financial Accounting Standards No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets (SFAS 144), which addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets and supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of, and the accounting and
reporting provisions of APB Opinion No. 30, Reporting the Results of Operations
for a Disposal of a Segment of a Business. The Company periodically evaluates
the carrying value of long-lived assets to be held and used in accordance with
SFAS 144. SFAS 144 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 June 30, 2009
and December 31, 2008 there were no significant impairments of its long-lived
assets.





Derivative
Liability





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





Upon the
Company’s adoption of 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,
under EITF No. 07-05, were reclassified from equity to derivative liability for
the then relative fair market value of $2,091,738 and marked to market. 
The value of the warrants decreased by $536,776 from the warrants issuance date
to the adoption date of EITF No. 07-05, January 1, 2009.  As of
January 1, 2009, the cumulative effect in adopting EITF No. 07-05 was a
reduction to additional paid in capital of $2,091,738 to reclassify the warrants
from equity to derivative liability and an increase in retained earnings of
$536,776 as a cumulative effect of a change in accounting principle to reflect
the change in the value of the warrants between their issuance date and January
1, 2009.  For the three and six month periods ended June 30, 2009, the
Company recorded a loss on change in fair value of derivative liability of
$5,819,481 and $5,706,217, respectively, to mark to market for the increase in
fair value of the warrants during the three and six-month periods ended June 30,
2009.   Under EITF 07-05, the warrants will be carried at fair
value and adjusted at each reporting period.





18





UNIVERSAL
TRAVEL GROUP


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009


(UAUDITED
AND RESTATED)





Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Derivative Liability
(Continued)





The
Company determined the fair value of the reset provisions at January 1, 2009 was
$1,554,961 as the initial fair value at the adoption date of EITF No.
07-05.  The fair value was determined using the Black Scholes Option
Pricing Model based on the following assumptions:  dividend
yield: 0%; volatility: 136%, risk free rate: 1.55%, expected term: 4.66
years.





The
Company determined the fair value of the reset provisions at June 30, 2009 was
$7,261,178.  The fair value was determined using the Black Scholes
Option Pricing Model based on the following assumptions: dividend yield:
-0-%; volatility: 130%, risk free rate: 1.64%, expected term: 4.16
years.





Fair Value of Financial
Instruments





Statement
of financial accounting standard No. 107, Disclosures about Fair Value of
Financial Instruments, requires that the Company disclose estimated fair values
of financial instruments. The carrying amounts reported in the statements of
financial position for current assets and current liabilities qualifying as
financial instruments are a reasonable estimate of fair value.





Revenue
Recognition





The
Company’s revenue recognition policies are in compliance with Staff accounting
bulletin (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. Payments received before
all of the relevant criteria for revenue recognition are satisfied are recorded
as unearned revenue.





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





Air-ticketing
services





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


19




UNIVERSAL
TRAVEL GROUP


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009


(UAUDITED
AND RESTATED)





Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Revenue Recognition
(Continued)





Hotel reservation
services





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





Packaged-tour





The
Company receives fees from providing domestic and cross-boarder travel tour our
services.  The Company contracts with traffic service providers,
accommodation providers and leisure service providers to purchase air tickets,
train and coach tickets, accommodation and leisure or entertainment packages in
bulk and then resell them to its customers with a mark-up.  Fees
generated from packaged-tour are recognized on a gross basis in the statements
of income, when the tour is completed, as the Company, generally, undertakes the
majority of the business risk.  The Company is the primary obligor to
pay the service providers upon rendering of those services.  In
addition, the Company acts as principal related to the packaged-tour services
rendered or when tour is completed and collections are reasonably
assured.  Generally, the Company does not issue refund to its
customers unless cancellation is due to its and or the service provider’s
non-delivery of services. Historically, refunds and cancellations do not have a
material impact on the Company’s consolidated financial statements in any
accounting period.





Air Cargo
Business





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





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


20





UNIVERSAL
TRAVEL GROUP


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009


(UAUDITED
AND RESTATED)





Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Cost of
Services





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





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





Consolidated
costs such as stock-based compensation and corporate professional fees are not
allocated to any segment. These costs are reported as general operating expenses
in the Company’s Statements of Operations. For the three months ended June 30,
2009 and 2008, such expenses amounted $1,198,963 and $45,790, respectively. For
the six months ended June 30, 2009 and 2008, such expenses amounted $1,504,751
and $155,802, respectively.





Advertising





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




Income
Taxes





The
Company utilizes SFAS No. 109, Accounting for Income Taxes, which requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts ateach period end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.




Statement of Cash
Flows





In
accordance with SFAS No. 95, Statement of Cash Flows, cash flows from the
Company’s operations is 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.


21





UNIVERSAL
TRAVEL GROUP


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009


(UAUDITED
AND RESTATED)





Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Intangibles





Intangible
assets are amortized using the straight-line method over their estimated period
of benefit. Evaluation of the recoverability of intangible assets is made
annually to take into account events or circumstances that warrant revised
estimates of useful lives or that indicate that impairment exists. All of our
intangible assets are subject to amortization. No impairments of intangible
assets have been identified during any of the periods presented. The Company’s
intangible assets consist primarily of map of hotels and scenic spots used for
marketing purposes, CRM systems software, and Organization cost of new
companies. These definitive lived intangible assets are being amortized over
their useful lives.  Expenditures of $168,954 and $316,107 were
capitalized in 2009 and 2008 and will be amortized over a 3 year
life.  The Company recorded amortization expense for definitive lived
intangible assets of $55,572 and $16,865 for the six months ended June 30, 2009
and 2008, $28,545 and $8,479 for the three months ended June 30, 2009 and 2008,
respectively. The Company will record approximately $165,333, $165,333,
and $90,052 over the next three years, respectively.





Concentration of Credit
Risk





Financial
instruments that potentially subject the Company to concentrations of credit
risk are cash, accounts receivable and other receivables arising from its normal
business activities. The Company places its cash in what it believes to be
credit-worthy financial institutions. The Company has a diversified customer
base, most of which are


in China.
The Company controls credit risk related to accounts receivable through credit
approvals, credit limits and monitoring procedures. The Company routinely
assesses the financial strength of its customers and, based upon factors
surrounding the credit risk, establishes an allowance, if required, for
uncollectible accounts and, as a consequence, believes that its accounts
receivable credit risk exposure beyond such allowance is limited.





Net Income (Loss) Per
Share





The
Company accounts for net income (loss) per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (“EPS”), 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.


22





UNIVERSAL
TRAVEL GROUP


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009


(UAUDITED
AND RESTATED)





Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Net Income (Loss) Per Share
(Continued)





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





Six months ended June
      30,
                
                
                Three months ended June 30,2009
                
                
                2008
                
                
                2009
                
                
                2008Basic
      earnings (losses) from continuing operations per share:Numerator:Income
      (loss) from continuing operations  used in computing basic
      earnings (losses) per share
                
                $
                1,389,134
                
                
                $
                3,258,236
                
                
                $
                (1,860,712
                )
                
                $
                2,073,941Income
      (loss) from continuing operations applicable to common
      shareholders
                
                $
                1,389,134
                
                
                $
                3,258,236
                
                
                $
                (1,860,712
                )
                
                $
                2,073,941Denominator:Weighted
      average common shares outstanding
                
                
                13,851,530
                
                
                
                12,306,715
                
                
                
                13,829,091
                
                
                
                12,306,715Basic
      earnings (losses) per share from continuing operations
                
                $
                0.10
                
                
                $
                0.26
                
                
                $
                (0.14
                )
                
                $
                0.17Diluted
      earnings (losses) per share from continuing operations:Numerator:Income
      (loss) from continuing operations used in computing diluted earnings
      (losses) per share
                
                $
                1,389,134
                
                
                $
                3,258,236
                
                
                $
                (1,860,712
                )
                
                $
                2,073,941Income
      (loss) from continuing operations applicable to common
      shareholders
                
                $
                1,389,134
                
                
                $
                3,258,236
                
                
                $
                (1,860,712
                )
                
                $
                2,073,941Denominator:Weighted
      average common shares outstanding
                
                
                13,851,530
                
                
                
                12,306,715
                
                
                
                13,829,091
                
                
                
                12,306,715Weighted
      average effect of dilutive securities:Stock
      options and warrants
                
                
                426,126
                
                
                
                55,556
                
                
                
                471,966
                
                
                
                55,556Shares
      used in computing diluted net income (loss) per share
                
                
                14,277,656
                
                
                
                12,362,271
                
                
                
                14,301,057
                
                
                
                12,362,271Diluted
      earnings (losses) per share from continuing operations
                
                $
                0.10
                
                
                $
                0.26
                
                
                $
                (0.13
                )
                
                $
                0.17




23


UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009
 (UAUDITED
AND RESTATED)
 
 Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 Net Income (Loss) Per Share
(Continued)
 
 Six months ended June 30,
                        
                        
                        Three months ended June
                          30,2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008Basic
      earnings (losses) from discontinuing operations per share:Numerator:Income
      (loss) from discontinuing operations  used in computing basic
      earnings per share
                        
                        $
                        (592,620
                        )
                        
                        $
                        319,321
                        
                        
                        $
                        (724,313
                        )
                        
                        $
                        39,752Income
      (loss) from discontinuing operations applicable to common
      shareholders
                        
                        $
                        (592,620
                        )
                        
                        $
                        319,321
                        
                        
                        $
                        (724,313
                        )
                        
                        $
                        39,752Denominator:Weighted
      average common shares outstanding
                        
                        
                        13,851,530
                        
                        
                        
                        12,306,715
                        
                        
                        
                        13,829,091
                        
                        
                        
                        12,306,715Basic
      earnings per share from discontinuing operations
                        
                        $
                        (0.04
                        )
                        
                        $
                        0.03
                        
                        
                        $
                        (0.05
                        )
                        
                        $
                        0.00Diluted
      earnings (losses) per share from discontinuing operations:Numerator:Income
      (loss) from discontinuing operations used in computing diluted earnings
      (losses) per share
                        
                        $
                        (592,620
                        )
                        
                        $
                        319,321
                        
                        
                        $
                        (724,313
                        )
                        
                        $
                        39,752Income
      (loss) from discontinuing operations applicable to common
      shareholders
                        
                        $
                        (592,620
                        )
                        
                        $
                        319,321
                        
                        
                        $
                        (724,313
                        )
                        
                        $
                        39,752Denominator:Weighted
      average common shares outstanding
                        
                        
                        13,851,530
                        
                        
                        
                        12,306,715
                        
                        
                        
                        13,829,091
                        
                        
                        
                        12,306,715Weighted
      average effect of dilutive securities:Stock
      options and  warrants
                        
                        
                        426,126
                        
                        
                        
                        55,556
                        
                        
                        
                        471,966
                        
                        
                        
                        55,556Shares
      used in computing diluted net income (loss) per share
                        
                        
                        14,277,656
                        
                        
                        
                        12,362,271
                        
                        
                        
                        14,301,057
                        
                        
                        
                        12,362,271Diluted
      earnings per share from discontinuing operations
                        
                        $
                        (0.04
                        )
                        
                        $
                        0.03
                        
                        
                        $
                        (0.05
                        )
                        
                        $
                        0.00Total
      net income (loss) per common shareBasic
                        
                        $
                        0.06
                        
                        
                        $
                        0.29
                        
                        
                        $
                        (0.19
                        )
                        
                        $
                        0.17Dilute
                        
                        $
                        0.06
                        
                        
                        $
                        0.29
                        
                        
                        $
                        (0.18
                        )
                        
                        $
                        0.17
  Recent Accounting
Pronouncements
 
 In
September, 2006, FASB issued SFAS 157 ‘Fair Value Measurements’.  This
Statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles (GAAP), and expands disclosures
about fair value measurements.  This Statements applies under other
accounting pronouncements that require or permit fair value measurements, the
Board having previously concluded in those accounting pronouncements that fair
value is the relevant measurement attribute.  Accordingly, this
Statement does not require any new fair value measurements.  However,
for some entities, the application of this Statement will change current
practice.  This Statement is effective for financial statements issued
for fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years. Based on the Company’s evaluation of this issue, the
adoption of this accounting requirement has no effect on the Company’s
consolidated financial statements.
  24
 
 UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009
 (UAUDITED
AND RESTATED)
 
 Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 Recent Accounting
Pronouncements (Continued)
 
 In
February, 2007, FASB issued SFAS 159 ‘The Fair Value Option for Financial Assets
and Financial Liabilities’ – Including an Amendment of FABS Statement No.
115.  This statement permits entities to choose to measure many financial
instruments and certain other items at fair value. This statement is expected to
expand the use of fair value measurement,
which is consistent with the Board’s long-term measurement objectives for
accounting for financial instruments.  This statement is effective as of
the beginning of an entity’s first fiscal year that begins after November 15,
2007. Early adoption is permitted as of the beginning of a fiscal year that
begins on or before November 15, 2007, provided the entity also elects to apply
the provisions of FASB Statement No. 157, Fair Value Measurements.
Based on the Company’s evaluation of this issue, the adoption of this accounting
requirement has no effect on the Company’s consolidated financial
statements.
 
 In
December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements” (“SFAS 160”).  This Statement amends ARB
51 to establish accounting and reporting standards for the non-controlling
(minority) interest in a subsidiary and for the deconsolidation of a subsidiary.
It clarifies that a non-controlling interest in a subsidiary is an ownership
interest in the consolidated entity that should be reported as equity in the
consolidated financial statements. This Statement is effective for fiscal
years, and interim periods
within those fiscal years, beginning on or after December 15, 2008 (that is,
January 1, 2009, for entities with calendar year-ends). Earlier adoption is
prohibited.The Company adopted SFAS 160 on January 1, 2009. The adoption
of this statement had no effect on the Company’s consolidated financial
statements.
 
