UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
10-Q
 
 (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, 2010
 
  ̈
              TRANSITION REPORT UNDER SECTION
      13 OR 15(d) OF THE EXCHANGE
ACT
 
 For the
transition period from ______________ to _____________
 
 Commission
file number: 000-51516
 
 UNIVERSAL
TRAVEL GROUP
 (Exact
name of registrant as specified in its charter)
 
 Nevada
              
              90-0296536(State
      or other jurisdiction of incorporation or
                organization)
              
              (I.R.S.
      Employer  Identification
No.)
 
 5th
      Floor, South Block, Building 11, Shenzhen
                Software
      Park, Zhongke 2nd Road,
                Nanshan
      District, Shenzhen, China
              
              518000(Address
      of principal executive offices)
              
              (Zip
      Code)
 
 86 755 836
68489
 (Registrant’s
telephone number, including area code)
 
 (Former
      name, former address and former fiscal year, if changed since last
      report)
 
 Indicate by check mark whether the
registrant (1) has filed reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90
days.
 Yes 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
                xNon-accelerated
      filer
                 ̈
                Smaller
      reporting
                  company
                 ̈
 
 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 6, 2010, there are 19,898,229 shares of $0.001 par value common stock
issued and outstanding.
 
 
 
 FORM
10-Q
 .UNIVERSAL
TRAVEL GROUP
 INDEX
 
 PagePART
      I.
                                                          Financial
      Information
                                                          
                                                          1Item
      1.  Financial Statements ( Unaudited)
                                                          
                                                          1Report
      of  Independent Registered Public Accounting
Firm
                                                          
                                                          2Consolidated
      Balance Sheets as of  June 30, 2010 (Unaudited) and December 31,
      2009
                                                          
                                                          4Consolidated
      Statements of Income for the Three and Six Months Ended June 30, 2010 and
      2009 (Unaudited)
                                                          
                                                          5Consolidated
      Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009
      (Unaudited)
                                                          
                                                          7Consolidated
      Statements of Stockholders' Equity
                                                          
                                                          8Notes
      to Consolidated Financial Statements as of  June 30, 2010
      (Unaudited)
                                                          
                                                          9Item
      2.  Management’s Discussion and Analysis of Financial Condition
      or Plan of Operation
                                                          
                                                          40Item
      3.  Quantitative and Qualitative Disclosures About Market
      Risk.
                                                          
                                                          51Item
      4.  Controls and Procedures
                                                          
                                                          51PART
      II.
                                                          Other
      Information
                                                          
                                                          52Item
      1.  Legal Proceedings
                                                          
                                                          52Item
      1A. Risk Factors.
                                                          
                                                          52Item
      2.  Unregistered Sales of Equity Securities and Use of
      Proceeds
                                                          
                                                          52Item
      3.  Defaults Upon Senior Securities
                                                          
                                                          52Item
      4.  (Removed and Reserved).
                                                          
                                                          52Item
      5.  Other Information
                                                          
                                                          52Item
      6.  Exhibits
                                                          
                                                          52
 
 
 
 PART
I - FINANCIAL INFORMATION
 
 Item
1. Financial Statements (Unaudited)
 UNIVERSAL
TRAVEL GROUP
  CONSOLIDATED
FINANCIAL STATEMENTS
  JUNE
30, 2010
  1
 
 ACSB
      Acquavella,
      Chiarelli, Shuster, Berkower & Co., LLP517
      Route one
                    1
      Penn PlazaIselin,
      New Jersey, 08830
                    36the
      Floor732.855.9600
                    New
      York, NY 10119
 
 Report of Independent
Registered Public Accounting Firm
 
 To the
Board of Directors and Stockholders of
 Universal
Travel Group
  We have
reviewed the accompanying balance sheet of Universal Travel Group. (the
“Company”) as of June 30, 2010, and the related statements of income,
stockholders’ equity and comprehensive income, and cash flows for the six-month
period ended June 30, 2010. These financial statements are the responsibility of
the company’s management.
  We
conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with standards
of the Public Company Accounting Oversight Board (United States), the objective
of which is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
  Based on
our review, we are not aware of any material modifications that should be made
to the accompanying interim financial statements for them to be in conformity
with accounting principles generally accepted in the United States of
America.
  We have
previously audited, in accordance with auditing standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet of
the Company as of December 31, 2009 and the related consolidated statements of
income, retained earnings and comprehensive income, and consolidated statement
of cash flows for the year then ended; and in our report dated February 22,
2010, we expressed an unqualified opinion on those financial statements. In our
opinion, the information set forth in the accompanying consolidated balance
sheet as of December 31, 2009, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been
derived.
  Acquavella,
Chiarelli, Shuster, Berkower & Co., LLP
  Certified
Public Accountant
 New York,
N.Y.
 August
10, 2010
  2
  TABLE
OF CONTENTS
  Consolidated Balance Sheets
                                          
                                          4Consolidated Statements of
      Income
                                          
                                          5-6Consolidated Statements of Cash
      Flows
                                          
                                          7Consolidated Statements of Stockholders’
      Equity
                                          
                                          8Notes to Consolidated Financial
      Statements
                                          
                                          9-39
  3
  UNIVERSAL
TRAVEL GROUP
 CONSOLIDATED
BALANCE SHEETS
 JUNE
30, 2010 AND DECEMBER 31, 2009
 
 6/30/2010
                            
                            
                            12/31/2009RestatedASSETSCash
      and cash equivalents
                            
                            $
                            43,591,459
                            
                            
                            $
                            36,677,422Accounts
      receivable, net
                            
                            
                            19,555,646
                            
                            
                            
                            17,321,174Other
      receivables and deposits, net
                            
                            
                            2,127,552
                            
                            
                            
                            257,907Due
      from related party
                            
                            
                            6,986,717
                            
                            
                            
                            -Trade
      deposit
                            
                            
                            7,706,484
                            
                            
                            
                            9,775,735Advances
                            
                            
                            -
                            
                            
                            
                            440,063Prepayments
                            
                            
                            2,389,960
                            
                            
                            
                            216,727Note
      receivable
                            
                            
                            227,182
                            
                            
                            
                            1,711,392Acquisition
      Deposits
                            
                            
                            3,599,530
                            
                            
                            
                            4,077,921Total
      Current Assets
                            
                            
                            86,184,529
                            
                            
                            
                            70,478,341Property,
      plant & equipment, net
                            
                            
                            6,487,219
                            
                            
                            
                            4,992,677Intangible
      assets
                            
                            
                            3,320,478
                            
                            
                            
                            339,240Goodwill
                            
                            
                            24,812,040
                            
                            
                            
                            9,896,270Total
      Noncurrent Assets
                            
                            
                            34,619,736
                            
                            
                            
                            15,228,187Total
      Assets
                            
                            $
                            120,804,266
                            
                            
                            $
                            85,706,528LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      LiabilitiesAccounts
      payable and accrued expenses
                            
                            $
                            6,507,356
                            
                            
                            $
                            2,615,730Customer
      deposits
                            
                            
                            1,334,192
                            
                            
                            
                            2,000,117Income
      tax payable
                            
                            
                            2,063,161
                            
                            
                            
                            1,654,475Total
      Current Liabilities
                            
                            
                            9,904,710
                            
                            
                            
                            6,270,322Derivative
      liability
                            
                            
                            866,314
                            
                            
                            
                            1,815,319Total Liabilities
                            
                            
                            10,771,024
                            
                            
                            
                            8,085,641Stockholders'
      EquityCommon
      stock, $.001 par value, 70,000,000 shares authorized, 19,898,229 and
      16,714,457 issued and outstanding at June 30, 2010 and December
      31,  2009, respectively
                            
                            
                            19,898
                            
                            
                            
                            16,714Additional
      paid in capital
                            
                            
                            59,947,337
                            
                            
                            
                            37,671,645Other
      comprehensive income
                            
                            
                            1,284,434
                            
                            
                            
                            1,645,133Statutory
      reserve
                            
                            
                            732,282
                            
                            
                            
                            372,144Retained
      earnings
                            
                            
                            48,049,291
                            
                            
                            
                            37,915,251Total
      Stockholders' Equity
                            
                            
                            110,033,241
                            
                            
                            
                            77,620,887Total
      Liabilities and Stockholders' Equity
                            
                            $
                            120,804,265
                            
                            
                            $
                            85,706,528
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  4
  UNIVERSAL
TRAVEL GROUP
 CONSOLIDATED
STATEMENTS OF INCOME
 FOR
THE THREE MONTHS ENDED JUNE 30,
 
 2010
                              
                              
                              2009Unaudited
                              
                              
                              RestatedGross
      revenues,
                              
                              $
                              36,741,613
                              
                              
                              $
                              18,405,473Cost
      of services
                              
                              
                              26,188,474
                              
                              
                              
                              11,875,779Gross
      profit
                              
                              
                              10,553,139
                              
                              
                              
                              6,529,694Selling,
      general and administrative expenses
                              
                              
                              3,461,037
                              
                              
                              
                              1,564,919Income
      from operations
                              
                              
                              7,092,102
                              
                              
                              
                              4,964,775Other
      income (expense)Other
      income
                              
                              
                              3,363
                              
                              
                              
                              2,591Gain/(Loss)
      on change in fair value of derivative liabilities
                              
                              
                              839,553
                              
                              
                              
                              (5,819,481
                              )Interest
      income
                              
                              
                              17,081
                              
                              
                              
                              12,358Total
      other income (expense)
                              
                              
                              859,997
                              
                              
                              
                              (5,804,532
                              )Income/(Loss)
      before income taxes –continuing operations
                              
                              
                              7,952,099
                              
                              
                              
                              (839,757
                              )Provision
      for income taxes
                              
                              
                              1,907,901
                              
                              
                              
                              1,020,955Income(Loss)
      from continuing operations
                              
                              
                              6,044,198
                              
                              
                              
                              (1,860,712
                              )Income/(loss)
      from discontinued operations
                              
                              
                              
                              
                              
                              
                              46,282Loss
      on disposition of discontinued operations
                              
                              
                              -
                              
                              
                              
                              (770,595
                              )Net
      income/(loss) from discontinued operation
                              
                              
                              -
                              
                              
                              
                              (724,313
                              )Net
      income/(loss)
                              
                              $
                              6,044,198
                              
                              
                              $
                              (2,585,025
                              )Comprehensive
      income/(loss)Net
      income/(loss)
                              
                              $
                              6,044,198
                              
                              
                              $
                              (2,585,025
                              )Foreign
      currency translation gains
                              
                              
                              55,759
                              
                              
                              
                              13,880Total
      comprehensive income/(loss)
                              
                              $
                              6,099,957
                              
                              
                              $
                              (2,571,145
                              )Income
      (Loss) per common share from continuing operationsBasic
                              
                              $
                              0.35
                              
                              
                              $
                              (0.14
                              )Diluted
                              
                              $
                              0.33
                              
                              
                              $
                              (0.13
                              )Net
      loss per common share – discontinued operationsBasic
                              
                              $
                              -
                              
                              
                              $
                              (0.05
                              )Diluted
                              
                              $
                              -
                              
                              
                              $
                              (0.05
                              )Total
      net income (loss) per common shareBasic
                              
                              $
                              0.35
                              
                              
                              $
                              (0.19
                              )Dilute
                              
                              $
                              0.33
                              
                              
                              $
                              (0.18
                              )Weighted
      average common shares outstandingBasic
                              
                              
                              17,404,834
                              
                              
                              
                              13,829,091Diluted
                              
                              
                              18,219,639
                              
                              
                              
                              14,301,057
  The
accompanying notes are an integral part of these audited consolidated financial
statements.
  5
  UNIVERSAL
TRAVEL GROUP
 CONSOLIDATED
STATEMENTS OF INCOME
 FOR
THE SIX MONTHS ENDED JUNE 30,
 
 2010
                                    
                                    
                                    2009Unaudited
                                    
                                    
                                    RestatedGross
      revenues,
                                    
                                    $
                                    62,871,619
                                    
                                    
                                    $
                                    33,916,152Cost
      of services
                                    
                                    
                                    43,816,506
                                    
                                    
                                    
                                    21,614,649Gross
      profit
                                    
                                    
                                    19,055,113
                                    
                                    
                                    
                                    12,301,503Selling,
      general and administrative expenses
                                    
                                    
                                    6,524,679
                                    
                                    
                                    
                                    3,097,716Income
      from operations
                                    
                                    
                                    12,530,434
                                    
                                    
                                    
                                    9,203,787Other
      income (expense)Other
      income
                                    
                                    
                                    6,917
                                    
                                    
                                    
                                    6,419Gains/(losses)
      on change in fair value of derivative liabilities
                                    
                                    
                                    949,004
                                    
                                    
                                    
                                    (5,706,217
                                    )Interest
      income
                                    
                                    
                                    40,712
                                    
                                    
                                    
                                    23,296Total
      other income (expense)
                                    
                                    
                                    996,633
                                    
                                    
                                    
                                    (5,676,502
                                    )Income
      before income taxes - continuing operation
                                    
                                    
                                    13,527,067
                                    
                                    
                                    
                                    3,527,285Provision
      for income taxes
                                    
                                    
                                    3,393,028
                                    
                                    
                                    
                                    2,138,151Net
      income - continuing operation
                                    
                                    
                                    10,134,039
                                    
                                    
                                    
                                    1,389,134Income/(loss)
      from discontinued operations
                                    
                                    
                                    
                                    
                                    
                                    
                                    177,975Loss
      on didposition
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (770,595
                                    )Net
      income/(loss) from discontinued operation
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (592,620
                                    )Net
      income
                                    
                                    $
                                    10,134,039
                                    
                                    
                                    $
                                    796,514Comprehensive
      IncomeNet
      income
                                    
                                    $
                                    10,134,039
                                    
                                    
                                    $
                                    796,514Foreign
      currency translation gains/(losses)
                                    
                                    
                                    (360,699
                                    )
                                    
                                    
                                    48,587Total
      comprehensive income
                                    
                                    $
                                    9,773,340
                                    
                                    
                                    $
                                    845,101Net
      income per common share - continuing operationsBasic
                                    
                                    $
                                    0.59
                                    
                                    
                                    $
                                    0.10Diluted
                                    
                                    $
                                    0.57
                                    
                                    
                                    $
                                    0.10Net
      income/(loss) per common share - discontinued operationsBasic
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    (0.04
                                    )Diluted
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    (0.04
                                    )Total
      net income per common shareBasic
                                    
                                    $
                                    0.59
                                    
                                    
                                    $
                                    0.06Diluted
                                    
                                    $
                                    0.57
                                    
                                    
                                    $
                                    0.06Weighted
      average common shares outstandingBasic
                                    
                                    
                                    17,066,154
                                    
                                    
                                    
                                    13,851,530Diluted
                                    
                                    
                                    17,935,313
                                    
                                    
                                    
                                    14,277,656
  The
accompanying notes are an integral part of these audited consolidated financial
statements.
  6
  UNIVERSAL
TRAVEL GROUP
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 FOR
THE SIX MONTHS ENDED JUNE 30,
 
 2010
                                                      
                                                      
                                                      2009CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income
                                                      
                                                      $
                                                      10,134,039
                                                      
                                                      
                                                      $
                                                      796,514Add
      (deduct):Net
      income from discontinued operations
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      592,620Income
      from continuing operations
                                                      
                                                      
                                                      10,134,039
                                                      
                                                      
                                                      
                                                      1,389,134Depreciation
      and amortization
                                                      
                                                      
                                                      952,402
                                                      
                                                      
                                                      
                                                      190,739Provision
      for doubtful accounts
                                                      
                                                      
                                                      56,824
                                                      
                                                      
                                                      
                                                      10,905Stock
      based compensation
                                                      
                                                      
                                                      677,004
                                                      
                                                      
                                                      
                                                      495,725Gain
      on change in fair value of derivative liabilities
                                                      
                                                      
                                                      (949,004
                                                      )
                                                      
                                                      
                                                      5,706,217Accounts
      receivable
                                                      
                                                      
                                                      (1,885,974
                                                      )
                                                      
                                                      
                                                      (2,716,909
                                                      )Other
      receivable
                                                      
                                                      
                                                      (501,682
                                                      )
                                                      
                                                      
                                                      (4,725
                                                      )Due
      from related party
                                                      
                                                      
                                                      (6,986,717
                                                      )
                                                      
                                                      
                                                      -Advances
                                                      
                                                      
                                                      440,063
                                                      
                                                      
                                                      
                                                      (758
                                                      )Prepayments
                                                      
                                                      
                                                      (1,878,178
                                                      )
                                                      
                                                      
                                                      32,791Trade
      deposits
                                                      
                                                      
                                                      2,069,253
                                                      
                                                      
                                                      
                                                      3,168,216Escrow
      deposits
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      600,499Accounts
      payable and accrued expenses
                                                      
                                                      
                                                      3,307,393
                                                      
                                                      
                                                      
                                                      1,601,759Customer
      deposits
                                                      
                                                      
                                                      (665,925
                                                      )
                                                      
                                                      
                                                      (160,426
                                                      )Income
      tax payable
                                                      
                                                      
                                                      (223,354
                                                      )
                                                      
                                                      
                                                      (848,691
                                                      )Net
      cash (used in) provided by continuting operations
                                                      
                                                      
                                                      4,546,144
                                                      
                                                      
                                                      
                                                      9,464,476Net
      cash (used in) provided by discontinued operations
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      435,259Net
      cash provided by operating activities
                                                      
                                                      
                                                      4,546,144
                                                      
                                                      
                                                      
                                                      9,899,734CASH
      FLOWS FROM INVESTING ACTIVITIESPurchase
      of property & equipment
                                                      
                                                      
                                                      (1,864,774
                                                      )
                                                      
                                                      
                                                      (6,076,248
                                                      )Purchase
      of  intangibles
                                                      
                                                      
                                                      (51,359
                                                      )
                                                      
                                                      
                                                      (168,955
                                                      )Proceeds
      from collection of notes
                                                      
                                                      
                                                      1,484,210
                                                      
                                                      
                                                      
                                                      -Acquistion
      deposits
                                                      
                                                      
                                                      478,391
                                                      
                                                      
                                                      
                                                      -Paid
      for acquisition – net of cash acquired
                                                      
                                                      
                                                      (16,085,930
                                                      )
                                                      
                                                      
                                                      (1,035,125
                                                      )Net
      cash (used in) provided by continuing operations
                                                      
                                                      
                                                      (16,039,462
                                                      )
                                                      
                                                      
                                                      (7,280,328
                                                      )Net
      cash (used in) provided by investing activities
                                                      