 In March
2008, the FASB issued FASB Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities. The new standard is intended to improve
financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. The new standard also improves transparency about the location and
amounts of derivative instruments in an entity’s financial statements; how
derivative instruments and related hedged items are accounted for under
Statement 133; and how derivative instruments and related hedged items affect
its financial position, financial performance, and cash flows. Management is
currently evaluating the effect of this pronouncement on its consolidated
financial statements.
 
 On May 8,
2008, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 162, The Hierarchy of Generally
Accepted Accounting Principles, which will provide framework for selecting
accounting principles to be used in preparing financial statements that are
presented in conformity with U.S. generally accepted accounting principles
(GAAP) for nongovernmental entities. With the issuance
of SFAS No. 162, the GAAP hierarchy for nongovernmental entities will move from
auditing literature to accounting
literature.  The Company is currently assessing the impact of SFAS No. 162
on its consolidated financial position and results of
operations.
 
 In
June 2008, the FASB ratified the consensus reached on Emerging Issues Task
Force (“EITF”) Issue No. 07-05, 05”). EITF No. 07-05 clarifies the
determination of whether an instrument (or an embedded feature) is indexed to an
entity’s own stock, which would qualify as a scope exception under SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. EITF
No. 07-05 is effective for financial statements issued for fiscal years
beginning after December 15, 2008. Based on the Company’s evaluation of
this issue, the adoption of this accounting requirement has a material effect on
the Company’s consolidated financial statements, please see note above under
“Derivative Liability”.
  25
 
 UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009
 (UAUDITED
AND RESTATED)
 
 Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 Merger and Corporate
Restructure
 
 On June
26, 2006 the company entered into an agreement and plan of merger with Full
Power Enterprises Global Limited, a holding company that owns all of the issued
and outstanding shares of Shenzhen YuzhiLu Aviation Service
Company Limited, the operating Company. In substance the agreement is a
recapitalization of Shenzhen YuzhiLu Aviation Service Company’s capital
structure.
 
 For
accounting purposes, the company accounted for the transaction as a reverse
acquisition and with Full Power Enterprises Global Limited being the surviving
entity. The Company did not recognize goodwill or any intangible assets in
connection with the transaction. Prior to the Agreement, the company was an
inactive corporation with no significant assets and liabilities.
 
 Note
3 – TRADE DEPOSITS AND
ADVANCES
 
 Trade
deposits represents amount held by Airlines and deposits. As of June 30, 2009
and December 31, 2008 the Company had paid $3,402,948 and $6,571,164 as trade
deposits respectively.
 
 The
following summaries the Company’s deposits outstanding by each of its
subsidiaries and the nature and purpose of each deposit as of June 30, 2009 and
December 31, 2008:
 
 June30,2009
                      
                      
                      December31,
                        2008Shenzhen
      Yuzhilu Aviation Service Co., Ltd:Deposit
      for 600 sets of kiosk. The Company will start record of asset and
      depreciation on a 5 year straight-line method for the actual number of
      kiosk when they start operation.
                      
                      $
                      752,043
                      
                      
                      $
                      3,171,851CRM
      System Design.  This was a prepayment to the design of CRM
      system, and the Company will start record of intangible asset and amortize
      over 5 year period when the CRM system begin to operate.
                      
                      
                      -
                      
                      
                      
                      41,216Design
      fee for kiosk. The Company will start amortization at the percentage of
      actual number of kiosk operative over total 600 set of kiosk at the time
      the actual number of kiosk starts operation.
                      
                      
                      34,552
                      
                      
                      
                      103,479Deposit
      for airlines. This was a credit based for issuing air-tickets, and the
      full amount is returnable if the company discontinues air-ticket
      business.
                      
                      
                      636,877
                      
                      
                      
                      674,277Deposit
      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
                      
                      
                      8,492
                      
                      
                      
                      21,631Deposit
      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.
                      
                      
                      1,324,934
                      
                      
                      
                      1,096,170Subtotal
                      
                      $
                      2,756,898
                      
                      
                      $
                      5,108,624
  26
 
 UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009
 (UNAUDITED
AND RESTATED)
 
 Note
3 – TRADE DEPOSITS AND
ADVANCES (CONTINUED)
 
 (Continued)
                          
                          June30,2009
                          
                          
                          December31,
                            2008Foshan
      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.
                          
                          $
                          418,121
                          
                          
                          $
                          632,726Advance
      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.
                          
                          
                          115,426
                          
                          
                          
                          230,574Subtotal
                          
                          
                          533,547
                          
                          
                          
                          863,300Xian
      Golden Net Travel Serve Services, Ltd.:Deposit
      for Luoyang 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
                          
                          
                          29,282
                          
                          
                          
                          292,312Deposit
      for Henan 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.
                          
                          
                          14,641
                          
                          
                          
                          219,234Deposit
      for transportations.  This was a credit based for
      co-operate  transportation  suppliers, and is
      deductible against transportation payments, the balance is returnable when
      cease doing business with these agencies.
                          
                          
                          14,641
                          
                          
                          
                          87,694Subtotal
                          
                          
                          58,564
                          
                          
                          
                          599,240Chongqing
      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.
                          
                          
                          53,939
                          
                          
                          
                          -Subtotal
                          
                          
                          53,939
                          
                          
                          
                          -Total
                          
                          $
                          3,402,948
                          
                          
                          $
                          6,571,164
 
 The
Company has entered into a co-operation agreement with an unrelated company, to
assist that company in their business development by participating in that
business operations and providing working capital funding. As of June 30, 2009
and December 31, 2008 the Company has advanced this company $439,226 and
$438,468 respectively.
 
 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.
  27
 
 UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009
 (UNAUDITED
AND RESTATED)
 
 Note
5 - INCOME
TAXES
 
 The
Company through its subsidiary Shenzhen Yuzhilu Aviation Service Co. is
governed by the Income Tax Laws of the PRC. Operations in the United States of
America have incurred net accumulated operating losses for income tax purposes.
Pursuant to the PRC Income Tax Laws, the Enterprise Income Tax (EIT) the Company
has a statutory rate of 25%. The following is a reconciliation of income tax
expense for the three and six months ended June 30, 2009 and 2008.
 
 Six months
                      ended
                    
                    
                    Six months
                      ended
                    
                    
                    Three months
                      ended
                    
                    
                    Three months
                      endedJune 30,
                    
                    
                    June 30,
                    
                    
                    June 30,
                    
                    
                    June 30,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Current
                    
                    $
                    2,138,151
                    
                    
                    $
                    1,007,246
                    
                    
                    $
                    1,020,955
                    
                    
                    $
                    701,374Deferred
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Total
                    
                    $
                    2,138,151
                    
                    
                    $
                    1,007,246
                    
                    
                    $
                    1,020,955
                    
                    
                    $
                    701,374
 
 Note
6 – COMMITMENTS
 
 The
Company leases various office facilities under month-to-month arrangements.
Rental expense for leases consisted of $147,903 and $92,297 for six months
ended June 30, 2009 and 2008, respectively. Rental expense for leases were
$52,966 and $8,708 for three months ended June 30, 2009 and 2008,
respectively.  The Company has future minimum lease obligations as of
June 30, 2009 as follows:
 
 2010
                    
                    $
                    146,8292011
                    
                    
                    63,3132012
                    
                    
                    12,0812013
                    
                    
                    11,1882014
                    
                    
                    10,367Thereafter
                    
                    
                    20,931Total
                    
                    $
                    264,710
 
 Pursuant
to the Securities Purchase Agreement entered into on August 28, 2008, the
Company and the Buyers in this Agreement entered into a Lock up Agreement. Under
the Lock-Up Agreement, the Principal Shareholder agreed that she would not sell
any of the Lock-Up Shares, 5,000,000 shares of Common Stock and options to
purchase 2,000,000 shares of Common Stock, and shall not transfer such shares
for twelve (12) months.
 
 Note
7 – COMMON
STOCK
 
 In
January 2007 the company adopted the Universal Travel Group 2007 Equity
Incentive Plan. Under the terms of this Plan the Company issued 1,256,667 shares
of the Company’s stock, valued at $1,583,400, for services rendered during the
period from October 2, 2006 through February 28, 2007.
 
 Pursuant
to a share exchange agreement, the Company issued 238,095 shares of newly issued
shares of Common Stock to the former shareholders of Shenzhen Speedy Dragon
Enterprises Limited. The shares were valued at $1,000,000, which was the fair
value of the shares at the date of the exchange agreement. This amount is
included in the cost of net assets and goodwill purchased.
  28
 
 UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009
 (UNAUDITED
AND RESTATED)
 
 Note
7 – COMMON STOCK
(CONTINUED)
 
 On April
10, 2007 the Company consummated the acquisition of a 100% interest in Shenzhen
Speedy Dragon Enterprises Limited ("SSD") for a cash and stock transaction
valued at approximately US$4 million in aggregate. This amount is included in
the cost of net assets and goodwill purchased.
 
 The stock
consideration consisted of 238,095 newly issued shares of the Registrant’s
common stock, which were given to SSD’s sole Shareholder immediately before the
completion of the Share Exchange Transaction. The cash consideration consisted
of $3,000,000 in cash and payable no later than the first anniversary of the
Merger Transaction. The obligation to pay the cash consideration is evidenced by
interest-free promissory notes between the Registrant and the SSD
Shareholder.
  SSD is
engaged in the business of air freight forwarding. The purchase price was
determined based on arms' length negotiations between Universal Travel Group and
the shareholder of SSD.
 
 The
acquisition 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 SFAS 94. The
allocation of the purchase price is as follows:
 
 Cash
      acquired
                      
                      $
                      17,800Loans
      receivable
                      
                      
                      90,096Loans
      shareholder
                      
                      
                      251,184Property
      Plant & Equipment
                      
                      
                      22,995Goodwill
                      
                      
                      3,630,539Total
      assets acquired
                      
                      
                      4,012,614Liabilities
      assumedAccounts
      & Income Taxes payable
                      
                      
                      3,587Other
      payable
                      
                      
                      9,026Total
                      
                      $
                      4,000,000
 
 The
excess of purchase price over tangible assets acquired and liabilities assumed
of $3,630,359 was recorded as goodwill. At the time of the acquisition no
identifiable intangibles assets existed under the contractual-legal or the
separability criterion as required under SFAS 141.
 
 Prior to
the acquisition, Shenzhen Speedy Dragon Enterprises Limited prepared its
financial statements under accounting principles generally accepted in the
United States of America. Pursuant to a termination agreement dated June
12, 2009 between the Company and Shenzhen Speedy Dragon Enterprises Limited (see
Note 2 Discontinued Operations), the Company transferred back its equity
interest in Shenzhen Speedy Dragon Enterprises Limited on or before June 30,
2009 and that the 238,095 shares of the Company’s common stock were returned
from the sole shareholder of Shenzhen Speedy Dragon Enterprises Limited to the
Company. The returned shares were canceled as of June 30,
2009.
 
 Pursuant
to a share exchange agreement, the Company issued 50,588 shares of newly issued
shares of Common Stock to the former shareholders of Xian Golden Net Travel
Serve Services, Inc. The shares were valued at $258,000, which was the fair
value of the shares at the date the of the exchange agreement. This amount is
included in the cost of net assets and goodwill purchased.
  29
 
 UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009
 (UNAUDITED
AND RESTATED)
 
 Note
7 – COMMON STOCK
(CONTINUED)
 
 On August
6, 2007 the Company consummated the acquisition of a 100% interest in Xian
Golden Net Travel Serve Services, Inc. ("XGN") for a cash and stock transaction
valued at approximately US$1.8 million in aggregate. This amount is included in
the cost of net assets and goodwill purchased.
 
 The stock
consideration consisted of 50,588 newly issued shares of the Registrant’s common
stock, which were given to XGN’s Shareholders immediately before the completion
of the Share Exchange Transaction. The cash consideration consisted of
$1,542,000 in cash and payable no later than the first anniversary of the Merger
Transaction. The obligation to pay the cash consideration is evidenced by an
interest-free promissory note between the Registrant and the XGN’s
Shareholders.
 
 XGN is
engaged in the business of Chinese domestic tourism. The purchase price was
determined based on arms' length negotiations between Universal Travel Group and
the shareholders of XGN.
 
 The
acquisition 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 SFAS 94. The
allocation of the purchase price is as follows:
 
 Cash
      acquired
                      
                      $
                      45,356Accounts
      Receivable
                      
                      
                      142,462Loans
      Shareholder
                      
                      
                      1,075,504Property
      Plant & Equipment
                      
                      
                      773Goodwill
                      
                      
                      764,895Total
      assets acquired
                      
                      
                      2,028,990Liabilities
      assumedAccounts
      & Income Taxes payable
                      
                      
                      131,875Other
      payable
                      
                      
                      97,115Total
                      
                      $
                      1,800,000
 
 The
excess of purchase price over tangible assets acquired and liabilities assumed
of $764,895 was recorded as goodwill. At the time of the acquisition no
identifiable intangibles assets existed under the contractual-legal or the
separability criterion as required under SFAS 141.
 
 Prior to
the acquisition, Xian Golden Net Travel Serve Services, Inc. prepared its
financial statements under accounting principles generally accepted in the
United States of America.
  Pursuant
to a share exchange agreement, the Company issued 200,000 shares of newly issued
shares of Common Stock to the former shareholders of Shanghai Lanbao Travel
Services Co., Ltd. The shares were valued at $1,092,000, which was the fair
value of the shares at the date of the exchange agreement. This amount is
included in the cost of net assets and goodwill purchased.
 