                                                      
                                                      (16,039,462
                                                      )
                                                      
                                                      
                                                      (7,280,328
                                                      )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      of equity financing
                                                      
                                                      
                                                      18,768,054
                                                      
                                                      
                                                      
                                                      -Net
      cash provided by financing activities
                                                      
                                                      
                                                      18,768,054
                                                      
                                                      
                                                      
                                                      -Effect
      of exchange rate changes on cash and cash equivalents
                                                      
                                                      
                                                      (360,699
                                                      )
                                                      
                                                      
                                                      48,587Net
      change in cash and cash equivalents
                                                      
                                                      
                                                      6,914,037
                                                      
                                                      
                                                      
                                                      2,667,993Cash
      and cash equivalents, beginning balance
                                                      
                                                      
                                                      36,677,422
                                                      
                                                      
                                                      
                                                      15,720,182Cash
      and cash equivalents, ending balance
                                                      
                                                      $
                                                      43,591,459
                                                      
                                                      
                                                      $
                                                      18,388,175SUPPLEMENTAL
      DISCLOSURES:Cash
      paid during the year for:Income
      taxes
                                                      
                                                      $
                                                      2,984,342
                                                      
                                                      
                                                      $
                                                      3,043,089Other
      non-cash transactionsNet
      assets sold of discontinued operations
                                                      
                                                      $
                                                      -
                                                      
                                                      
                                                      $
                                                      1,659,292Goodwill
      attributable to sold discontinued operations
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      3,630,539Note
      received on disposition
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      (2,773,411
                                                      )Fair
      value of treasury stock received
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      (2,780,950
                                                      )Loss
      on disposition
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      (770,595
                                                      )Cash
      of discontinued operations
                                                      
                                                      $
                                                      -
                                                      
                                                      
                                                      $
                                                      (1,035,125
                                                      )Purchased
      goodwill
                                                      
                                                      $
                                                      (14,915,770
                                                      )
                                                      
                                                      $
                                                      -Purchased
      intangible assets
                                                      
                                                      
                                                      (3,236,376
                                                      )
                                                      
                                                      
                                                      -Fair
      value of assets purchased less cash acquired
                                                      
                                                      
                                                      (767,601
                                                      )
                                                      
                                                      
                                                      -Acquisition
      financed with stock issuance
                                                      
                                                      
                                                      2,833,817
                                                      
                                                      
                                                      
                                                      -Acquisition
      paid for with cash - net of acquired
                                                      
                                                      $
                                                      (16,085,930
                                                      )
                                                      
                                                      $
                                                      -
 
 The
accompanying notes are an integral part of these audited consolidated financial
statements.
  7
  UNIVERSAL
TRAVEL GROUP
 CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY
 FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND THE YEAR ENDED DECEMBER 31,
2009
 
 Additional
                            
                            
                            Other
                            
                            
                            
                            
                            
                            
                            
                            
                            TotalPaid
      In
                            
                            
                            Comprehensive
                            
                            
                            Retained
                            
                            
                            Statutory
                            
                            
                            Stockholders’Amount
                            
                            
                            Capital
                            
                            
                            Income
                            
                            
                            Earnings
                            
                            
                            Reserve
                            
                            
                            EquityBalance
      December 31, 2008
                            
                            
                            13,873,969
                            
                            
                            $
                            13,873
                            
                            
                            $
                            15,861,116
                            
                            
                            $
                            1,520,166
                            
                            
                            $
                            26,633,573
                            
                            
                            $
                            372,144
                            
                            
                            $
                            44,400,872RestatedCumulative
      effect of a change in accounting principle-adoption of EITF 07-05
      effective January 1, 2009
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (2,091,738
                            )
                            
                            
                            
                            
                            
                            
                            536,777
                            
                            
                            
                            
                            
                            
                            
                            (1,554,961
                            )Foreign
      currency translation adjustments
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            124,967
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            124,967Stock
      based compensation – Net of warrants exercise
                            
                            
                            41,120
                            
                            
                            
                            42
                            
                            
                            
                            1,154,367
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            1,154,409Fair
      market value Of treasury stock received and retired
                            
                            
                            (238,095
                            )
                            
                            
                            (239
                            )
                            
                            
                            (2,780,711
                            )
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (2,780,950
                            )Warrants
      exercised
                            
                            
                            811,941
                            
                            
                            
                            813
                            
                            
                            
                            6,571,017
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            6,571,830Options
      exercised
                            
                            
                            3,300
                            
                            
                            
                            3
                            
                            
                            
                            9,567
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            9,570Stock
      Subscription
                            
                            
                            2,222,222
                            
                            
                            
                            2,222
                            
                            
                            
                            18,948,027
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            18,950,249Income
      for the year  ended December 31, 2009
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            10,744,901
                            
                            
                            
                            
                            
                            
                            
                            10,744,901Balance
      December 31, 2009
                            
                            
                            16,714,457
                            
                            
                            $
                            16,714
                            
                            
                            $
                            37,671,645
                            
                            
                            $
                            1,645,133
                            
                            
                            $
                            37,915,251
                            
                            
                            $
                            372,144
                            
                            
                            $
                            77,620,887Balance
      December 31, 2009
                            
                            
                            16,714,457
                            
                            
                            $
                            16,714
                            
                            
                            $
                            37,671,645
                            
                            
                            $
                            1,645,133
                            
                            
                            $
                            37,915,251
                            
                            
                            $
                            372,144
                            
                            
                            $
                            77,620,887Foreign
      currency translation adjustments
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (360,699
                            )
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (360,699
                            )Stock
      based compensation
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            677,004
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            677,004Stock
      issued for acquisitions
                            
                            
                            326,629
                            
                            
                            
                            327
                            
                            
                            
                            2,833,491
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            2,833,818acquisitions
      adjustments
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            360,138
                            
                            
                            
                            360,138Stock
      Subscription
                            
                            
                            2,857,143
                            
                            
                            
                            2,857
                            
                            
                            
                            18,765,197
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            18,768,054Income
      for the six months  ended June 30, 2010
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            10,134,039
                            
                            
                            
                            
                            
                            
                            
                            10,134,039Balance
      June 30, 2010
                            
                            
                            19,898,229
                            
                            
                            $
                            19,898
                            
                            
                            $
                            59,947,337
                            
                            
                            $
                            1,284,434
                            
                            
                            $
                            48,049,290
                            
                            
                            $
                            732,282
                            
                            
                            $
                            110,033,241
 
 The
accompanying notes are an integral part of these audited consolidated financial
statements.
  8
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2010
 (UNAUDITED)
  Note
1 - ORGANIZATION
  Universal
Travel Group was incorporated on January 28, 2004 under the laws of the State of
Nevada. Full Power Enterprise Global Limited – BVI was incorporated under the
laws of the British Virginia Islands. Shenzhen Yuzhilu Aviation Service Co.,
Ltd. was incorporated on March 9, 1998 under the laws of the Peoples Republic of
China (PRC)., Shenzhen Speedy Dragon Enterprises Limited was incorporated in
August of 2002 under the laws of PRC, Xian Golden Net Travel Serve Services was
incorporated on July 25, 2001 under the laws of PRC, Shanghai Lanbao Travel
Service Co., Ltd. was established in 2002 under the laws of Shanghai China.
Foshan Overseas International Travel Service Co., Ltd. was incorporated in 1990
under the laws of PRC, Chongqing Universal Travel E-Commerce Co., Ltd. and
Shenzhen Universal Travel Agency Co., Ltd. were both incorporated in 2009 under
the laws of PRC, Hebei Tianyuan Travel Agency Co., Ltd. was incorporated in
April 1999 under the laws of PRC, Huangshan Holiday Travel Service Co., Ltd. was
incorporated in April 1999 under the laws of PRC, Zhengzhou Yulongkang Travel
Agency Co., Ltd. was incorporated in 2000 under the laws of
PRC,  Kunming Business Travel Service Co., Ltd. was incorporated in
1993 under the laws of PRC, Shanxi Jinyang Travel Agency Co., Ltd. was
incorporated in 1988 under the laws of PRC. Full Power Enterprise Global Limited
owns 100% of the Shenzhen Yuzhilu Aviation Service Co., Ltd. Collectively these
corporations are referred to herein as the Company.
  On June
12, 2009, the Company entered into a termination agreement with Shenzhen Speedy
Dragon Enterprise Limited. Accordingly, the Company has accounted for Shenzhen
Speedy Dragon Enterprise Limited adiscontinued operations. The Company is now
engaged in the travel business, including airline ticketing, hotel reservation
services and technological solutions to travel reservations, and tour planning
and tour guide services.
  Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
  Basis of
Presentation
  The
accompanying audited consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America. The Company's functional currency is the Chinese Renminbi, however the
accompanying audited consolidated financial statements have been translated and
presented in United States Dollars.
  Reclassification
  Certain
prior-year amounts have been reclassified to conform to the current-year
presentation. These reclassifications had no effect on reported income or
losses.
  9
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2010
 (UNAUDITED)
 
 Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  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.
  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 month ended June 30,
2009:
  Six
      months ended
                        
                        
                        Three
      months endedJune
      30, 2009
                        
                        
                        June
      30, 2009Sales
                        
                        $
                        3,631,545
                        
                        
                        $
                        1,772,566Cost
      of sales
                        
                        
                        3,218,140
                        
                        
                        
                        1,613,857Gross
      profit
                        
                        
                        413,405
                        
                        
                        