 On August
8, 2007, the Company consummated the acquisition of a 100% interest in Shanghai
Lanbao Travel Services Co., Ltd. ("SLB") for a cash and stock transaction valued
at approximately US$3.92 million in aggregate. This amount is included in the
cost of net assets and goodwill purchased.
  30
 
 UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009
 (UNAUDITED
AND RESTATED)
 
 Note
7 – COMMON STOCK
(CONTINUED)
 
 The stock
consideration consisted of 200,000 newly issued shares of the Registrant’s
common stock immediately before the completion of the Share Exchange
Transaction. The cash consideration consisted of $2,828,000 in cash and payable
no later than the first anniversary of the Merger Transaction. The obligation to
pay the cash consideration is evidenced by interest-free promissory notes
between the Registrant and each of the SLB Shareholders.
 
 SLB is
engaged in the business of real time booking of travel related products via the
internet. The purchase price was determined based on arms' length negotiations
between Universal Travel Group and the shareholders of SLB.
 
 The
acquisition 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 SFAS 94. The
allocation of the purchase price is as follows:
 
 Cash
      acquired
                      
                      $
                      28,510Accounts
      Receivable
                      
                      
                      1,265,352Loans
      shareholders
                      
                      
                      178,665Property
      Plant & Equipment
                      
                      
                      9,376Goodwill
                      
                      
                      3,081,799Total
      assets acquired
                      
                      
                      4,563,702Liabilities
      assumedAccounts
      & Income Taxes payable
                      
                      
                      566,809Other
      payable
                      
                      
                      76,893Total
                      
                      $
                      3,920,000
  The
excess of purchase price over tangible assets acquired and liabilities assumed
of $3,081,799 was recorded as goodwill. At the time of the acquisition no
identifiable intangibles assets existed under the contractual-legal or the
separability criterion as required under SFAS 141.
 
 Prior to
the acquisition, Shanghai Lanbao Travel Services Co., Ltd. prepared its
financial statements under accounting principles generally accepted in the
United States of America.
  Pursuant
to a share exchange agreement, the Company issued 374,329 shares of newly issued
shares of Common Stock and a promissory note to the former shareholders of
Foshan Overseas International Travel Service Co., Ltd. The shares were valued at
$3,346,500, which was the fair value of the shares at the date of exchange
agreement. This amount is included in the cost of net assets and goodwill
purchased.
 
 On
September 20, 2007, the Company consummated the acquisition of a 100% interest
in Foshan Overseas International Travel Service Co., Ltd. ("FOI") for a cash and
stock transaction valued at approximately US$6.5 million in aggregate. This
amount is included in the cost of net assets and goodwill
purchased.
  The stock
consideration consisted of 374,329 newly issued shares of the Registrant’s
common stock, immediately before the completion of the Share Exchange
Transaction. The cash consideration consisted of $3,153,000 due immediately
before the completion of the Share Exchange Transaction and payable no later
than the first anniversary of the Merger Transaction. The obligation to pay the
cash consideration is evidenced by two interest-free promissory notes between
the Registrant and each of the FOI Shareholders.
  31
 
 UNIVERSAL TRAVEL
GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009
 (UNAUDITED
AND RESTATED)
 
 Note
7 – COMMON STOCK
(CONTINUED)
 
 FOI is
engaged in the business of domestic and international travel inquiries as well
as corporate travel, offering specialized packages that include national and
international air ticket booking, hotel reservations, conference center
reservations and rental cars. The purchase price was determined based on arms'
length negotiations between Universal Travel Group and the shareholders of
FOI.The acquisition had been accounted for as a purchase business combination
and the results of operations from the acquisition date have been included in
the Company's consolidated financial statements in accordance with SFAS 94. The
allocation of the purchase price is as follows:
 
 Cash
      acquired
                      
                      $
                      423,292Accounts
      Receivable
                      
                      
                      2,204,094Loans
      Shareholders
                      
                      
                      686,936Trade
      Deposits
                      
                      
                      513,317Prepaid
      Expenses
                      
                      
                      3,285Property
      Plant & Equipment
                      
                      
                      42,244Goodwill
                      
                      
                      6,049,576Total
      assets acquired
                      
                      
                      9,922,744Liabilities
      assumedAccounts
      & Income Taxes payable
                      
                      
                      3,126,718Other
      payable
                      
                      
                      296,026Total
                      
                      $
                      6,500,000
 
 The
excess of purchase price over tangible assets acquired and liabilities assumed
of $6,049,576 was recorded as goodwill. At the time of the acquisition no
identifiable intangibles assets existed under the contractual-legal or the
separability criterion as required under SFAS 141.
 
 Prior to
the acquisition, Foshan Overseas International Travel Service Co., Ltd. prepared
its financial statements under accounting principles generally accepted in the
United States of America.
  On August
28, 2008, Universal Travel Group (the “Company”) entered into a Securities
Purchase Agreement with Access America Fund, LP, Chinamerica Fund LP, Pope
Investments II LLC, Heller Capital Investments, LLC, CGM as C/F Ronald I. Heller
IRA, Investment Hunter, LLC, MARed Investments, High Capital Funding, LLC, and
Merrill Lynch, Pierce, Fenner & Smith, FBO Beau L. Johnson (collectively,
the “Buyers”) to sell to the Buyers 1,529,569 shares of common stock, par value
$0.001 of the Company (“Common Stock”) and warrants to purchase 764,785 shares
of Common Stock for an aggregate purchase price of $7,112,500 (the “Financing”).
(See footnote 2, derivative liability)
 
 Note
8 – STOCK WARRANTS,
OPTIONS, AND COMPENSATION
 
 On
February 4, 2008, under the terms of an equity financing commitment, the company
issued 74,074 shares of common stock at the closing price of  $8.10
per share.  The proceeds of $599,994 were paid directly to the
shareholders of Foshan Overseas International Travel Service Co, for amount due
them under Note obligation of the company.
  32
 
 UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009
 (UNAUDITED
AND RESTATED)
 
 Note
8 – STOCK WARRANTS,
OPTIONS, AND COMPENSATION (CONTINUED)
 
 On May 7,
2007, the Company issued, to a newly appointed Board member, an option grant to
purchase 33,333 shares of common stock at the closing price at $ 5.85 per share.
The exercisable period is two years from issuance. On June 23, 2008, upon
resignation, Board member has forfeited all options.
 
 On
September 6, 2007, the Company issued, to a newly appointed Board member, an
option grant to purchase 33,333 shares of common stock at the closing price at $
8.55 per share. The options are exercisable until June 1, 2017. On June 23,
2008, upon resignation, Board member has forfeited 22,222 options.
 
 On
December 7, 2007, the Company issued, to another newly appointed Board member,
an option grant to purchase 33,333 shares of common stock at the closing price
of $ 11.25 per share. The options are exercisable until November 1,
2017.
 
 Stock
options— The option holder has no voting or dividend rights. The company records
the expense of the stock options over the related vesting period. The options
were valued using the Black-Scholes option-pricing model at the model at the
date of grant stock option pricing. On May 28, 2008, upon resignation, Board
member has forfeited 22,222 options.
 
 On June
24, 2008, the Company issued, to another newly appointed Board member, an option
grant to purchase 33,333 shares of common stock at the closing price of $ 4.56
per share. The options are exercisable until July 1, 2018. Stock options— The
option holder has no voting or dividend rights. The company records the expense
of the stock options over the related vesting period. The options were valued
using the Black-Scholes option-pricing model at the model at the date of grant
stock option pricing.
 
 On
January 20, 2009, pursuant to the Securities Purchase agreement entered into on
August 28, the Company enacted the Universal Travel Group 2009 Incentive Stock
Option Plan entitles the grant of up to 2,200,000 shares of common stock of
Universal Travel Group, par value $0.001 to certain employees of the Company
either as stock or stock options, and the subsequent exercise of any stock
options.  The options are exercisable until January 19, 2019, with a
vesting period of six years. Average purchase price for the options is $3.73 per
share. The options were valued using the Black-Scholes option-pricing
model  at the date of grant stock option pricing.  The total
fair market value at grant date is $5,483,865.
 
 Expected
volatility is based on the historical volatility of the Company’s stock price.
The expected term represents the estimated average period of time that the
options remain outstanding. No dividend payouts were assumed, as the Company has
no plans to declare dividends during the expected term of the stock options. The
risk-free rate of return reflects the weighted average interest rate offered for
zero coupon treasury bonds over the expected term of the options. Based upon
this calculation and pursuant to, as FASB 123R, the Company recorded a service
period expense of $495,725 for the six months ending June 30, 2009 and $330,725
for the three months ended June 30, 2009.
  AggregateExercise
                          
                          
                          Remaining
                          
                          
                          IntrinsicTotal
                          
                          
                          Price
                          
                          
                          Life
                          
                          
                          ValueOutstanding,
      December 31, 2008
                          
                          
                          55,555
                          
                          
                          $
                          4.56-11.25
                          
                          
                          7.93-9yrs
                          
                          
                          
                          -Granted
      in 2009
                          
                          
                          2,200,000
                          
                          
                          $
                          2.70-3.84
                          
                          
                          9.56yrs
                          
                          
                          
                          -Exercised
      in 2008
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Outstanding,
      June 30, 2009
                          
                          
                          2,255,555
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
  33
 
 UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009
 (UNAUDITED
AND RESTATED)
 
 Note
8 – STOCK WARRANTS,
OPTIONS, AND COMPENSATION (CONTINUED)
 
 Pursuant
to the Securities Purchase Agreement entered into On August 28, 2008, the
Company issued warrants to purchase 764,786 shares of Common Stock. The unit
purchase price was $4.65per Common Share and a
related Warrant for the purchase of one-half a Common Share, times the number of
Common Shares purchased. Market Value of the Company’s stock on August 28, 2008
was $4.05. Each warrant has an Exercise Price of $8.13 and a term of 5 years
from the date of issuance.  The Company measured and recognized an
aggregate of $2,091,738 of the proceeds to additional paid in capital upon
issuance of these warrants. The terms of the warrants provide for an adjustment
to the exercise price of these warrants if the company closes on the sale or
issuance of common stock at a price which is less than the exercise price then
in effect for these warrants. Upon the Company’s adoption of EITF No. 07-05
on January 1, 2009, the Company determined that the warrants did not
qualify for a scope exception under SFAS No. 133 as they were determined to
not be indexed to the Company’s stock as prescribed by EITF
No. 07-05.  On January 1, 2009, the warrants were reclassified
from equity to derivative liability for the then relative fair market value and
marked to market (see Note 2 Derivative Liability).
 
 Note
9 - OTHER
COMPREHENSIVE INCOME
 
 Balances
of related after-tax components comprising accumulated other comprehensive
income, included in stockholders equity, as of June 30, 2009  and
December 31, 2008 are as follows:
 
 ForeignCurrency
                        Translation
                        Adjustment
                      
                      
                      AccumulatedOther
                        Comprehensive
                        IncomeBalance
      December 31, 2007
                      
                      $
                      545,164
                      
                      
                      $
                      545,164Changes
      for year ended December 31, 2008
                      
                      
                      975,002
                      
                      
                      
                      975,002Balance
      December 31, 2008
                      
                      
                      1,520,166
                      
                      
                      
                      1,520,166Changes
      for six months ended June 30, 2009
                      
                      
                      48,587
                      
                      
                      
                      48,587Balance
      at June 30, 2009
                      
                      $
                      1,568,753
                      
                      
                      $
                      1,568,753
 
 Note
10 - CURRENT
VULNERABILITY DUE TO CERTAIN RISK FACTORS
 
 The
Company’s operations are carried out in the PRC. Accordingly, the Company’s
business, financial condition and results of operations may be influenced by the
political, economic and legal environments in the PRC, and by the general state
of the PRC's economy. The Company’s business may be influenced by changes in
governmental policies with respect to laws and regulations, anti-inflationary
measures, currency conversion and remittance abroad, and rates and methods of
taxation, among other things.
 
 Note
11 – MAJOR CUSTOMERS
AND CREDIT RISK
 
 The
Company derives a portion of its income from various Airlines. Most revenue is
cleared thru IATA, a centralized reporting platform.
  34
 
 UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009
 (UNAUDITED
AND RESTATED)
 
 Note
12 – ESCROW
DEPOSITS
 
 Pursuant
to the Securities Purchase Agreement entered into On August 28, 2008, the
Company agreed that it will deposit $500,000 of the proceeds in escrow to pay
the fees and expenses in connection with a public relations and investor
relations campaign. The Company also agreed that it engage a Chief Financial
Officer who shall be fluent in English and Mandarin, who understands and has a
working knowledge of United States generally accepted accounting principles, who
has had significant responsibility for the preparation and filing of quarterly,
annual and current reports with the SEC and who has experience working with or
in United States capital market participants.
 
 As of
September 30, 2008 $337,200 has been prepaid out of this escrow account in
connection with the public and investor relations campaign for services covering
a one year period. This prepayment is being amortized accordingly.
 
 The
Company agreed that it would deposit $600,000 of the proceeds in escrow under
the Escrow Agreement, to be released only upon the dual signatures of the Chief
Executive Officer of the Company and the representative of the Buyers designated
in the Escrow Agreement following the engagement of a Chief Financial Officer.
During the six months ended June 30. 2009, $600,000 was released from escrow to
the Company.
 
 Note
13 -   SEGMENT
INFORMATION
 
 Upon the
disposition of Shenzhen Speedy Dragon Enterprises Limited pursuant to a
termination agreement dated June 12, 2009, the Company currently operates and
prepares accounting and other financial reports separately to management for six
major business organizations (Shenzhen Yuzhilu Aviation Service Co., Ltd.,
Shanghai Lanbao Travel Service Co., Ltd., Foshan International Travel Service
Co., Ltd.,  Xian Golden Net Travel Serve Services, Chongqing Travel
World E-Business Co., Ltd., and Shenzhen Travel World Travel Agency Co., Ltd.).
Pursuant to SFAS 131 they disclose segments on a single entity basis, which in
their case is the legal entity. Our air-ticketing segment relates to the segment
reporting of Shenzhen Yuzhilu Aviation Service Co., Ltd. and Chongqing Travel
World E-Business Co., Ltd., hotel reservation segment relates to Shanghai Lanbao
Travel Service Co., Ltd, packaged tours segment relates to Foshan International
Travel Service Co., Ltd and Xi’an Golden Net Travel Serve Service Company
Limited, and Shenzhen Travel World Travel Agency Co., Ltd. Management
monitors these segments regularly to make decisions about resources to be
allocated to the segment and assess its performance.
  35
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2009
 (UNAUDITED
AND RESTATED)
 
 Note
13 -   SEGMENT
INFORMATION(CONTINUED)
 
 The
following tables’ present summarized information by segment:
  Air
                                                                                                                                                    Ticketing
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  Hotel
                                                                                                                                                    Reservation
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  Package
                                                                                                                                                    Tours
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  Other
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  TotalSix
      Months Ended June 30, 2009Sales,
      net
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  6,045,642
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  5,230,975
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  22,639,535
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  33,916,152Cost
      of sales
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  651,979
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  1,683,627
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  19,279,043
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  21,614,649Gross
      profit
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  5,393,663
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  3,547,348
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  3,360,492
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  12,301,503Income
      from operations
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  3,722,661
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  3,471,539
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  2,846,988
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  (837,401
                                                                                                                                                  )
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  9,203,787Depreciation
      & Amortization
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  180,515
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  2,618
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  7,606
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  190,739Asset
      Expenditures
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  6,076,248
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  6,076,248Total
      assets
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  30,987,883
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  9,499,533
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  8,024,758
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  5,210,309
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  53,722,483Six
      Months Ended June 30, 2008Sales,
      net
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  3,365,400
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  2,024,296
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  13,365,656
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  18,755,352Cost
      of sales
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  380,254
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  857,596
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  11,648,400
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  12,886,250Gross
      profit
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  2,985,146
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  1,166,700
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  1,717,256
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  5,869,102Income
      from operations
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  2,010,978
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  1,128,775
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  1,327,539
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  (155,802
                                                                                                                                                  )
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  4,311,490Depreciation
      & Amortization
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  24,342
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  2,148
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  7,312
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  33,802Asset
      Expenditures
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  9,042
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  5,673
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  2,348
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  17,063Total
      assets
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  11,167,448
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  3,721,709
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  8,134,644
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  2,855,697
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  25,879,498Three
      Months Ended June 30, 2009Sales,
      net
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  3,294,514
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  2,714,144
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  12,396,815
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  18,405,473Cost
      of sales
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  349,173
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  910,164
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  10,616,442
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  11,875,779Gross
      profit
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  2,945,341
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  1,803,980
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  1,780,373
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  6,529,694Income
      from operations
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  2,147,871
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  1,772,243
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  1,461,127
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  (416,466
                                                                                                                                                  )
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  4,964,775Depreciation
      & Amortization
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  100,886
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  1,557
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  3,640
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  106,083Asset
      Expenditures
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  4,815,850
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  4,815,850Total
      assets
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  30,987,883
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  9,499,533
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  8,024,758
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  5,210,309
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  53,722,483Three
      Months Ended June 30, 2008Sales,
      net
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  1,936,520
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  1,411,819
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  8,454,635
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  11,802,974Cost
      of sales
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  207,324
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  606,677
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  7,292,436
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  8,106,437Gross
      profit
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  1,729,196
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  805,142
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  1,162,200
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  3,696,537Income
      from operations
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  1,101,247
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  785,168
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  947,176
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  (45,790
                                                                                                                                                  )
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  2,787,801Depreciation
      & Amortization
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  12,251
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  1,037
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  3,536
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  16,824Asset
      Expenditures
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  8,920
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  26
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  (3,299
                                                                                                                                                  )
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  -
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  5,647Total
      assets
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  11,167,448
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  3,721,709
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  8,134,644
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  2,855,697
                                                                                                                                                  
                                                                                                                                                  
                                                                                                                                                  $
                                                                                                                                                  25,879,498
 
 Note
14 -   SUBSEQUENT
EVENTS
 
 On July
20, 2009, the Company entered into a waiver agreement with its investors under
the certain Securities Purchase Agreement dated August 28,
2008.  Pursuant to the Securities Purchase Agreement, the Company had
agreed to provide certain registration rights to the investors under the
Securities Act of 1933. Under the terms of waiver agreement, the investors had
agreed to waive their rights to any damages and liabilities arising out of the
non-registration of the Registrable Securities as of July 20, 2009.
  On August
7, 2009, the Company filed a shelf registration in a Registration Statement on
Form S-3 with a maximum of $50,000,000 worth of common stock for future business
expansion.
  36





UNIVERSAL
TRAVEL GROUP


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009


(UNAUDITED
AND RESTATED)





Note
14 -   SUBSEQUENT EVENTS
(CONTINUED)





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 is 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. As part consideration of the Investors’ agreement to amend the
warrants, the Company agreed to grant the Investors a cashless exercise
feature to their warrants.





On August
10, 2009, the Company also entered into a Make Good Securities Escrow Supplement
Agreement with its investors under that certain Securities Purchase Agreement
dated August 28, 2008.  Pursuant to the Supplement Agreement, Section
1.6 of the Make Good Securities Escrow Agreement that it had executed with its
Investors on August 28, 2008 is amended with the intention to exclude the
effects of EITF 07-5 when determining whether the 2008 Performance Threshold and
the 2009 Performance Threshold have been reached by the
Company.  However, the Company has subsequently 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.  Accordingly, the Company has restated its March 31,
2009 and June 30, 2009 consolidated financial statements resulting from the
adoption of EITF 07-05 effective January 1, 2009 (see Note 2 - Derivative
Liability and Note 15 – Restatement and Reclassification of Financial
Statements),





NOTE
15 – RESTATEMENTAND RECLASSIFICATION OF
FINANCIAL
STATEMENTS





The
Company has restated its unaudited consolidated financial statements of the
period ended June 30, 2009 to correct the following errors in the consolidated
financial statements previously filed:





·
            The
      Company omitted the accounting for a derivative liability upon the
      adoption of EITF 07-5 effective January 1, 2009, and the subsequent
      accounting for the changes in the associated liability from the marked to
      market.


·
            The
      Company erroneously accounted for cancelled common stock in connection
      with disposition of its discontinued operations as treasury
      stock.


·
            The
      Company erroneously presented the dividends from its discontinued
      operations as income from discontinued
  operations.


·
            The
      Company erroneously presented the dividends receivable associated with its
      discontinued operations as an investing cash
  outflow.


·
            The Company’s original
      computation of weighted average common shares outstanding and weighted
      average effect of dilutive securities was
    inaccurate.


·
            The Company’s original
      computation of stock-based compensation was
    inaccurate.





In
addition, as described in Note 2 - Discontinued Operations, 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 discontinued operations. The Company omitted the
reclassification of balance sheet items of the discontinued operations
separately from continuing operations for the prior year presented, and omitted
the segregation of cash flow of discontinued operations from continuing
operations. The reclassification of prior year balance sheet items has resulted
in no change in the Company’s reported Consolidated Balance Sheet as of June 30,
2009 and Consolidated Statement of Income for the three and six months ended
June 30, 2009.  However, the reclassification did affect the
individual components of the Company’s Consolidated Statement of Cash Flow for
the six months ended June 30, 2009.


37





UNIVERSAL
TRAVEL GROUP


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009


(UNAUDITED
AND RESTATED)





NOTE
15 – RESTATEMENTAND RECLASSIFICATION OF
FINANCIAL
STATEMENTS (CONTINUED)





The
net effect of the above correction of the errors and reclassifications was
to:




·
            Increase
      the Company’s reported  Derivative liabilities as of June 30,
      2009 by $7,261,178 from $0 to
$7,261,178.


·
            Decrease
      the Company’s reported additional paid in capital as of June 30, 2009 by
      $5,597,373 from $17,081,723 to
$11,484,350.


·
            Decrease
      the Company’s reported net incomes for the three months ended June 30,
      2009 by $5,094,557 from $2,509,532 to net loss of $2,585,025. Decrease the
      Company’s reported net incomes for the six months ended June 30, 2009 by
      $4,981,294 from $5,777,808 to
$796,514.


·
            Decrease
      the Company’s reported retained earnings as of June 30, 2009 by $4,444,517
      from $32,411,381 to $27,966,864.


·
            Decrease
      the Company’s reported number of common shares issued and outstanding as
      of June 30, 2009 by 238,095 shares from 13,915,089 shares to 13,676,994
      shares. Decrease the Company’s reported common stock amount as of June 30,
      2009 by $238 from $13,914 to
$13,676.


·
            Decrease
      the Company’s reported dividend from discontinued operations for the three
      and six months ended June 30, 2009 by $2,260,981 from $2,260,981 to $0.
      Decrease the Company’s reported loss on disposition of discontinued
      operations for the three and six months ended June 30, 2009 by $2,260,981
      from $3,031,576 to $770,595.


·
            Decrease
      the Company’s reported net cash provided by operating activities for the
      six months ended June 30, 2009 by $1,776,632 from $11,676,366 to
      $9,899,734. Decrease the Company’s reported net cash used in investing
      activities for the six months ended June 30, 2009 by $2,260,981 from
      $9,541,309 to $7,280,328. Decrease the Company’s reported beginning
      balance of cash and cash equivalents for the six months ended June 30,
      2009 by $484,349 from $16,204,531 to
  $15,720,182.


·
            Increase
      the basic weighted common shares outstanding by 152,097 shares from
      13,676,994 shares to 13,829,091 shares for the three months ended June 30,
      2009.  Increase the dilutive weighted common shares outstanding
      by 178,140 shares from 14,122,917 shares to 14,301,057 shares for the
      three months ended June 30, 2009. Increase the basic weighted common
      shares outstanding by 174,536 shares from 13,676,994 shares to 13,851,530
      shares for the six months ended June 30, 2009. Increase the dilutive
      weighted common shares outstanding by 154,739 shares from 14,122,917
      shares to 14,277,656 shares for the six months ended June 30,
      2009.





·
            Decrease
      the basic net income per common share, continuing operations, by $0.38
      from $0.24 to net loss per share of $0.14 for the three months ended June
      30, 2009. Decrease the dilutive net income per common share, continuing
      operations, by $0.36 from $0.23 to net loss per share of $0.13 for the
      three months ended June 30, 2009. Decrease the basic net income per common
      share, continuing operations, by $0.37 from $0.47 to $0.10 for the six
      months ended June 30, 2009. Decrease the dilutive net income per common
      share, continuing operations, by $0.35 from $0.45 to $0.10 for the six
      months ended June 30, 2009.


38





UNIVERSAL
TRAVEL GROUP


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009


(UNAUDITED
AND RESTATED)





NOTE
15 –RESTATEMENTAND
RECLASSIFICATION OF FINANCIAL STATEMENTS
(CONTINUED)





The
Company also has reclassified and included all costs directly associated with
the generation of revenue in its cost of services. These costs were erroneously
classified as selling, general, and administrative expenses in the consolidated
financial statements previously filed.  This reclassification has
resulted in no change in the Company’s reported Consolidated Balance Sheet as of
June 30, 2009 and Consolidated Statement of Cash Flows for the six months ended
June 30, 2009.  The reclassification did affect the individual
components of the Company’s cost of services and selling, general and
administrative expenses as reported on its Consolidated Statement of Income for
the three and six months ended June 30, 2009. However, this reclassification had
no effect on the reported consolidated net income.  Costs of services
that were reclassified from the Company’s selling, general, and administrative
expenses amounted $354,106 and $209,401 for the three months ended June 30, 2009
and 2008, respectively.  Costs of services that were reclassified from
the Company’s selling, general, and administrative expenses amounted $676,380
and $365,677, for the six months ended June 30, 2009 and 2008,
respectively.





Following
are reconciliations of the Company’s restatement and reclassification of the
Consolidated Balance Sheet as of June 30, 2009 and Consolidated Statement of
Income for the three and six months ended June 30, 2009.