                        158,709Operating
      expenses
                        
                        
                        190,989
                        
                        
                        
                        96,057Income
      from discontinued operation before income tax
                        
                        
                        222,416
                        
                        
                        
                        62,652Income
      tax
                        
                        
                        44,441
                        
                        
                        
                        16,370Net
      Income from discontinued operations
                        
                        $
                        177,975
                        
                        
                        $
                        46,282
  10
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2010
 (UNAUDITED)
  Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  Translation
Adjustment
  As of
June 30, 2010 and December 31, 2009 the accounts of Universal Travel Group were
maintained, and its financial statements were expressed, in Chinese Yuan
Renminbi (CNY). Such financial statements were translated into U.S. Dollars
(USD) in accordance with the Foreign Currency Matters Topic of the FASB
Accounting Standards Codification (“ASC 830”) with the CNY as the functional
currency. According to the Statement, all assets and liabilities were translated
at the current exchange rate, stockholders equity are translated at the
historical rates and income statement items are translated at the average
exchange rate for the period. The resulting translation adjustments are reported
under other comprehensive income in accordance with the Comprehensive Income
Topic of the FASB Accounting Standard Codification (“ASC 220”). Transaction
gains and losses are reflected in the income statement.
  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.
  Principles of
Consolidation
  The
consolidated financial statements include the accounts of Universal Travel Group
and its wholly owned subsidiaries Shenzhen Yuzhilu Aviation Service Co., Ltd.,
Shenzhen Speedy Dragon Enterprises Limited, Shanghai Lanbao Travel Service Co.,
Ltd., Xian Golden Net Travel Serve Services, Ltd., Foshan Overseas International
Travel Service Co. Ltd., Chongqing Universal Travel E-Commerce Co., Ltd.,
Shenzhen Universal Travel  Agency Co., Ltd., Hebei Tianyuan Travel
Agency Co., Ltd., Huangshan Holiday Travel Service Co., Ltd., Zhengzhou
Yulongkang Travel Agency Co., Ltd., Kunming Business Travel Service Co., Ltd.,
Shanxi Jinyang Travel Agency Co., Ltd., and Full Power Enterprise Global Limited
collectively referred to herein as the Company.  On June 12, 2009 the
Company entered into a termination agreement with Shenzhen Speedy Dragon
Enterprise Limited. Accordingly, the Company has accounted for Shenzhen Speedy
Dragon Enterprise Limited as a discontinued operation. The 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.
  11
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2010
 (UNAUDITED)
  Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  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.
  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 $471,751 and $414,927 as of June 30, 2010 and December 31, 2009,
respectively.
 
 Description
                      
                      Balance at
                        beginning of year
                      
                      
                      Charged to
                        expenses
                      
                      
                      Deductions
                      
                      
                      Balance as of June
                        30, 2010Allowance
      for doubtful receivables
                      
                      $
                      414,927
                      
                      
                      $
                      56,824
                      
                      
                      $
                      -
                      
                      
                      $
                      471,751
  12
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2010
 (UNAUDITED)
 
 Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  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
  As of
June 30, 2010 and December 31, 2009, Property, Plant & Equipment of consist
of the following:
  June
      30, 2010
                      
                      
                      December
      31, 2009Office
      equipment
                      
                      $
                      6,137,874
                      
                      
                      $
                      4,146,637Transportation
      equipment
                      
                      
                      428,749
                      
                      
                      
                      150,232Furniture
      & fixtures
                      
                      
                      52,905
                      
                      
                      
                      23,560Leasehold
      improvements
                      
                      
                      1,465,385
                      
                      
                      
                      1,385,4818,084,913
                      
                      
                      
                      5,705,910Accumulated
      depreciation
                      
                      
                      (1,597,694
                      )
                      
                      
                      (713,233
                      )$
                      6,487,219
                      
                      
                      $
                      4,992,677
  Depreciation
expense for the three months ended June 30, 2010 and 2009 was $ and $77,997,
respectively, of which $59,040 and $70,197 was included as part of cost of
services for the three months ended June 30, 2010 and 2009,
respectively.
  Depreciation
expense for the six months ended June 30, 2010 and 2009 was $645,905 and
$60,082, respectively, of which $107,232 and $140,424 was included as part of
cost of services for the six months ended June 30, 2010 and 2009,
respectively.
  13
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2010
 (UNAUDITED)
 
 Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  Goodwill
  Goodwill
represents the excess cost of a business acquisition over the fair value of the
net assets acquired.  In accordance with the Intangibles, Goodwill and
other topic of the FASB Accounting Standard Codification (“ASC 350”),
indefinite-life identifiable intangible assets and goodwill are not amortized.
Under the provisions of ASC 350, we are required to perform an annual impairment
test of our goodwill. Goodwill impairment is determined using a two-step
process.  The first step of the goodwill impairment test is used to
identify potential impairment by comparing the fair value of a reporting unit,
which we define as our business segments, with its net book value or carrying
amount including goodwill. If the fair value of a reporting unit exceeds its
carrying amount, goodwill of the reporting unit is considered not impaired and
the second step of the impairment test is unnecessary.  If the
carrying amount of a reporting unit exceeds its fair value, the second step of
the goodwill impairment test compares the implied fair value of the reporting
unit's goodwill with the carrying amount of that goodwill. If the carrying
amount of the reporting unit's goodwill exceeds the implied fair value of that
goodwill, an impairment loss is recognized in an amount equal to that
excess.  The implied fair value of goodwill is determined in the same
manner as the amount of goodwill recognized in a business
combination.  The fair value of the reporting unit is allocated to all
of the assets and liabilities of that unit including any unrecognized intangible
assets as if the reporting unit had been acquired in a business combination and
the fair value of the reporting unit was the purchase  price paid to
acquire the reporting unit.  See Note 7, Purchase of Subsidiaries, for
additional information regarding goodwill.
  As of
June 30, 2010 and December 31, 2009, Goodwill consists of the
following:
 
 June
      30, 2010
                        
                        
                        December
      31,2009Shanghai
      Lanbao Travel Service Co., Ltd.
                        
                        $
                        3,081,799
                        
                        
                        $
                        3,081,799Foshan
      International Travel Service Co., Ltd.
                        
                        
                        6,049,576
                        
                        
                        
                        6,049,576Xian
      Golden Net Travel Serve Services Co.,Ltd.
                        
                        
                        764,895
                        
                        
                        
                        764,895Zhengzhou
      Yulongkang Agency Co., Ltd.
                        
                        
                        4,102,061
                        
                        
                        
                        -Hebei
      Taiyuan Travel Agency Co., Ltd.
                        
                        
                        3,208,455
                        
                        
                        
                        -Huangshan
      Holiday Travel Service Co., Ltd
                        
                        
                        1,949,080
                        
                        
                        
                        -Kunming
      Business Travel Service Co., Ltd.
                        
                        
                        4,009,070
                        
                        
                        
                        -Shanxi
      Jinyang Travel Agency Co., Ltd.
                        
                        
                        1,647,104
                        
                        
                        
                        -$
                        24,812,040
                        
                        
                        $
                        9,896,270
  14
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2010
 (UNAUDITED)
 
 Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  Long-Lived
Assets
  The
Company adopted the Property, Plant and Equipment Topic of the FASB Accounting
Standard Codification (“ASC 360”), which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions
of APB Opinion No. 30, Reporting the Results of Operations for a Disposal of a
Segment of a Business. The Company periodically evaluates the carrying value of
long-lived assets to be held and used in accordance with ASC 360. ASC 360
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets
carrying amounts. In that event, a loss is recognized based on the amount by
which the carrying amount exceeds the fair market value of the long-lived
assets. Loss on long-lived assets to be disposed of is determined in a similar
manner, except that fair market values are reduced for the cost of disposal.
Based on its review, the Company believes that, as of March 31, 2010 and
December 31, 2009 there were no significant impairments of its long-lived
assets.
  Derivative
Liability
  The
Company issued warrants in connection with the “Securities Purchase Agreement”
dated August 28, 2008 with certain reset exercise price
provisions.  If the Company issues or sells shares of its common stock
after the August 28, 2008 Securities Purchase Agreement or Financing for an
amount less than the original exercise price per share, the exercise price of
the warrants is reduced to equal the new issuance price of those
shares.
  Upon the
Company’s adoption of the Derivative and Hedging Topic of the FASB Accounting
Standards Codification (“ASC 815”) on January 1, 2009, the Company determined
that the warrants did not qualify for a scope exception under ASC 815 as they
were determined to not be indexed to the Company’s stock as prescribed by ASC
815.  On January 1, 2009, the warrants, under ASC 815, were
reclassified from equity to derivative liability for the then relative fair
market value of $2,091,738 and marked to market.  The values of the
warrants were decreased by $536,776 from the warrants issuance date to the
adoption date of ASC 815 on January 1, 2009.  As of January 1, 2009,
the cumulative effect in adopting ASC 815 was a reduction to additional paid in
capital of $2,091,738 to reclassify the warrants from equity to derivative
liability and an increase in retained earnings of $536,776 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 ended June 30, 2010, the Company recorded a gain on change
in fair value of derivative liability of $109,451 and $949,004, respectively, to
mark to market for the increase in fair value of the warrants during the three
and six month periods ended June 30, 2010.   Under ASC 815, the
warrants will be carried at fair value and adjusted at each reporting
period.
  The
Company determined the fair value of the reset provisions at January 1, 2009 was
$1,554,961 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, 2010 was
886,314. The fair value was determined using the Black Scholes Option Pricing
Model based on the following assumptions: dividend yield: -0-%; volatility:
115%, risk free rate: 1.79%, expected term: 3.16years.
  15
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2010
 (UNAUDITED)
 
 Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  Fair Value of Financial
Instruments
  FASB
Accounting Standards Codification Topic on Fair Value Measurements and
Disclosures (“ASC 820”) requires that the Company disclose estimated fair values
of financial instruments. The carrying amounts reported in the statements of
financial position for current assets and current liabilities qualifying as
financial instruments are a reasonable estimate of fair value.
  Revenue
Recognition
  The
Company’s revenue recognition policies are in compliance with FASB Accounting
Standards Codification Topic on Revenue Recognition (“ASC 605”). Revenue is
recognized at the date the price is fixed or determinable, the delivery is
completed, no other significant obligations of the Company exist and
collectability is reasonably assured. Payments received before all of the
relevant criteria for revenue recognition are satisfied are recorded as unearned
revenue.
  The
Company had four types of revenue stream from its four lines of businesses,
namely (i) air-ticketing (Shenzhen Yuzhilu Aviation Service Co., Ltd. and
Chongqing Universal Travel E-Commerce Co., Ltd.), (ii) hotel reservations
(Shanghai Lanbao Travel Service Co., Ltd.), (iii) packaged tours (Foshan
International Travel Service Co., Ltd., Xian Golden Net Travel Serve Services
Co, Ltd. and Shenzhen Universal Travel Agency Co., Ltd.) and (iv) air cargo
agency services (Shenzhen Speedy Dragon Enterprises Ltd.).  On June
12, 2009, the Company entered into a termination agreement with Shenzhen Speedy
Dragon Enterprise Ltd. Accordingly the Company has accounted for Shenzhen Speedy
Dragon Enterprise Ltd, its air cargo agency services as a discontinued operation
(see Note 2 Discontinued Operations).  Effective June 12, 2009, the
Company has three types of revenue stream from its current three lines of
businesses.
  Air-ticketing
services
  The
Company receives commissions from travel suppliers for air-ticketing services
through its transaction and service platform under various services agreements.
The Company does not charge customers differently from the prices provided by
travel suppliers.  The Company has no discretion on the air ticket
prices or the applicable commission rates as they are dictated by the travel
suppliers. Commissions from air-ticketing services rendered are recognized after
air tickets are issued. The Company presents revenues from such transactions on
a net basis in the statements of income as the Company, generally, does not
assume inventory risks and has no obligations for cancelled airline ticket
reservations.
  16
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2010
 (UNAUDITED)
 
 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.
  17
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2010
 (UNAUDITED)
 
 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,
2010 and 2009, such expenses amounted $340.372 and $1,198,963, respectively. For
the six months ended June 30, 2010 and 2009, such expenses amounted $677,004 and
$1,504,751, respectively.
  Advertising
  Advertising
expenses consist primarily of costs of promotion for corporate image and product
marketing and costs of direct advertising. The Company expenses all advertising
costs as incurred.
  Income
Taxes
  The
Company utilizes FASB Accounting Standards Codification Topic on Income Taxes
(“ASC 740”), which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, deferred
income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts ateach period end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
  Statement of Cash
Flows
  In
accordance with FASB Accounting Standards Codification Topic on Statement of
Cash flows (“ASC 230”), cash flows from the Company’s operations are based upon
the local currencies. As a result, amounts related to assets and liabilities
reported on the statement of cash flows will not necessarily agree with changes
in the corresponding balances on the balance sheet.
  18
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2010
 (UNAUDITED)
 
 Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  Intangibles
  Intangible
assets are amortized using the straight-line method over their estimated period
of benefit. Evaluation of the recoverability of intangible assets is made
annually to take into account events or circumstances that warrant revised
estimates of useful lives or that indicate that impairment exists. All of our
intangible assets are subject to amortization. No impairments of intangible
assets have been identified during any of the periods presented. The Company’s
intangible assets consist primarily of map of hotels and scenic spots used for
marketing purposes, CRM systems software, accounting software, and Organization
cost of new companies. These definitive lived intangible assets are being
amortized over their useful lives. Expenditures of $51,359 and $168,954 were
capitalized for the six months ended June 30, 2010 and 2009, respectively, and
will be amortized over a 5 year life.  In conjunction the acquisitions
during the six months ended June 30, 2010, the Company capitalized $3,236,376 of
Identifiable Intangible Assets, which are being amortized over 5 years. The
Company recorded amortization expenses for definitive lived intangible assets of
$45,561 and $55,572 for the six months ended June 30, 2010 and 2009, $29,046 and
$28,545 for the three months ended June 30, 2010 and 2009, respectively, and
amortization expenses for Identifiable Intangible Assets of $260,937 and
$161,819 for the six months and three months ended June 30, 2010, respectively.
The Company will record approximately $800,672, $762,162 and $683,499 over the
next three years, respectively.
  Concentration of Credit
Risk
  Financial
instruments that potentially subject the Company to concentrations of credit
risk are cash, accounts receivable and other receivables arising from its normal
business activities. The Company places its cash in what it believes to be
credit-worthy financial institutions. The Company has a diversified customer
base, most of which are in China. The Company controls credit risk related to
accounts receivable through credit approvals, credit limits and monitoring
procedures. The Company routinely assesses the financial strength of its
customers and, based upon factors surrounding the credit risk, establishes an
allowance, if required, for uncollectible accounts and, as a consequence,
believes that its accounts receivable credit risk exposure beyond such allowance
is limited.
  Net Income (Loss) Per
Share
  The
Company accounts for net income (loss) per share in accordance with FASB
Accounting Standards Codification Topic on Earning Per Share (“ASC 260”), which
requires presentation of basic and diluted EPS on the face of the statement of
income for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS.  Basic net income
(loss) per share is computed by dividing net income (loss) by the weighted
average number of shares of common stock outstanding during each
period.  It excludes the dilutive effects of potentially issuable
common shares such as those related to the Company’s warrants and stock options
(calculated using the treasury stock method).  Diluted net income
(loss) per share is calculated by including potentially dilutive share issuances
in the denominator.
  19
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2010
 (UNAUDITED)
  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 30,2010
                                
                                
                                2009
                                
                                
                                2010
                                
                                
                                2009Basic
      earnings (losses) from continuing operations per share:Numerator:Income
      (loss) from continuing operations  used in computing basic
      earnings (losses) per share
                                
                                $
                                10,134,039
                                
                                
                                $
                                1,389,134
                                
                                
                                $
                                6,044,198
                                
                                
                                $
                                (1,860,712
                                )Income
      (loss) from continuing operations applicable to common
      shareholders
                                
                                $
                                10,134,039
                                
                                
                                $
                                1,389,134
                                
                                
                                $
                                6,044,198
                                
                                
                                $
                                (1,860,712
                                )Denominator:Weighted
      average common shares outstanding
                                
                                
                                17,066,154
                                
                                
                                
                                13,851,530
                                
                                
                                
                                17,404,834
                                
                                
                                
                                13,829,091Basic
      earnings (losses) per share from continuing operations
                                
                                $
                                0.59
                                
                                
                                $
                                0.10
                                
                                
                                $
                                0.35
                                
                                
                                $
                                (0.14
                                )Diluted
      earnings (losses) per share from continuing operations:Numerator:Income
      (loss) from continuing operations used in computing diluted earnings
      (losses) per share
                                
                                $
                                10,134,039
                                
                                
                                $
                                1,389,134
                                
                                
                                $
                                6,044,198
                                
                                
                                $
                                (1,860,712
                                )Income
      (loss) from continuing operations applicable to common
      shareholders
                                
                                $
                                10,134,039
                                
                                
                                $
                                1,389,134
                                
                                
                                $
                                6,044,198
                                
                                
                                $
                                (1,860,712
                                )Denominator:Weighted
      average common shares outstanding
                                
                                
                                17,066,154
                                
                                
                                
                                13,851,530
                                
                                
                                
                                17,404,834
                                
                                
                                
                                13,829,091Weighted
      average effect of dilutive securities:Stock
      options and warrants
                                
                                
                                869,159
                                
                                
                                
                                426,126
                                
                                
                                
                                814,806
                                
                                
                                
                                471,966Shares
      used in computing diluted net income (loss) per share
                                
                                
                                17,935,313
                                
                                
                                
                                14,277,656
                                
                                
                                
                                18,219,639
                                
                                
                                
                                14,301,057Diluted
      earnings (losses) per share from continuing operations
                                
                                $
                                0.57
                                
                                
                                $
                                0.10
                                
                                
                                $
                                0.33
                                
                                
                                $
                                (0.13
                                )
  20
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2010
 (UNAUDITED)
  Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  Net Income (Loss) Per Share
(Continued)
  SixmonthsendedJune30,
                                                                  
                                                                  
                                                                  ThreemonthsendedJune30,2010
                                                                  
                                                                  
                                                                  2009
                                                                  
                                                                  
                                                                  2010
                                                                  
                                                                  
                                                                  2009Basic
      earnings (losses) from discontinuing operations per share:Numerator:Income
      (loss) from discontinuing operations  used in computing basic
      earnings per share
                                                                  
                                                                  $
                                                                  -
                                                                  
                                                                  
                                                                  $
                                                                  (592,620
                                                                  )
                                                                  