CONSOLIDATED
BALANCE SHEET


JUNE
30, 2009





As
                      Reported
                    
                    
                    Net Change
                    
                    
                    As
                      RestatedASSETSCurrent
      AssetsCash
      and cash equivalents
                    
                    $
                    18,388,175
                    
                    
                    
                    
                    
                    $
                    18,388,175Accounts
      receivable, net
                    
                    
                    11,708,758
                    
                    
                    
                    
                    
                    
                    11,708,758Other
      receivables and deposits, net
                    
                    
                    67,272
                    
                    
                    
                    
                    
                    
                    67,272Trade
      deposit
                    
                    
                    3,402,948
                    
                    
                    
                    
                    
                    
                    3,402,948Advances
                    
                    
                    439,226
                    
                    
                    
                    
                    
                    
                    439,226Escrow
      deposits
                    
                    
                    162,301
                    
                    
                    
                    
                    
                    
                    162,301Prepaid
      expenses
                    
                    
                    279,618
                    
                    
                    
                    
                    
                    
                    279,618Note
      receivable
                    
                    
                    2,773,411
                    
                    
                    
                    
                    
                    
                    2,773,411Total
      Current Assets
                    
                    
                    37,221,709
                    
                    
                    
                    
                    
                    
                    37,221,709Property
      & equipment, net
                    
                    
                    6,183,786
                    
                    
                    
                    
                    
                    
                    6,183,786Intangible
      assets
                    
                    
                    420,718
                    
                    
                    
                    
                    
                    
                    420,718Goodwill
                    
                    
                    9,896,270
                    
                    
                    
                    
                    
                    
                    9,896,27016,500,774
                    
                    
                    
                    
                    
                    
                    16,500,774Total
      Assets
                    
                    $
                    53,722,483
                    
                    
                    
                    
                    
                    $
                    53,722,483LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      LiabilitiesAccounts
      payable and accrued expenses
                    
                    $
                    3,293,448
                    
                    
                    
                    
                    
                    $
                    3,293,448Customer
      deposits
                    
                    
                    879,515
                    
                    
                    
                    
                    
                    
                    879,515Income
      tax payable
                    
                    
                    882,555
                    
                    
                    
                    
                    
                    
                    882,555Total
      Current Liabilities
                    
                    
                    5,055,518
                    
                    
                    
                    
                    
                    
                    5,055,518Derivative
      liability
                    
                    
                    -
                    
                    
                    
                    7,261,178
                    
                    
                    
                    7,261,178Total  liabilities
                    
                    
                    5,055,518
                    
                    
                    
                    7,261,178
                    
                    
                    
                    12,316,696Stockholders'
      Equitycommon
      stock
                    
                    
                    13,914
                    
                    
                    
                    (238
                    )
                    
                    
                    13,676Additional
      paid in capital
                    
                    
                    17,081,723
                    
                    
                    
                    (5,597,373
                    )
                    
                    
                    11,484,350treasury
      stock
                    
                    
                    (2,780,950
                    )
                    
                    
                    2,780,950
                    
                    
                    
                    -Other
      comprehensive income
                    
                    
                    1,568,753
                    
                    
                    
                    
                    
                    
                    
                    1,568,753Statutory
      reserve
                    
                    
                    372,144
                    
                    
                    
                    
                    
                    
                    
                    372,144Retained
      earnings
                    
                    
                    32,411,381
                    
                    
                    
                    (4,444,517
                    )
                    
                    
                    27,966,864Total
      Stockholders' Equity
                    
                    
                    48,666,965
                    
                    
                    
                    (7,261,178
                    )
                    
                    
                    41,405,787Total
      Liabilities and Stockholders' Equity
                    
                    $
                    53,722,483
                    
                    
                    
                    
                    
                    
                    $
                    53,722,483




39


UNIVERSAL
TRAVEL GROUP


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009


(UNAUDITED
AND RESTATED)





NOTE
15 –RESTATEMENTAND
RECLASSIFICATION OF FINANCIAL STATEMENTS
(CONTINUED)





CONSOLIDATED
STATEMENT OF INCOME


FOR
THE THREE MONTHS ENDED JUNE 30, 2009





As Reported
                                              
                                              
                                              Net Change
                                              
                                              
                                              As restatedGross
      revenues,
                                              
                                              $
                                              18,405,473
                                              
                                              
                                              
                                              
                                              
                                              $
                                              18,405,473Cost
      of services
                                              
                                              
                                              11,521,673
                                              
                                              
                                              
                                              354,106
                                              
                                              
                                              
                                              11,875,779Gross
      Profit
                                              
                                              
                                              6,883,800
                                              
                                              
                                              
                                              (354,106
                                              )
                                              
                                              
                                              6,529,694Selling,
      general and administrative expenses
                                              
                                              
                                              2,643,949
                                              
                                              
                                              
                                              (1,079,030
                                              )
                                              
                                              
                                              1,564,919Income
      from operations
                                              
                                              
                                              4,239,851
                                              
                                              
                                              
                                              724,924
                                              
                                              
                                              
                                              4,964,775Other
      Income (Expense)Other
      income
                                              
                                              
                                              2,591
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              2,591Loss
      on change in fair value of derivative liabilities
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (5,819,481
                                              )
                                              
                                              
                                              (5,819,481
                                              )Interest
      income
                                              
                                              
                                              12,358
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              12,358Total
      Other Income (Expense)
                                              
                                              
                                              14,949
                                              
                                              
                                              
                                              (5,819,481
                                              )
                                              
                                              
                                              (5,804,532
                                              )Income
      before income taxes –continuing operations
                                              
                                              
                                              4,254,800
                                              
                                              
                                              
                                              (5,094,557
                                              )
                                              
                                              
                                              (839,757
                                              )Provision
      for income taxes
                                              
                                              
                                              1,020,955
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              1,020,955Income(Loss) 
      from continuing operations
                                              
                                              $
                                              3,233,845
                                              
                                              
                                              
                                              (5,094,557
                                              )
                                              
                                              $
                                              (1,860,712
                                              )Income
      from discontinued operations
                                              
                                              
                                              46,282
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              46,282Dividend
      from discontinued operations
                                              
                                              
                                              2,260,981
                                              
                                              
                                              
                                              (2,260,981
                                              )
                                              
                                              
                                              -Loss
      on disposition of discontinued operations
                                              
                                              
                                              (3,031,576
                                              )
                                              
                                              
                                              2,260,981
                                              
                                              
                                              
                                              (770,595
                                              )Net
      loss from discontinued operation
                                              
                                              
                                              (724,313
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (724,313
                                              )Net
      income (loss)
                                              
                                              $
                                              2,509,532
                                              
                                              
                                              
                                              (5,094,557
                                              )
                                              
                                              $
                                              (2,585,025
                                              )Net
      Income (Loss) per common share:continuing
      operationsBasic
                                              
                                              $
                                              0.24
                                              
                                              
                                              
                                              (0.38
                                              )
                                              
                                              $
                                              (014
                                              )Dilutive
                                              
                                              $
                                              0.23
                                              
                                              
                                              
                                              (0.36
                                              )
                                              
                                              $
                                              (0.13
                                              )discontinued
      operationsBasic
                                              
                                              $
                                              (0.05
                                              )
                                              
                                              
                                              
                                              
                                              
                                              $
                                              (0.05
                                              )Dilutive
                                              
                                              $
                                              (0.05
                                              )
                                              
                                              
                                              
                                              
                                              
                                              $
                                              (0.05
                                              )




40


UNIVERSAL
TRAVEL GROUP


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009


(UNAUDITED
AND RESTATED)





NOTE
15 –RESTATEMENTAND
RECLASSIFICATION OF FINANCIAL STATEMENTS
(CONTINUED)





CONSOLIDATED
STATEMENT OF INCOME


FOR
THE SIX MONTHS ENDED JUNE 30, 2009





As Reported
                                                
                                                
                                                Net Change
                                                
                                                
                                                As restatedGross
      revenues,
                                                
                                                $
                                                33,916,152
                                                
                                                
                                                
                                                
                                                
                                                $
                                                33,916,152Cost
      of services
                                                
                                                
                                                20,938,269
                                                
                                                
                                                
                                                676,380
                                                
                                                
                                                
                                                21,614,649Gross
      Profit
                                                
                                                
                                                12,977,883
                                                
                                                
                                                
                                                (676,380
                                                )
                                                
                                                
                                                12,301,503Selling,
      general and administrative expenses
                                                
                                                
                                                4,499,019
                                                
                                                
                                                
                                                (1,401,303
                                                )
                                                
                                                
                                                3,097,716Income
      from operations
                                                
                                                
                                                8,478,864
                                                
                                                
                                                
                                                724,923
                                                
                                                
                                                
                                                9,203,787Other
      Income (Expense)Other
      income
                                                
                                                
                                                6,419
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                6,419Loss
      on change of fair value of derivative liabilities
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (5,706,217
                                                )
                                                
                                                
                                                (5,706,217
                                                )Interest
      income
                                                
                                                
                                                23,296
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                23,296Total
      Other Income (Expense)
                                                
                                                
                                                29,715
                                                
                                                
                                                
                                                (5,706,217
                                                )
                                                
                                                
                                                (5,676,502
                                                )Income
      before income taxes –continuing operations
                                                
                                                
                                                8,508,579
                                                
                                                
                                                
                                                (4,981,294
                                                )
                                                
                                                
                                                3,527,285Provision
      for income taxes
                                                
                                                
                                                2,138,151
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                2,138,151Income
      from continuing operations
                                                
                                                $
                                                6,370,428
                                                
                                                
                                                
                                                (4,981,294
                                                )
                                                
                                                $
                                                1,389,134Income
      from discontinued operations
                                                
                                                
                                                177,975
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                177,975Dividend
      from discontinued operations
                                                
                                                
                                                2,260,981
                                                
                                                
                                                
                                                (2,260,981
                                                )
                                                
                                                
                                                -Loss
      on disposition of discontinued operations
                                                
                                                
                                                (3,031,576
                                                )
                                                
                                                
                                                2,260,981
                                                
                                                
                                                
                                                (770,595
                                                )Net
      loss from discontinued operation
                                                
                                                
                                                (592,620
                                                )
                                                
                                                
                                                
                                                
                                                
                                                
                                                (592,620
                                                )Net
      Income
                                                
                                                
                                                5,777,808
                                                
                                                
                                                
                                                (4,981,294
                                                )
                                                
                                                
                                                796,514Net
      Income per common share:continuing
      operationsBasic
                                                
                                                $
                                                0.47
                                                
                                                
                                                
                                                (0.37
                                                )
                                                
                                                $
                                                0.10Dilutive
                                                
                                                $
                                                0.45
                                                
                                                
                                                
                                                (0.35
                                                )
                                                
                                                $
                                                0.10discontinued
      operationsBasic
                                                
                                                $
                                                (0.04
                                                )
                                                
                                                
                                                
                                                
                                                
                                                $
                                                (0.04
                                                )Dilutive
                                                
                                                $
                                                (0.04
                                                )
                                                
                                                
                                                
                                                
                                                
                                                $
                                                (0.04
                                                )




41


UNIVERSAL
TRAVEL GROUP


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009


(UNAUDITED
AND RESTATED)





NOTE
15 –RESTATEMENTAND
RECLASSIFICATION OF FINANCIAL STATEMENTS
(CONTINUED)




The
resulting effects of the correction of the errors and reclassifications on cash
flows for the six months ended June 30, 2009 are as follows.




As Reported
                  
                  
                  Net Change
                  
                  
                  As restatedNet
      Cash provided by Operating Activities
                  
                  $
                  11,676,366
                  
                  
                  
                  (1,776,632
                  )
                  
                  $
                  9,899,734Net
      Cash used in Investing Activities
                  
                  
                  (9,541,309
                  )
                  
                  
                  2,260,981
                  
                  
                  
                  (7,280,328
                  )Net
      Cash provided by Financing Activities
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  -Cash
      and cash equivalents, beginning balance
                  
                  
                  16,204,531
                  
                  
                  
                  (484,349
                  )
                  
                  
                  15,720,182




42


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





Forward-Looking
Statements: No Assurances Intended




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





Business
Overview





We are a
travel services provider in the People’s Republic of China and are engaged in
providing reservation, booking, and domestic and international travel and
tourism services throughout the People’s Republic of China via the internet and
through customer representatives.





Under the
theme of "Wings towards a more colorful life", our core services include
tour  packaging, booking services for air tickets and hotels
reservations.





In 2007,
we completed the acquisition of Speedy Dragon Enterprise Limited, specializing
in air cargo agency; Xi'an Golden Net Travel Serve Services Co., Ltd.,
specializing in travel packaged tours; Shanghai Lanbao Travel Service Co., Ltd.,
specializing in hotel reservations and Foshan Overseas International Travel
Service Co., Ltd., a PRC-based company that handles both domestic and
international travel inquiries.





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





In 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 expanding
our business operations into Chongqing, the metropolis of the Southwest China,
and Xi’an, the metropolis of the Northwest China. We set up Chongqing Travel
World E-Business Co., Ltd. to be our headquarters in that region.





We
believe that these expansions will contribute to our growth in the near
future.





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





We
currently have three discrete lines of business and revenue, and each is carried
out by a subsidiary of the Company. Our air-ticketing segment relates to the
segment reporting of Shenzhen Yuzhilu Aviation Service Co., Ltd. and Chongqing
Travel World E-Business Co., Ltd., hotel reservation segment relates to Shanghai
Lanbao Travel Service Co., Ltd, packaged tours segment relates to Foshan
International Travel Service Co., Ltd and Xi’an Golden Net Travel Serve Service
Company Limited, and Shenzhen Travel World Travel Agency Co., Ltd. Operations of
each segment are exclusive to the operations of the associated subsidiary
company.





Major
Factors Affecting the Travel Industry





A variety
of factors affect the travel industry in the People’s Republic of China, and we
shall be discussing these together with analysis of our results of operations
and financial condition.




43




Some of
these factors include:





(i)
              Growth in
      the Overall Economy and Demand for Travel Services in the People’s
      Republic of China.




We expect
that our financial results will continue to be affected by the overall growth of
the economy and demand for travel services in the People’s Republic of China and
the rest of the world.





According
to the statistics from the website of National Bureau of Statistics of China, in
July 2009, the People’s Republic of China’s first half year gross domestic
product (or “GDP”) grew to US$2.05trillion (RMB13.98trillion), representing a
7.1% growth year over year. The second quarter GDP growth rate also improved
from 6.1% in the first quarter to 7.9% in the second quarter.




According
to the statistics from the website of National Tourism Administration of
People's Republic of China in July 2009, the People’s Republic of China’s first
half year domestic tourism spending grew to US$72.9billion (approximately
RMB497.9 billion), representing a 10.6% growth year over year.





According
to the statistics from the website of Civil Aviation Administration of
China:





·
            domestic
      air passenger transportation volume grew 19.6% in the first half
      year  of 2009 compared to the same period in
    2008;





·
            domestic
      cargo transportation volume dropped 3.1% in the first half year of 2009
      compared to the same period in
2008;





Subject
to slight fluctuations, we believe that demand for travel services in the
People’s Republic of China will continue to increase in the foreseeable future
as the economy in the People’s Republic of China continues to grow. However, any
adverse changes in economic conditions of the People’s Republic of China and the
rest of the world, such as a slow-down of the Chinese economy, could have a
material and adverse effect on the travel industry in the People’s Republic of
China, which in turn would adversely affect our business.





(ii)
            Seasonality
      in the Travel Service
Industry.





The
travel service industry is characterized by seasonal fluctuations and
accordingly our revenue may vary from quarter to quarter. To date, revenue
generated during the summer season of each year generally is higher than those
generated during the winter season, mainly because the summer season coincides
with the domestic peak business and leisure travel season. By contrast, the
winter season includes the Chinese New Year holiday, during which our customers
reduce their business activities.




These
seasonal trends are difficult to discern in our historical results because our
revenue structure has changed due to our expansion over the years into more
diversified fields and our revenue have grown substantially since
inception.





However,
the impact of seasonal fluctuations in the travel industry is likely to have a
more apparent impact on our future results.





(iii)
            Disruptions
      in the Travel Industry.





Because
the travel industry is sensitive to the weather, events and seasons, travelers
tend to modify their travel plans according to such factors.





Examples
of some events which affected our travel industry last year were:





 ̈
            the snow
      storms which affected the People’s Republic of China during the Spring
      Festival last year;


 ̈
            the
      Olympics in August 2008 which led to an increase in prices for hotels,
      airline and other travel-related costs and accordingly, a similar increase
      in travel products;




44




 ̈
            the
      earthquakes in May 2008 which affected travel in the Sichuan
      area;


o
            the
      threat of terrorist attacks and increased security over international
      events, such as the Olympics,; and


 ̈
            a
      downturn in international economies such as in the United
      States.





Global events such as the widespread
infection of the H1N1 flu this year could similarly disrupt travel and affect
the travel industry adversely.





RESULTS
OF OPERATIONS





THREE
MONTHS ENDED JUNE 30, 2009 AND 2008





The
following table presents certain consolidated statement of operations
information derived from the consolidated statements of income for the three
months ended June 30, 2009 and 2008 respectively.





Because
the Company had spun off its Speedy Dragon Enterprise Limited subsidiary
and exited the air cargo business, all numbers attributable to continuing
operations in the following discussion do not include the operating results
of Speedy Dragon Enterprise Limited for the second quarter of 2009 and its
historical results.  Such had been reclassified as discontinued
operations.





USD$
                                  
                                  
                                  ThreemonthsendedJune
                                    30,2009
                                  
                                  
                                  
                                  Threemonthsended
                                    June30,2008
                                  
                                  
                                  
                                  Increase/
                                    Decrease
                                  
                                  
                                  
                                  PercentageGross
      Revenues
                                  
                                  
                                  $
                                  18,405,473
                                  
                                  
                                  
                                  $
                                  11,802,974
                                  
                                  
                                  
                                  $
                                  6,602,499
                                  
                                  
                                  
                                  
                                  55.9
                                  %Cost
      of Services
                                  
                                  
                                  
                                  (11,875,779
                                  )
                                  
                                  
                                  
                                  (8,106,437
                                  )
                                  
                                  
                                  
                                  (3,769,342
                                  )
                                  
                                  
                                  
                                  46.5
                                  %Gross
      Profit
                                  
                                  
                                  
                                  6,529,694
                                  
                                  
                                  
                                  
                                  3,696,538
                                  
                                  
                                  
                                  
                                  2,833,156
                                  
                                  
                                  
                                  
                                  76.6
                                  %SG&A
                                  
                                  
                                  
                                  (1,564,919
                                  )
                                  
                                  
                                  
                                  (908,736
                                  )
                                  
                                  
                                  
                                  (656,183
                                  )
                                  
                                  
                                  
                                  72.2
                                  %Income
      from Operations
                                  
                                  
                                  
                                  4,964,775
                                  
                                  
                                  
                                  
                                  2,787,801
                                  
                                  
                                  
                                  
                                  2,176,974
                                  
                                  
                                  
                                  
                                  78.0
                                  %Other
      income
                                  
                                  
                                  
                                  2,591
                                  
                                  
                                  
                                  
                                  5,504
                                  
                                  
                                  
                                  
                                  (2,913
                                  )
                                  
                                  
                                  
                                  -52.9
                                  %Loss
      on change in fair value of derivative liabilities
                                  
                                  
                                  
                                  (5,819,481
                                  )
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  
                                  (5,819,481
                                  )Interest
      income
                                  
                                  
                                  
                                  12,358
                                  
                                  
                                  
                                  
                                  10,307
                                  
                                  
                                  
                                  
                                  2,051
                                  
                                  
                                  
                                  
                                  19.9
                                  %Interest
      expense
                                  
                                  
                                  -
                                  
                                  
                                  
                                  
                                  (28,297
                                  )
                                  
                                  
                                  
                                  28,297
                                  
                                  
                                  
                                  
                                  -100.0
                                  %Income
      (loss) before income taxes
                                  
                                  
                                  
                                  (839,757
                                  )
                                  
                                  
                                  
                                  2,775,315
                                  
                                  
                                  
                                  
                                  (3,615,072
                                  )
                                  
                                  
                                  
                                  -130.2
                                  %Provision
      for income taxes
                                  
                                  
                                  
                                  (1,020,955
                                  )
                                  
                                  
                                  
                                  (701,374
                                  )
                                  
                                  
                                  
                                  (319,581
                                  )
                                  
                                  
                                  
                                  45.6
                                  %Net
      Income (loss) – continuing operations
                                  
                                  
                                  
                                  (1,860,712
                                  )
                                  
                                  
                                  
                                  2,073,941
                                  
                                  
                                  
                                  
                                  (3,934,653
                                  )
                                  
                                  
                                  
                                  -189.7
                                  %Income
      from discontinued operations
                                  
                                  
                                  
                                  46,282
                                  
                                  
                                  
                                  
                                  39,752
                                  
                                  
                                  
                                  
                                  6,530
                                  
                                  
                                  
                                  
                                  16.4
                                  %Loss
      on disposition of discontinued operations
                                  
                                  
                                  
                                  (770,595
                                  )
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  
                                  (770,595
                                  )Net
      Income (Loss)
                                  
                                  
                                  $
                                  (2,585,025
                                  )
                                  
                                  
                                  $
                                  2,113,693
                                  
                                  
                                  
                                  $
                                  (4,698,718
                                  )
                                  
                                  
                                  
                                  -222.2
                                  %




45




For
the three months ended June 30, 2009:
 Revenue Segment
                                
                                Air-tickets
                                
                                
                                (%) of
                                
                                
                                Cargo
                                
                                
                                (%) of
                                
                                
                                Hotel
                                
                                
                                (%) of
                                
                                
                                Tours
                                
                                
                                (%) of
                                
                                
                                TotalAnalysis:
                                
                                (YZL)
                                
                                
                                sector
                                
                                
                                (SSD)
                                
                                
                                sector
                                
                                
                                (SLB)
                                
                                
                                sector
                                
                                
                                (XGN & FOI)
                                
                                
                                sectorRevenue
                                
                                
                                3,294,514
                                
                                
                                
                                17.90
                                %
                                
                                
                                0
                                
                                
                                
                                0.00
                                %
                                
                                
                                2,714,144
                                
                                
                                
                                14.75
                                %
                                
                                
                                12,396,815
                                
                                
                                
                                67.35
                                %
                                
                                
                                18,405,473Cost
      of Services
                                
                                
                                349,173
                                
                                
                                
                                2.94
                                %
                                
                                
                                0
                                
                                
                                
                                0.00
                                %
                                
                                
                                910,164
                                
                                
                                
                                7.66
                                %
                                
                                
                                10,616,442
                                
                                
                                
                                89.40
                                %
                                
                                
                                11,875,779Gross
      Profit
                                
                                
                                2,945,341
                                
                                
                                
                                45.11
                                %
                                
                                
                                0
                                
                                
                                
                                0.00
                                %
                                
                                
                                1,803,980
                                
                                
                                
                                27.63
                                %
                                
                                
                                1,780,373
                                
                                
                                
                                27.27
                                %
                                
                                
                                6,529,694Gross
      Margin
                                
                                
                                89.40
                                %
                                
                                
                                -
                                
                                
                                
                                0.00
                                %
                                
                                
                                -
                                
                                
                                
                                66.47
                                %
                                
                                
                                -
                                
                                
                                
                                14.36
                                %
                                
                                
                                -
                                
                                
                                
                                35.48
                                %Segment effectin
      Gross Margin (*)
                                
                                
                                16.00
                                %
                                
                                
                                -
                                
                                
                                
                                0.00
                                %
                                
                                
                                -
                                
                                
                                
                                9.80
                                %
                                
                                
                                -
                                
                                
                                
                                9.67
                                %
                                
                                
                                -
                                
                                
                                
                                35.48
                                %
 
 For
the three months ended June 30, 2008:
 Revenue Segment
                              
                              Ai
      r-tickets
                              
                              
                              (%)
      of
                              
                              
                              Cargo
                              
                              
                              (%)
      of
                              
                              
                              Hotel
                              
                              
                              (%)
      of
                              
                              
                              Tours
                              
                              
                              (%)
      of
                              
                              
                              TotalAnalysis:
                              
                              (YZL)
                              
                              
                              sector
                              
                              
                              (SSD)
                              
                              
                              sector
                              
                              
                              (SLB)
                              
                              
                              sector
                              
                              
                              (XGN & FOI)
                              
                              
                              sectorRevenue
                              
                              
                              1,936,519
                              
                              
                              
                              16.41
                              %
                              
                              
                              -
                              
                              
                              
                              0.00
                              %
                              
                              
                              1,411,818
                              
                              
                              
                              11.96
                              %
                              
                              
                              8,454,637
                              
                              
                              
                              71.63
                              %
                              
                              
                              11,802,974Cost
      of Services
                              
                              
                              207,324
                              
                              
                              
                              2.56
                              %
                              
                              
                              -
                              
                              
                              
                              0.00
                              %
                              
                              
                              606,677
                              
                              
                              
                              7.48
                              %
                              
                              
                              7,292,436
                              
                              
                              
                              89.96
                              %
                              
                              
                              8,106,437Gross
      Profit
                              
                              
                              1,729,195
                              
                              
                              
                              46.78
                              %
                              
                              
                              -
                              
                              
                              
                              0.00
                              %
                              
                              
                              805,141
                              
                              
                              
                              21.78
                              %
                              
                              
                              1,162,201
                              
                              
                              
                              31.44
                              %
                              
                              
                              3,696,537Gross
      Margin
                              
                              
                              89.29
                              %
                              
                              
                              -
                              
                              
                              
                              0.00
                              %
                              
                              
                              -
                              
                              
                              
                              57.03
                              %
                              
                              
                              -
                              
                              
                              
                              13.75
                              %
                              
                              
                              -
                              
                              
                              
                              31.32
                              %Segment
      effect in
      Gross Margin (*)
                              
                              
                              14.65
                              %
                              
                              
                              -
                              
                              
                              
                              0.00
                              %
                              
                              
                              -
                              
                              
                              
                              6.82
                              %
                              
                              
                              -
                              
                              
                              
                              9.85
                              %
                              
                              
                              -
                              
                              
                              
                              31.32
                              %
 (*)
"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.,
hotel reservation segment relates to Shanghai Lanbao Travel Service Co., Ltd,
packaged tours segment relates to Foshan International Travel Service Co., Ltd
and Xi’an Golden Net Travel Serve Service Company Limited, and Shenzhen Travel
World Travel Agency Co., Ltd.





Revenue
for the three months ended June 30, 2009 was $18,405,473 compared to $11,802,974
for the same period 2008, an increase of approximately 55.9%. This increase was
primarily due to the strong domestic travel demand supported by the government’s
stimulus package and a long Labor Day public holiday period.   In
addition, we continue to see success in cross marketing and selling our travel
related products across our business segments and increased brand awareness from
the deployment of our TRIPEASY kiosks as evidenced
by the increase in usage of these kiosks.  This revenue increase was
partially offset by a decrease in outbound and inbound travel as a result of the
threat caused by the H1N1 flu.





Revenue
from air-ticketing was $3,294,514 for the three months ended June 30, 2009
compared to $1,936,519 for the same period last year, an increase of
approximately 70.1%. This increase is generally driven by the same factors
mentioned above, but more specifically a result of the increased demand for air
passenger transportation. We witnessed strong demand from individual travelers,
but only a modest increase of business travelers during the second quarter of
2009.  We believe that this is attributable to China’s stimulation of
consumption policies, and the sluggish recovery in its business
sector.





Revenue
from hotel reservations was $2,714,144 for the three months ended June 30, 2009
compared to $1,411,818 for the same period in 2008, an increase of approximately
92.2%. This increase is also a result of the factors mentioned above for air
tickets and the successful cross marketing of our various business
segments.





Revenue
from our packaged tour segment was $12,396,815 for the three months ended June
30, 2009 compared to $8,454,637 for the same period in 2008, an increase of
approximately 46.6%. This increase is a result of the government’s stimulus
package, cross marketing across our various business segments and a long public
holiday period during the second quarter of 2009.





Cost of
Services




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


46





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





Consolidated
expenses such as stock-based compensation and corporate professional fees are
not allocated to any segment as costs of sales. Instead, the Company disclosed
these two numbers in Others (Corporate Expense) of its Segment Information
footnote (Note 13) and these expenses were included in the selling, general, and
administrative expenses.





Gross
Profit





Gross
Profit for the three months ended June 30, 2009 was $6,529,694 compared to
$3,696,538 for the same period 2008, an increase of approximately 76.6%. The
increase in gross profit is due to the same factors contributing to the growth
in revenue. The exponential 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 $2,945,341 for the three months ended
June 30, 2009 compared to $1,729,195 for the same period last year, an increase
of approximately 70.3%. Gross profit margin in this segment for the three months
ended June 30, 2009 was 89.4% compared to 89.3% for the same period 2008. As the
cost of service is at a similar percentage to the revenue for the comparable
period last year, the gross profit increase is in tandem with the increase
in our air-ticketing business operated by YZL.