                                                                  $
                                                                  -
                                                                  
                                                                  
                                                                  $
                                                                  (724,313
                                                                  )Income
      (loss) from discontinuing operations applicable to common
      shareholders
                                                                  
                                                                  $
                                                                  -
                                                                  
                                                                  
                                                                  $
                                                                  (592,620
                                                                  )
                                                                  
                                                                  $
                                                                  -
                                                                  
                                                                  
                                                                  $
                                                                  (724,313
                                                                  )Denominator:Weighted
      average common shares outstanding
                                                                  
                                                                  
                                                                  17,066,154
                                                                  
                                                                  
                                                                  
                                                                  13,851,530
                                                                  
                                                                  
                                                                  
                                                                  17,404,834
                                                                  
                                                                  
                                                                  
                                                                  13,829,091Basic
      earnings per share from discontinuing operations
                                                                  
                                                                  $
                                                                  -
                                                                  
                                                                  
                                                                  $
                                                                  (0.04
                                                                  )
                                                                  
                                                                  $
                                                                  -
                                                                  
                                                                  
                                                                  $
                                                                  (0.05
                                                                  )Diluted
      earnings (losses) per share from discontinuing operations:Numerator:Income
      (loss) from discontinuing operations used in computing diluted earnings
      (losses) per share
                                                                  
                                                                  $
                                                                  -
                                                                  
                                                                  
                                                                  $
                                                                  (592,620
                                                                  )
                                                                  
                                                                  $
                                                                  -
                                                                  
                                                                  
                                                                  $
                                                                  (724,313
                                                                  )Income
      (loss) from discontinuing operations applicable to common
      shareholders
                                                                  
                                                                  $
                                                                  -
                                                                  
                                                                  
                                                                  $
                                                                  (592,620
                                                                  )
                                                                  
                                                                  $
                                                                  -
                                                                  
                                                                  
                                                                  $
                                                                  (724,313
                                                                  )Denominator:Weighted
      average common shares outstanding
                                                                  
                                                                  
                                                                  17,066,154
                                                                  
                                                                  
                                                                  
                                                                  13,851,530
                                                                  
                                                                  
                                                                  
                                                                  17,404,834
                                                                  
                                                                  
                                                                  
                                                                  13,829,091Weighted
      average effect of dilutive securities:Stock
      options and  warrants
                                                                  
                                                                  
                                                                  869,159
                                                                  
                                                                  
                                                                  
                                                                  426,126
                                                                  
                                                                  
                                                                  
                                                                  814,806
                                                                  
                                                                  
                                                                  
                                                                  471,966Shares
      used in computing diluted net income (loss) per share
                                                                  
                                                                  
                                                                  17,935,313
                                                                  
                                                                  
                                                                  
                                                                  14,277,656
                                                                  
                                                                  
                                                                  
                                                                  18,219,639
                                                                  
                                                                  
                                                                  
                                                                  14,301,057Diluted
      earnings per share from discontinuing operations
                                                                  
                                                                  $
                                                                  -
                                                                  
                                                                  
                                                                  $
                                                                  (0.04
                                                                  )
                                                                  
                                                                  $
                                                                  -
                                                                  
                                                                  
                                                                  $
                                                                  (0.05
                                                                  )Total
      net income (loss) per common shareBasic
                                                                  
                                                                  $
                                                                  0.59
                                                                  
                                                                  
                                                                  $
                                                                  0.06
                                                                  
                                                                  
                                                                  $
                                                                  0.35
                                                                  
                                                                  
                                                                  $
                                                                  (0.19
                                                                  )Dilute
                                                                  
                                                                  $
                                                                  0.57
                                                                  
                                                                  
                                                                  $
                                                                  0.06
                                                                  
                                                                  
                                                                  $
                                                                  0.33
                                                                  
                                                                  
                                                                  $
                                                                  (0.18
                                                                  )
  21
 
 UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2010
 (UNAUDITED)
  Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  Related
parties
 Parties
are considered to be related if one party has the ability, directly or
indirectly, to control the other party or exercise significant influence over
the other party in making financial and operational decisions. Parties are also
considered to be related if they are subject to common control or common
significant influence. Related parties may be individuals or corporate
entities.
 Recent Accounting
Pronouncements
  In
February, 2007, FASB issued SFAS 159 ‘The Fair Value Option for Financial Assets
and Financial Liabilities’ – Including an Amendment of FABS Statement No.
115.  This statement permits entities to choose to measure many financial
instruments and certain other items at fair value. This statement is expected to
expand the use of fair value measurement, which is consistent with the Board’s
long-term measurement objectives for accounting for financial instruments. 
This statement is effective as of the beginning of an entity’s first fiscal year
that begins after November 15, 2007. Early adoption is permitted as of the
beginning of a fiscal year that begins on or before November 15, 2007, SFAS No
159 was superseded by the Financial Instruments Topic of FASB Accounting
Standards Codification (“ASC 825”), the adoption of this accounting requirement
has no effect on the Company’s consolidated financial
statements.
  In
February, 2007, FASB issued SFAS 159 ‘The Fair Value Option for Financial Assets
and Financial Liabilities’ – Including an Amendment of FABS Statement No.
115.  This statement permits entities to choose to measure many financial
instruments and certain other items at fair value. This statement is expected to
expand the use of fair value measurement, which is consistent with the Board’s
long-term measurement objectives for accounting for financial instruments. 
This statement is effective as of the beginning of an entity’s first fiscal year
that begins after November 15, 2007. Early adoption is permitted as of the
beginning of a fiscal year that begins on or before November 15, 2007, SFAS No
159 was superseded by the Financial Instruments Topic of FASB Accounting
Standards Codification (“ASC 825”), the adoption of this accounting requirement
has no effect on the Company’s consolidated financial
statements.
  In
December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements” (“SFAS 160”).  This Statement amends ARB
51 to establish accounting and reporting standards for the non-controlling
(minority) interest in a subsidiary and for the deconsolidation of a subsidiary.
It clarifies that a non-controlling interest in a subsidiary is an ownership
interest in the consolidated entity that should be reported as equity in the
consolidated financial statements. This Statement is effective for fiscal years,
and interim periods within those fiscal years, beginning on or after December
15, 2008 (that is, January 1, 2009, for entities with calendar year-ends). SFAS
No 160 was superseded by the Consolidation Topic of FASB Accounting Standards
Codification (“ASC 810”) The Company adopted SFAS 160 on January 1, 2009. The
adoption of this statement had no effect on the Company’s consolidated financial
statements.
  22
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2010
 (UNAUDITED)
 
 Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  Recent Accounting
Pronouncements – (Continued)
  In March
2008, the FASB issued FASB Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities. The new standard is intended to improve
financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. The new standard also improves transparency about the location and
amounts of derivative instruments in an entity’s financial statements; how
derivative instruments and related hedged items are accounted for under
Statement 133; and how derivative instruments and related hedged items affect
its financial position, financial performance, and cash flows. SFAS No 161 was
superseded by the Derivative and Hedging Topic of FASB Accounting Standards
Codification (“ASC 815”).
  On May 8,
2008, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 162, The Hierarchy of Generally
Accepted Accounting Principles, which will provide framework for selecting
accounting principles to be used in preparing financial statements that are
presented in conformity with U.S. generally accepted accounting principles
(GAAP) for nongovernmental entities. With the issuance of SFAS No. 162, the GAAP
hierarchy for nongovernmental entities will move from auditing literature to
accounting literature.  SFAS No 162 was superseded by the General
Accounting Principle Topic of FASB Accounting Standards Codification (“ASC
105”).
  In
June 2008, the FASB ratified the consensus reached on Emerging Issues Task
Force (“EITF”) Issue No. 07-05, 05”). EITF No. 07-05 clarifies the
determination of whether an instrument (or an embedded feature) is indexed to an
entity’s own stock, which would qualify as a scope exception under SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. EITF
No. 07-05 is effective for financial statements issued for fiscal years
beginning after December 15, 2008. EITF No. 07-05 was superseded by the
Derivative and Hedging Topic of FASB Accounting Standards Codification (“ASC
815”). Based on the Company’s evaluation of this issue, the adoption of this
accounting requirement has a material effect on the Company’s consolidated
financial statements, please see note above under “Derivative
Liability”.
  In June
2009, the FASB issued amended standards for determining whether to consolidate a
variable interest entity. These amended standards eliminate a mandatory
quantitative approach to determine whether a variable interest gives the entity
a controlling financial interest in a variable interest entity in favor of a
qualitatively focused analysis, and require an ongoing reassessment of whether
an entity is the primary beneficiary. These amended standards are effective for
us beginning in the first quarter of fiscal year 2010 and we are currently
evaluating the impact that adoption will have on our consolidated financial
statements.
  In June
2009, the FASB issued ASC 855 (previously SFAS No. 165, Subsequent Events),
which establishes general standards of accounting for and disclosures of events
that occur after the balance sheet date but before the financial statements are
issued or available to be issued. It is effective for interim and annual periods
ending after June 15, 2009. There was no material impact upon the adoption of
this standard on the Company’s consolidated financial
statements.
  23
 
 UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2010
 (UNAUDITED)
  Note
2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  Recent Accounting
Pronouncements – (Continued)
  In August
2009, the FASB issued Accounting Standards Update (“ASU”) 2009-05, which amends
ASC Topic 820, Measuring Liabilities at Fair Value, which provides additional
guidance on the measurement of liabilities at fair value. These amended
standards clarify that in circumstances in which a quoted price in an active
market for the identical liability is not available, we are required to use the
quoted price of the identical liability when traded as an asset, quoted prices
for similar liabilities, or quoted prices for similar liabilities when traded as
assets. If these quoted prices are not available, we are required to use another
valuation technique, such as an income approach or a market approach. These
amended standards are effective for us beginning in the fourth quarter of fiscal
year 2009. There was no material impact upon the adoption of this standard on
the Company’s consolidated financial statements.
  In
January 2010, the FASB issued Accounting Standards Update No. 2010-06 (ASU
2010-06), Fair Value Measurements and Disclosures which amends ASC Topic 820,
adding new requirements for disclosures for Levels 1 and 2, separate disclosures
of purchases, sales, issuances, and settlements relating to Level 3 measurements
and clarification of existing fair value disclosures.  ASU 2010-06 is
effective for interim and annual periods beginning after December 15, 2009,
except for the requirement to provide Level 3 activity of purchases, sales,
issuances, and settlements on a gross basis, which will be effective for fiscal
years beginning after December 15, 2010 (the Company’s fiscal year 2012); early
adoption is permitted.  The Company is currently evaluating the impact
of adopting ASU 2009-14 on its financial statements.
  Merger and Corporate
Restructure
  On June
26, 2006 the company entered into an agreement and plan of merger with Full
Power Enterprises Global Limited, a holding company that owns all of the issued
and outstanding shares of Shenzhen Yuzhilu Aviation Service Company Limited, the
operating Company. In substance the agreement is a recapitalization of Shenzhen
Yuzhilu Aviation Service Company’s capital structure.
  For
accounting purposes, the company accounted for the transaction as a reverse
acquisition and with Full Power Enterprises Global Limited being the surviving
entity. The Company did not recognize goodwill or any intangible assets in
connection with the transaction. Prior to the Agreement, the company was an
inactive corporation with no significant assets and
liabilities.
  24
 
 UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2010
 (UNAUDITED)
 
 Note
3 – TRADE DEPOSITS AND
ADVANCES
  Trade
deposits represents amount held by Airlines and deposits. As ofJune 30, 2010
and December 31, 2009 the Company had paid $7,706,484 and $9,775,735 as trade
deposits respectively.
  The
following summaries the Company’s deposits outstanding by each of its
subsidiaries and the nature and purpose of each deposit as of June 30, 2010 and
December 31, 2009:
  June 30,
                                        
                                        
                                        December 31,2010
                                        
                                        
                                        2009Shenzhen
      Yuzhilu Aviation Service Co., Ltd:Deposit
      for tripeasy kiosks. 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.
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        1,465,592Deposit
      for central ticket system. This was a credit based for obtaining air
      tickets from third party before any payments, and the full amounts are
      returnable.
                                        
                                        
                                        3,834Deposit
      for airlines. This was a credit based for issuing air-tickets, and the
      full amount is returnable if the company discontinues air-ticket
      business.
                                        
                                        
                                        516,115
                                        
                                        
                                        
                                        2,811,004Deposit
      for Financial System Software
                                        
                                        
                                        -
                                        
                                        
                                        
                                        16,898Deposit
      for air-ports. This was a deposit for admittance to do marketing in
      air-ports, and is deductible against monthly rental obligation to
      air-ports
                                        
                                        
                                        -
                                        
                                        
                                        
                                        8,508Deposit
      for agencies. This was a credit based for the company to issue other
      ticket agencies' special fare air-ticket, and the full amount is
      returnable if the company discontinues its business with other
      agencies.
                                        
                                        
                                        3,529,929
                                        
                                        
                                        
                                        1,100,158Subtotal
                                        
                                        
                                        4,049,878
                                        
                                        
                                        
                                        5,402,160Huangshan
      Holiday Travel Agency Co., Ltd.:Advance
      payment to tour guides for expenses during leading the tour. This will be
      transferred to costs when the tour guide return from tour and provide
      supporting evidence.
                                        
                                        
                                        885
                                        
                                        
                                        
                                        -Subtotal
                                        
                                        
                                        885
                                        
                                        
                                        
                                        -Foshan
      Overseas International Travel Service Co. Ltd.:Deposit
      paid to tour companies.  This was a credit based for co-operate
      travel agencies, and is deductible against tour payments, the balance is
      returnable when cease doing business with these agencies.
                                        
                                        
                                        458,056
                                        
                                        
                                        
                                        969,261Advance
      payment to tour guides for expenses during leading the tour. This will be
      transferred to costs when the tour guide return from tour and provide
      supporting evidence.
                                        
                                        
                                        -
                                        
                                        
                                        
                                        243,342Subtotal
                                        
                                        
                                        458,056
                                        
                                        
                                        
                                        1,212,603Xian
      Golden Net Travel Serve Services, Ltd.:Deposit
      for Tour companies. This was a credit based for co-operate travel
      agencies, and is deductible against tour payments, the balance is
      returnable when cease doing business with these agencies
                                        
                                        
                                        560,353
                                        
                                        
                                        
                                        425,396Deposit
      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.
                                        
                                        
                                        -
                                        
                                        
                                        
                                        132,019Subtotal
                                        
                                        
                                        560,353
                                        
                                        
                                        
                                        557,415Chongqing
      Travel World E-Business Co., Ltd.Deposit
      for agencies. This was a credit based for the company to issue other
      ticket agencies' special fare air-ticket, and the full amount is
      returnable if the company discontinues its business with other
      agencies.
                                        
                                        
                                        2,600,447
                                        
                                        
                                        
                                        2,587,279Subtotal
                                        
                                        
                                        2,600,447
                                        
                                        
                                        
                                        2,587,279Shenzhen
      Universal TravelDeposit
      for agencies. This was a credit based for the company to issue other
      ticket agencies' special fare air-ticket, and the full amount is
      returnable if the company discontinues its business with other
      agencies.
                                        
                                        
                                        36,865
                                        
                                        
                                        
                                        16,278Subtotal
                                        
                                        
                                        36,865
                                        
                                        
                                        
                                        16,278Total
                                        
                                        $
                                        7,706,484
                                        
                                        
                                        $
                                        9,775,735
 
 The
Company cancelled a co-operation agreement with an unrelated company, to assist
that company in their business development by participating in that
business operation and providing working capital funding and the unrelated
company returned all advances. As of June 30, 2010 and December 31, 2009 the
Company has advanced this company $0 and $440,063,
respectively.
  25
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2010
 (UNAUDITED)
 
 Note
4 - COMPENSATED
ABSENCES
 
 Regulation
45 of local PRC labor law entitles employees to annual vacation leave after 1
year of service. In general all leave must be utilized annually, with proper
notification. Any unutilized leave is cancelled.
  Note
5 – RELATED
PARTY TRANSACTIONS
 As of
June 30, 2010, Due from related party account has balance of $6.99 million,
which was an advance for cash payment of two acquisitons in June. The payments
were paid by corporate account on June 28, 2010 and the related party returned
the same amount on August 10, 2010.
  
 Note 6
- INCOME
TAXES
  The
Company through its subsidiary Shenzhen Yuzhilu Aviation Service Co., Ltd.
is governed by the Income Tax Laws of the PRC. Operations in the United States
of America have incurred net accumulated operating losses for income tax
purposes. Pursuant to the PRC Income Tax Laws, the Enterprise Income Tax (EIT)
the Company has a statutory rate of 25%. The following is a reconciliation of
income tax expense for the three and six months ended June 30, 2010 and
2009.
  Six months
                          
                          Six months
                          
                          Three months
                          
                          Three monthsended
                          
                          ended
                          
                          ended
                          
                          endedJune 30,
                          
                          June 30,
                          
                          June 30,
                          
                          June 30,2010
                          
                          2009
                          
                          2010
                          
                          2009Current
                          
                          $
                          3,393,028
                          
                          
                          $
                          2,138,151
                          
                          
                          $
                          1,907,901
                          
                          
                          $
                          1,020,955Deferred
                          
                          
                          
                          
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          
                          -Total
                          
                          $
                          3,393,028
                          
                          
                          $
                          2,138,151
                          
                          
                          $
                          1,907,901
                          
                          
                          $
                          1,020,955
  Note 7
– COMMITMENTS
  The
Company leases various office facilities under month-to-month arrangements.
Rental expense for leases consisted of $551,511 and $147,903 for six months
ended June 30, 2010 and 2009, respectively. Rental expense for leases were
$340,995 and $52,966 for three months ended June 30, 2010 and 2009,
respectively.  The Company has future minimum lease obligations as of
June 30, 2010 as follows:
  2011
                      
                      $
                      698,3952012
                      
                      
                      295,6702013
                      
                      
                      262,9342014
                      
                      
                      201,2742015
                      
                      
                      30,818There
      after
                      
                      
                      11,060Total
                      
                      $
                      1,500,151
  26
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2010
 (UNAUDITED)
  Note 8
– 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.
  On June
28, 2010, the Company consummated the acquisition of a 100% interest in Kunming
Business Travel Agency Co., Ltd.  ("KBT") for a cash and stock
transaction valued at approximately US$5.7 million in aggregate. This amount is
included in the cost of net assets and goodwill purchased.
  The stock
consideration consisted of 79,487 newly issued shares of the Registrant’s common
stock, which were given to KBT’s Shareholder immediately before the completion
of the Share Exchange Transaction. The cash consideration consisted of
$5,163,626.
  KBT is
engaged in the business of Chinese domestic tourism. The purchase price was
determined based on arms' length negotiations between Universal Travel Group and
the shareholder of KBT.
  The
acquisition had been accounted for as a purchase business combination and the
results of operations from the acquisition date have been included in the
Company's consolidated financial statements in accordance with ASC810. The
allocation of the purchase price is as follows:
  Cash
      acquired
                          