Gross
profit in our hotel reservation segment was $1,803,980 for the three months
ended June 30, 2009 compared to $805,141 for the same period last year, an
increase of approximately 124.1%. Gross profit margin in this segment for the
three months ended June 30, 2009 was 66.5% compared to 57.0% for the same period
2008, an increase of approximately 9.5%. The gross profit margin increase was
mainly due to the increase in commission revenue as a result of significant
increased reservation volume while our associated cost of services is increased
at a much lesser extent. These factors together resulted in the significant
increase in the gross profit of SLB.





Gross
profit in our packaged tour segment was $1,780,374 for the three months ended
June 30, 2009 compared to $1,162,201 for the same period last year, an increase
of approximately 53.2%. Gross profit margin in this segment for the three months
ended June 30, 2009 was 14.4% compared to 13.8% for the same period 2008. As the
cost of service is at a similar percentage to the revenue for the comparable
period last year, the gross profit increase is in tandem with the increase
in our packaged travel businesses operated by XGN and FOI.





Our
air-ticketing and hotel reservation have much higher gross margin than our
packaged tour business primarily as our revenue from air-ticketing and hotel
reservation are the commission we generated and our costs of service are mainly
business taxes, systems and related technologies used in operations, costs
associated with payment processing, and allocation of costs of labor and
facilities, communications, and utility expenses, which all together are not
substantial; 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 three months ended June 30, 2009 came in at 35.5%, a 4.2%
increase from the 31.3% the Company posted in the same period last year. As
outlined in the above tables, gross profit for air-ticketing improved the total
gross margin by 1.4%, gross profit for hotel reservations improved the total
gross margin by 3.0%, gross profit for packaged travel reduced the total gross
margin by 0.2%, which in total, increased the total gross profit by
4.2%.


47





Selling, General and
Administrative Expenses





Major
selling, general, and administrative expenses for the three months ended June
30, 2009 and 2008 are as follows:





For
      the three months ended June 30,2009
                  
                  
                  2008Business
      related tax
                  
                  $
                  172,547
                  
                  
                  $
                  68,051Salary
      and commission
                  
                  
                  744,230
                  
                  
                  
                  540,019Marketing
                  
                  
                  508
                  
                  
                  
                  30,474Rent
                  
                  
                  44,151
                  
                  
                  
                  28,534Depreciation
      and amortization
                  
                  
                  10,655
                  
                  
                  
                  1,682Professional
      fees
                  
                  
                  85,742
                  
                  
                  
                  43,000Stock-based
      compensation
                  
                  
                  330,724
                  
                  
                  
                  45,791Other
      general and administrative expenses
                  
                  
                  176,362
                  
                  
                  
                  151,185Total
                  
                  $
                  1,564,919
                  
                  
                  $
                  908,736





Selling,
general and administrative expenses totaled $1,564,919 for three months ended
June 30, 2009 compared to $908,736 for same period last year, an increase of
approximately 72.2%.





Stock-based
compensation reflects standard options issuance to our independent directors as
well as another 2.2 million options issued in January 20, 2009 to our management
team. It is the first time the management was granted options since the
Company went public in July 2006. During the second quarter, the non-cash charge
associated with the stock-based compensation was $330,724, or 1.8% of
revenue.





Selling,
general and administrative expenses were approximately 8.50% of revenue for the
three months ended June 30, 2009 as compared to 7.7% for the same period last
year. The slight increase in percentage was mainly due to the issuance of stock
based compensation in January 2009 and the amortization of such stock based
compensation, whereas the stock based compensation is less significant during
the same period last year.. General increase in selling, general and
administrative expenses are in connection with the growth in business operations
during the three months ended June 30, 2009, as compared to the same period of
last year.





During
the second quarter, based on the past performance of our air cargo business, as
well as the market’s perception 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 business had been under pressure from the
contraction of manufacturing in the Pearl River Delta.  We decided to
exit this business and concentrate on our core competence in the air-ticketing,
hotel reservations and packaged tour industry. We incurred a net loss from
discontinued operation of $724,313.





Other Income
(Expenses)





Interest
expense for three months ended June 30, 2009 totaled $0 compared to $28,297 for
three months ended June 30, 2008. The decrease in interest expense reflects the
fact that we paid off all our bank loans in July 2008 and our ability to manage
our cash flow.





Loss on
change in fair value of derivative liability for the three months ended June 30,
2009 was $5,819,481 compared to $0 for the three months ended June 30, 2008. The
Company adopted EITF No. 07-05 on January 1, 2009 and 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.  The Company recorded a loss on change in fair value of derivative
liability of $5,819,481 on June 30, 2009 to mark to market for the increase in
fair value of the warrants from March 31, 2009 to June 30,
2009.


48





Net Income
(Loss)





We
incurred net loss of $2,585,025, or 14.0% of revenues for the three months ended
June 30, 2009, compared to net income of $2,113,693 or 18.0% of revenue for the
same period last year. Excluding the effect of provision for income taxes, the
decrease in net income was mainly due to an increase in income from operations
in the amount of approximately $1.5 million, offset by approximately $5.8
million of loss on change in fair value of derivative liability as described
above and $724,313 of loss attributable to discontinued operations.





SIX
MONTHS ENDED JUNE 30, 2009 AND 2008





The
following table presents certain consolidated statement of operations
information derived from the consolidated statements of income for the six
months ended June 30, 2009 and 2008.





Because the
Company had spun off its Speedy Dragon Enterprise Limited subsidiary, and exited
the air cargo business, all numbers attributable to continuing operation in the
following discussion do not include the operating result of Speedy Dragon
Enterprise Limited for the six months ended June 30, 2009, and its historical
results.




USD$
                        
                        Six
      months ended
                          June
      30, 2009
                        
                        
                        Six
      months ended
                          June
      30, 2008
                        
                        
                        Increase/
                          Decrease
                        
                        
                        PercentageGross
      Revenues
                        
                        $
                        33,916,152
                        
                        
                        $
                        18,755,352
                        
                        
                        $
                        15,160,800
                        
                        
                        
                        80.8
                        %Cost
      of Services
                        
                        
                        (21,614,649
                        )
                        
                        
                        (12,886,250
                        )
                        
                        
                        (8,728,399
                        )
                        
                        
                        67.7
                        %Gross
      Profit
                        
                        
                        12,301,503
                        
                        
                        
                        5,869,102
                        
                        
                        
                        6,432,401
                        
                        
                        
                        109.6
                        %SG&A
                        
                        
                        (3,097,716
                        )
                        
                        
                        (1,557,612
                        )
                        
                        
                        (1,540,104
                        )
                        
                        
                        98.9
                        %Income
      from Operations
                        
                        
                        9,203,787
                        
                        
                        
                        4,311,490
                        
                        
                        
                        4,892,297
                        
                        
                        
                        113.5
                        %Loss
      on disposal of assets
                        
                        -
                        
                        
                        
                        (1,104
                        )
                        
                        
                        1,104
                        
                        
                        
                        -100.0
                        %Other
      income
                        
                        
                        6,419
                        
                        
                        
                        8,378
                        
                        
                        
                        (1,959
                        )
                        
                        
                        -23.4
                        %Loss
      on change of fair value of derivative liabilities
                        
                        
                        (5,706,217
                        )
                        
                        -
                        
                        
                        
                        (5,706,217
                        )Interest
      income
                        
                        
                        23,296
                        
                        
                        
                        11,722
                        
                        
                        
                        11,574
                        
                        
                        
                        98.7
                        %Interest
      expense
                        
                        -
                        
                        
                        
                        (65,004
                        )
                        
                        
                        65,004
                        
                        
                        
                        -100.0
                        %Income
      before income taxes
                        
                        
                        3,527,285
                        
                        
                        
                        4,265,482
                        
                        
                        
                        (738,197
                        )
                        
                        
                        -17.3
                        %Provision
      for income taxes
                        
                        
                        (2,138,151
                        )
                        
                        
                        (1,007,246
                        )
                        
                        
                        (1,130,905
                        )
                        
                        
                        112.3
                        %Net
      Income – continuing operations
                        
                        
                        1,389,134
                        
                        
                        
                        3,258,236
                        
                        
                        
                        (1,869,102
                        )
                        
                        
                        -57.37
                        %Income
      from discontinued operations
                        
                        
                        177,975
                        
                        
                        
                        319,321
                        
                        
                        
                        (141,346
                        )
                        
                        
                        -44.3
                        %Loss
      on disposition of discontinued operations
                        
                        
                        (770,595
                        )
                        
                        -
                        
                        
                        
                        (770,595
                        )Net
      Income
                        
                        $
                        796,514
                        
                        
                        $
                        3,577,557
                        
                        
                        $
                        (2,781,043
                        )
                        
                        
                        -77.7
                        %




For the
six months ended June 30, 2009:
 Revenue
      Segment
                        
                        Air-tickets
                        
                        
                        (%)
      of
                        
                        
                        Cargo
                        
                        
                        (%)
      of
                        
                        
                        Hotel
                        
                        
                        (%)
      of
                        
                        
                        Tours
                        
                        
                        (%)
      ofAnalysis:
                        
                        (YZL)
                        
                        
                        sector
                        
                        
                        (SSD)
                        
                        
                        sector
                        
                        
                        (SLB)
                        
                        
                        sector
                        
                        
                        (XGN & FOI)
                        
                        
                        sector
                        
                        
                        TotalRevenue
                        
                        
                        6,045,642
                        
                        
                        
                        17.83
                        %
                        
                        
                        0
                        
                        
                        
                        0.00
                        %
                        
                        
                        5,230,975
                        
                        
                        
                        15.42
                        %
                        
                        
                        22,639,535
                        
                        
                        
                        66.75
                        %
                        
                        
                        33,916,152Cost
      of Services
                        
                        
                        651,979
                        
                        
                        
                        3.02
                        %
                        
                        
                        0
                        
                        
                        
                        0.00
                        %
                        
                        
                        1,683,627
                        
                        
                        
                        7.79
                        %
                        
                        
                        19,279,043
                        
                        
                        
                        89.19
                        %
                        
                        
                        21,614,649Gross
      Profit
                        
                        
                        5,393,663
                        
                        
                        
                        43.85
                        %
                        
                        
                        0
                        
                        
                        
                        0.00
                        %
                        
                        
                        3,547,348
                        
                        
                        
                        28.84
                        %
                        
                        
                        3,360,492
                        
                        
                        
                        27.32
                        %
                        
                        
                        12,301,503Gross
      Margin
                        
                        
                        89.22
                        %
                        
                        
                        -
                        
                        
                        
                        0.00
                        %
                        
                        
                        -
                        
                        
                        
                        67.81
                        %
                        
                        
                        -
                        
                        
                        
                        14.84
                        %
                        
                        
                        -
                        
                        
                        
                        36.27
                        %Segment
      effect in Gross Margin (*)
                        
                        
                        15.90
                        %
                        
                        
                        -
                        
                        
                        
                        0.00
                        %
                        
                        
                        -
                        
                        
                        
                        10.46
                        %
                        
                        
                        -
                        
                        
                        
                        9.91
                        %
                        
                        
                        -
                        
                        
                        
                        36.27
                        %
  For
the six months ended June 30, 2008:
 Revenue
      Segment
                            
                            Air-tickets
                            
                            
                            (%)
      of
                            
                            
                            Cargo
                            
                            
                            (%)
      of
                            
                            
                            Hotel
                            
                            
                            (%)
      of
                            
                            
                            Tours
                            
                            
                            (%)
      ofAnalysis:
                            
                            (YZL)
                            
                            
                            sector
                            
                            
                            (SSD)
                            
                            
                            sector
                            
                            
                            (SLB)
                            
                            
                            sector
                            
                            
                            (XGN & FOI)
                            
                            
                            Sector
                            
                            
                            TotalRevenue
                            
                            
                            3,365,400
                            
                            
                            
                            17.94
                            %
                            
                            
                            -
                            
                            
                            
                            0.00
                            %
                            
                            
                            2,024,296
                            
                            
                            
                            10.79
                            %
                            
                            
                            13,365,656
                            
                            
                            
                            71.26
                            %
                            
                            
                            18,755,352Cost
      of Services
                            
                            
                            380,254
                            
                            
                            
                            2.95
                            %
                            
                            
                            -
                            
                            
                            
                            0.00
                            %
                            
                            
                            857,596
                            
                            
                            
                            6.66
                            %
                            
                            
                            11,648,400
                            
                            
                            
                            90.39
                            %
                            
                            
                            12,886,250Gross
      Profit
                            
                            
                            2,985,146
                            
                            
                            
                            50.86
                            %
                            
                            
                            -
                            
                            
                            
                            0.00
                            %
                            
                            
                            1,166,700
                            
                            
                            
                            19.88
                            %
                            
                            
                            1,717,256
                            
                            
                            
                            29.26
                            %
                            
                            
                            5,869,102Gross
      Margin
                            
                            
                            88.70
                            %
                            
                            
                            -
                            
                            
                            
                            0.00
                            %
                            
                            
                            -
                            
                            
                            
                            57.63
                            %
                            
                            
                            -
                            
                            
                            
                            12.85
                            %
                            
                            
                            -
                            
                            
                            
                            31.29
                            %Segment
      effect in Gross Margin (*)
                            
                            
                            15.92
                            %
                            
                            
                            -
                            
                            
                            
                            0.00
                            %
                            
                            
                            -
                            
                            
                            
                            6.22
                            %
                            
                            
                            -
                            
                            
                            
                            9.16
                            %
                            
                            
                            -
                            
                            
                            
                            31.29
                            %
 (*)
"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.


49





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.,
hotel reservation segment relates to Shanghai Lanbao Travel Service Co., Ltd,
packaged tours segment relates to Foshan International Travel Service Co., Ltd
and Xi’an Golden Net Travel Serve Service Company Limited, and Shenzhen Travel
World Travel Agency Co., Ltd.





Revenue
for the six months ended June 30, 2009 was $33,916,152 compared to $18,755,352
for the same period in 2008, an increase of approximately 80.8%. This increase
was primarily due to the strong domestic travel demand supported by the
government’s stimulus package and a long Labor Day public holiday
period.   In addition, we continue to see success in cross
marketing and selling our travel related products across our business segments
and increased brand awareness from the deployment of our TRIPEASY kiosks as evidenced
by the increase in usage of these kiosks.  This revenue increase was
partially offset by a decrease in outbound and inbound travel as a result of the
threat caused by the H1N1 flu.




Revenue
from our air-ticketing segment was $ 6,045,642 for the six months ended June 30,
2009 compared to $ 3,365,400 for the same period last year, an increase of
approximately 79.6%. This increase is driven by the organic growth of YZL, and
the increase in air passenger transportation. We witnessed strong demand
from individual travelers, but only a modest increase in business
travelers.  We believe that this is attributable to the Chinese
government stimulating domestic consumption, and the sluggish recovery
in the PRC’s business sector.





Revenue
from our hotel reservation segment was $5,230,975 for the six months ended June
30, 2009 compared to $2,024,296 for the same period last year, an increase of
approximately158.4%. Our organic growth was driven by the successful integration
and the synergies among our various business segments and also the consolidation
of marketing channels among the subsidiaries in major domestic
cities.





Revenue
from our packaged tour segment was $22,639,535 for the six months ended June 30,
2009 compared to $13,365,656 for the same period last year, an increase of
approximately 69.4%. The growth in these two subsidiaries were driven by the
successful integration, the synergies among segments and also the consolidation
of marketing channels among the subsidiaries in major domestic
cities.





Because
the average price of our travel products and commission rates remained stable,
we believe the greatest impact to our financial performance was from the growth
of our business volume.





Cost of
services




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





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





Consolidated
expenses such as stock-based compensation and corporate professional fees are
not allocated to any segment as costs of sales. Instead, the Company disclosed
these two numbers in Others (Corporate Expense) of its Segment Information
footnote (Note 13) and these expenses were included in the selling, general, and
administrative expenses.


50





Gross
Profit





Gross
profit for the six months ended June 30, 2009 was $12,301,503 compared to
$5,869,102 for the same period last year, an increase of approximately 109.6%.
The increase in gross profit reflects the aforementioned integration of business
lines onto our online platform and higher percentage of packaged tour
revenue.





Gross
profit in air-ticketing was $5,393,663 for the six months ended June 30, 2009
compared to $2,985,146 for the same period last year, an increase of
approximately 80.7%. Gross profit margin in this segment for the six months
ended June 30, 2009 was 89.2% compared to 88.7% for the same period 2008. As the
cost of service is at a similar percentage to the revenue for the comparable
period last year, the gross profit increase is in tandem with the increase
in our air-ticketing business operated by YZL.





Gross
profit in hotel reservation was $,3547,348 for the six months ended June 30,
2009 compared to $1,166,700 for the same period last year, an increase of
approximately 204.0%. Gross profit margin in this segment for the six months
ended June 30, 2009 was 67.8% compared to 57.6% for the same period 2008, an
increase of approximately 10.2%. The gross profit margin increase was mainly due
to the increase in commission revenue as a result of significant increased
reservation volume while our associated cost of services is increased at a much
lesser extent. These factors together resulted in the significant increase in
the gross profit of SLB.





Gross
profit in packaged tour was $3,360,492 for the six months ended June 30, 2009
compared to $1,717,256 for the same period last year, an increase of
approximately 95.7%. Gross profit margin in this segment for the six months
ended June 30, 2009 was 14.8% compared to 12.9% for the same period 2008. As the
cost of service is at a similar percentage to the revenue for the comparable
period last year, the gross profit increase is in tandem with the increase
in our packaged travel businesses operated by XGN and FOI.





Our
air-ticketing and hotel reservation have much higher gross margin than our
packaged tour business primarily as our revenue from air-ticketing and hotel
reservation are the commission we generated and our costs of service are mainly
business taxes, systems and related technologies used in operations, costs
associated with payment processing, and allocation of costs of labor and
facilities, communications, and utility expenses, which all together are not
substantial; 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 six months ended June 30, 2009 came in at 36.3%, a 5.0%
increase from the 31.3% the Company posted in the same period last year. As
outlined in the above tables, gross profit for air-ticketing remained at a
similar percentage as the same period of last year, gross profit for hotel
reservations improved the total gross margin by 4.2%, gross profit for packaged
travel improved the total gross margin by 0.8%, which in total, increased the
total gross profit by 5.0%.





Selling, General and
Administrative Expenses





Major
selling, general, and administrative expenses for the six months ended June 30,
2009 and 2008 are as follows:





For
      the six months ended June 30,2009
                  
                  
                  2008Business
      related tax
                  
                  $
                  261,233
                  
                  
                  $
                  108,263Salary
      and commission
                  
                  
                  1,456,152
                  
                  
                  
                  872,419Marketing
                  
                  
                  38,855
                  
                  
                  
                  60,015Rent
                  
                  
                  82,671
                  
                  
                  
                  58,426Depreciation
      and amortization
                  
                  
                  19,074
                  
                  
                  
                  3,381Professional
      fees
                  
                  
                  341,676
                  
                  
                  
                  71,168Stock-based
      compensation
                  
                  
                  495,725
                  
                  
                  
                  155,802Other
      general and administrative expenses
                  
                  
                  402,330
                  
                  
                  
                  228,138Total
                  
                  $
                  3,097,716
                  
                  
                  $
                  1,557,612


51





Selling,
general and administrative expenses for six months ended June 30, 2009 totaled
$3,097,716 compared to $1,557,612 for the same period last year, an increase of
approximately 98.9%.





Stock-based
compensation reflects standard options issuance to our independent directors as
well as another 2.2 million options issued in January 20 2009 to our management
team. It is the first time the management was granted options since the
Company went public in July 2006.  For the six months ended June 30,
2009, the non-cash charge was $495,725, or 1.46% of revenue





Selling,
general and administrative expenses were approximately 9.13% of revenue for the
six months ended June 30, 2009 as compared to 8.3% for the six months ended June
30, 2008, which was mainly because of the rapid increase in stock based
compensation as a result of rapid growth in share price.





Other Income
(Expenses)





Interest
expense for six months ended June 30, 2009 totaled $0 compared to $65,004 for
six months ended June 30, 2008. The decrease in interest expense reflects the
fact that we paid off all our bank loans in July 2008 and our ability to manage
our cash flow.





Loss on
change in fair value of derivative liability for the six months ended June 30,
2009 was $5,706,217 compared to $0 for the six months ended June 30, 2008. The
Company adopted EITF No. 07-05 on January 1, 2009 and 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.  The Company recorded a gain on change in fair value of derivative
liability of $113,264 on March 31, 2009 to mark to market for the decrease in
fair value of the warrants from January 1, 2009 to March 31, 2009, and recorded
a loss on change in fair value of derivative liability of $5,819,481 on June 30,
2009 to mark to market for the increase in fair value of the warrants from March
31, 2009 to June 30, 2009,





Net
Income





Net
income was $796,514 or 2.3% of revenue for the six months ended June 30, 2009,
compared to $3,577,557 or 19.1% of revenue for the same period last year.
Excluding the effect of provision for income taxes, the decrease in net income
was mainly due to an increase in income from operations in the amount of
approximately $4.2 million, offset by approximately $5.7 million of loss on
change in fair value of derivative liability as described above and $592,620 of
loss attributable to discontinued operations.





LIQUIDITY AND CAPITAL
RESOURCES





Cash for
operations and liquidity needs are funded primarily through cash flows from
operations and debt and equity financing. Cash and cash equivalents were
$18,388,175 as of June 30, 2009. Current assets and current liabilities as of
June 30, 2009, were $37,221,709 and $5,055,518 yielding working capital of
$32,166,191. We believe that the funds available to us from operations are
adequate to meet our operating needs in 2009. For the six months ended June 30,
2009, net cash provided by operating activities was $9,899,734, which resulted
primarily from our organic operations and effective management of cash
flow.





Capital
expenditure





Total
capital expenditure for six months ended June 30, 2009 was $6,076,248 to
purchase fixed assets, primarily machinery and equipment. Management may
consider substantial increase in equipment or other supporting machinery
expenditure to support the fast development and expansion of our
business.


52





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. Currently we are
strategically expanding our business operations in Chongqing, the largest
metropolis in Southwest China, and Xi’an, the largest metropolis in Northwest of
China. To satisfy these capital needs, as well as to set up more TRIPEASY kiosks, we may incur
additional capital expenditure.





We have
filed a Registration Statement on  Form S-3 to register $50,000,000
worth of common stock on Aug 7, 2009. There can be no assurance that such
financing will be available or, if available, will be on terms acceptable to us.
Future expansion will be limited by the availability of financing. 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 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





Item 3.
            Quantitative and Qualitative
      Disclosures About Market
Risk.





We currently do not hold or use any
derivative or other financial instruments that expose us to substantial market
risk and we have no foreign exchange contracts.





We are exposed to foreign exchange risk
arising from fluctuations in the exchange rate between U.S. Dollars and
Renminbi. Our operations are located in the People’s Republic of China and
substantially all of our revenues and assets are denominated in Renminbi.
Hhowever our reporting currency is the U.S. Dollar and some of our expenses are
denominated in U.S. Dollars. As a result, our financial results are potentially
subject to the impact of changes in value between U.S. Dollars and Renminbi. If
the Renminbi depreciates relative to the U.S. Dollar, the value of our revenues,
earnings and assets as reported in our financial statements will
decline.





Item
      4.
            Controls
      and Procedures.





Evaluation
of our Disclosure Controls


a)           Evaluation
of Disclosure Controls and Procedures: As of June 30, 2009, our management
carried out an evaluation, under the supervision of our Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of
the Company's system of disclosure controls and procedures pursuant to the
Exchange Act and Rules 13a-15(e) and 15d-15(e) promulgated
thereunder.  Based upon that evaluation, our Chief Executive Officer
and Chief Financial Officer concluded that the disclosure controls and
procedures were not effective, as of the date of their evaluation, for the
purposes of recording, processing, summarizing and timely reporting material
information required to be disclosed in reports filed under the Exchange
Act.
 
 As a
result of comments raised by the SEC, we determined that accounting errors were
made in connection with:
 
 *           the
accounting for a derivative liability upon the adoption of EITF 07-5 effective
January 1, 2009, and the subsequent accounting for the changes in the associated
liability from the marked to market;
 
 *           accounting
for cancelled common stock in connection with disposition of our discontinued
operations as treasury stock;
 
 *           presenting
the dividends from our discontinued operations as income from discontinued
operations;
 
 *           presenting
the dividends receivable associated with our discontinued operations as an
investing cash outflow;
 
 *           our
weighted average common shares and stock-based compensation
computation;
 
 *           omitting
the reclassification of balance sheet items of the discontinued operations
separately from continuing operations for the prior year presented;
 
 *           omitting
the segregation of cash flow of discontinued operations from continuing
operations; and
 
 *           the
classification of costs directly associated with the generation of revenue of
our costs of services
 
 Based on
the impact of the aforementioned accounting errors, we determined to restate our
consolidated financial statements as of March 31, 2009, June 30,
2009  and for the year ended December 31, 2008.
 
 b)           Changes
in internal control over financial reporting:  There were no changes
in internal controls over financial reporting that occurred during the period
covered by this report that have materially affected, or are reasonably likely
to materially effect, our internal control over financial
reporting.


53





Based
upon their controls evaluation, our CEO and CFO have concluded that our
Disclosure Controls are effective at a reasonable assurance level.




Changes
in internal control over financial reporting





The
company has set up an internal control department with qualified accounting
staffs which directly report to the Independent Audit Committee. Management
believes this would help strengthen the general internal control process. There
were no changes in our internal controls over financial reporting during our
second fiscal quarter that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.





PART
II - OTHER INFORMATION





Item
      1.
            Legal
      Proceedings.





There is
no material legal proceeding pending against us.





Item
1A. Risk Factors





Not
Applicable.





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





None.





Item
      3.
            Defaults
      Upon Senior Securities





None.




Item
      4.
            Submission
      of Matters to a Vote of Security
Holders.





None.





Item
      5.
            Other
      Information





Not
applicable.





Item
      6.
            Exhibits





Copies of
the following documents are included as exhibits to this report pursuant to Item
601 of Regulation S-K.


54


Exhibit
      No.
              
              SEC
      Ref. No.
              
              Title
      of Document1
              
              31.1
              
              Certification
      of the Principal Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 20022.
              
              31.2
              
              Certification
      of the Principal Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 20023
              
              32.1
              
              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
      2002*4
              
              32.2
              
              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*





*The Exhibit attached to this
Form 10-Q/A shall not be deemed "filed" for purposes of Section 18 of the
Securities Exchange Act of 1934 (the "Exchange Act") or otherwise subject to
liability under that section, nor shall it be deemed incorporated by reference
in any filing under the Securities Act of 1933, as amended, or the Exchange Act,
except as expressly set forth by specific reference in such
filing.


55




SIGNATURES





In
accordance with the Exchange Act, the registrant caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.





Date:
October 28, 2009




UNIVERSAL
      TRAVEL GROUP





By:
                /s/ Jiangping JiangJiangping
      Jiang
                  Chairman
      and Chief Executive Officer
                  (Principal
      Executive Officer)





By:
                /s/ Yizhao ZhangYizhao
      Zhang
                  Chief
      Financial Officer
                  (Principal
      Financial Officer)


56