                          $
                          686,825Accounts
      receivable
                          
                          
                          1,983Due
      to shareholders
                          
                          
                          155,624Other
      assets
                          
                          
                          247,737Property
      Plant & Equipment
                          
                          
                          94,074Identifiable
      Intangibles
                          
                          
                          892,898Goodwill
                          
                          
                          4,009,070Total
      assets acquired
                          
                          
                          6,088,211Liabilities
      assumedAccounts
      & Income Taxes payable
                          
                          
                          244,784Other
      payable
                          
                          
                          107,559Total
                          
                          $
                          5,735,868
  The
excess of purchase price over tangible assets acquired and liabilities assumed
was $4,901,968 of which 4,009,070 was recorded as goodwill. At the time of the
acquisition $892,898 of identifiable intangibles assets existed under the
contractual-legal or the reparability criterion as required under ASC
805.
  Prior to
the acquisition, Kunming Business Travel Agency Co., Ltd. prepared its financial
statements under accounting principles generally accepted in the United States
of America.
  On June
28, 2010, the Company consummated the acquisition of a 100% interest in Shanxi
Jinyang Travel Agency Co., Ltd. ("SJT") for a cash and stock transaction valued
at approximately US$2.3 million in aggregate. This amount is included in the
cost of net assets and goodwill purchased.
  27
 
 UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2010
 (UNAUDITED)
  Note 8
– COMMON STOCK
(CONTINUED)
  The stock
consideration consisted of 31,387 newly issued shares of the Registrant’s common
stock, which were given to SJT’s Shareholder immediately before the completion
of the Share Exchange Transaction. The cash consideration consisted of
$2,038,946.
  SJT is
engaged in the business of Chinese domestic tourism. The purchase price was
determined based on arms' length negotiations between Universal Travel Group and
the shareholder of SJT.
  The
acquisition had been accounted for as a purchase business combination and the
results of operations from the acquisition date have been included in the
Company's consolidated financial statements in accordance with ASC810. The
allocation of the purchase price is as follows:
  Cash
      acquired
                          
                          $
                          18,655Due
      from shareholders
                          
                          
                          247,357Other
      assets
                          
                          
                          146,972Property
      Plant & Equipment
                          
                          
                          21,634Identifiable
      Intangibles
                          
                          
                          361,124Goodwill
                          
                          
                          1,647,104Total
      assets acquired
                          
                          
                          2,442,846Liabilities
      assumedAccounts
      & Income Taxes payable
                          
                          
                          38,087Other
      payable
                          
                          
                          139,827Total
                          
                          $
                          2,264,932
  The
excess of purchase price over tangible assets acquired and liabilities assumed
was $2,008,228 of which 1,647,104 was recorded as goodwill. At the time of the
acquisition $361,124 of identifiable intangibles assets existed under the
contractual-legal or the reparability criterion as required under ASC
805.
  Prior to
the acquisition, Shanxi Jinyang Travel Agency Co., Ltd. prepared its financial
statements under accounting principles generally accepted in the United States
of America.
  On March
29, 2010 the Company consummated the acquisition of a 100% interest in Zhengzhou
Yulongkang Travel agency Co. Ltd ("ZYT") for a cash and stock transaction valued
at approximately US$4 million in aggregate. This amount is included in the cost
of net assets and goodwill purchased.
  The stock
consideration consisted of 60,634 newly issued shares of the Registrant’s common
stock, which were given to ZYT’s Shareholder immediately before the completion
of the Share Exchange Transaction. The cash consideration consisted of
$5,141,764.
  ZYT is
engaged in the business of Chinese domestic tourism. The purchase price was
determined based on arms' length negotiations between Universal Travel Group and
the shareholder of ZYT.
  28
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2010
 (UNAUDITED)
  Note 8
– COMMON STOCK
(CONTINUED)
  The
acquisition had been accounted for as a purchase business combination and the
results of operations from the acquisition date have been included in the
Company's consolidated financial statements in accordance with ASC810. The
allocation of the purchase price is as follows:
  Cash
      acquired
                          
                          $
                          1,147,303Accounts
      receivable
                          
                          
                          32,286Other
      assets
                          
                          
                          5,926Property
      Plant & Equipment
                          
                          
                          31,308Identifiable
      Intangibles
                          
                          
                          805,626Goodwill
                          
                          
                          4,102,061Total
      assets acquired
                          
                          
                          6,124,510Liabilities
      assumedAccounts
      & Income Taxes payable
                          
                          
                          364,999Other
      payable
                          
                          
                          46,575Total
                          
                          $
                          5,712,936
  The
excess of purchase price over tangible assets acquired and liabilities assumed
was $4,907,687 of which 4,102,061 was recorded as goodwill. At the time of the
acquisition $805,626 of identifiable intangibles assets existed under the
contractual-legal or the reparability criterion as required under ASC
805.
  Prior to
the acquisition, Zhengzhou Yulongkang Travel agency Co. Ltd prepared its
financial statements under accounting principles generally accepted in the
United States of America.
  On March
26, 2010 the Company consummated the acquisition of a 100% interest in Huangshan
Holiday Travel Service Co., Ltd ("HHT") for a cash and stock transaction valued
at approximately US$4 million in aggregate. This amount is included in the cost
of net assets and goodwill purchased.
  The stock
consideration consisted of 61,847 newly issued shares of the Registrant’s common
stock, which were given to HHTs Shareholder immediately before the completion of
the Share Exchange Transaction. The cash consideration consisted of
$2,343,824.
  HHT is
engaged in the business of Chinese domestic tourism. The purchase price was
determined based on arms' length negotiations between Universal Travel Group and
the shareholder of HHT.
  The
acquisition had been accounted for as a purchase business combination and the
results of operations from the acquisition date have been included in the
Company's consolidated financial statements in accordance with ASC810. The
allocation of the purchase price is as follows:
  29
 
 UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2010
 (UNAUDITED)
 
 Note 8
– COMMON STOCK
(CONTINUED)
  Cash
      acquired
                            
                            $
                            87,867Accounts
      receivable
                            
                            
                            204,435Other
      assets
                            
                            
                            404,929Property
      Plant & Equipment
                            
                            
                            75,788Identifiable
      Intangibles
                            
                            
                            479,870Goodwill
                            
                            
                            1,949,080Total
      assets acquired
                            
                            
                            3,201,969Liabilities
      assumedAccounts
      & Income Taxes payable
                            
                            
                            223,734Other
      payable
                            
                            
                            48,720Total
                            
                            $
                            2,929,515
  The
excess of purchase price over tangible assets acquired and liabilities assumed
was $2,428,950 of which 1,949,080 was recorded as goodwill. At the time of the
acquisition $479,870 of identifiable intangibles assets existed under the
contractual-legal or the separability criterion as required under ASC
805.
  Prior to
the acquisition, Huangshan Holiday Travel Service Co., Ltd prepared its
financial statements under accounting principles generally accepted in the
United States of America.
  On March
29, 2010 the Company consummated the acquisition of a 100% interest in Hebei
Tianyuan Travel Agency Co., Ltd ("HTT") for a cash and stock transaction valued
at approximately US$4.4 million in aggregate. This amount is included in the
cost of net assets and goodwill purchased.
  The stock
consideration consisted of 93,283 newly issued shares of the Registrant’s common
stock, which were given to HTT’s Shareholder immediately before the completion
of the Share Exchange Transaction. The cash consideration consisted of
$3,519,736.
  HTT
is engaged in the business of Chinese domestic tourism. The purchase price was
determined based on arms' length negotiations between Universal Travel Group and
the shareholder of HTT.
  The
acquisition had been accounted for as a purchase business combination and the
results of operations from the acquisition date have been included in the
Company's consolidated financial statements in accordance with ASC810. The
allocation of the purchase price is as follows:
  Cash
      acquired
                            
                            $
                            181,316Accounts
      receivable
                            
                            
                            166,618Other
      assets
                            
                            
                            465,034Property
      Plant & Equipment
                            
                            
                            42,308Identifiable
      Intangibles
                            
                            
                            696,858Goodwill
                            
                            
                            3,208,455Total
      assets acquired
                            
                            
                            4,760,589Liabilities
      assumedAccounts
      & Income Taxes payable
                            
                            
                            238,525Other
      payable
                            
                            
                            123,602Total
                            
                            $
                            4,398,462
  30
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2010
 (UNAUDITED)
  Note 8
– COMMON STOCK
(CONTINUED)
  The
excess of purchase price over tangible assets acquired and liabilities assumed
was $3,905,313 of which 3,208,455 was recorded as goodwill. At the time of the
acquisition $696,858 of identifiable intangibles assets existed under the
contractual-legal or the separability criterion as required under ASC
805.
  Prior to
the acquisition, Hebei Tianyuan Travel Agency Co., Ltd prepared its financial
statements under accounting principles generally accepted in the United States
of America.
  Pursuant
to a share exchange agreement, the Company issued 50,588 shares of newly issued
shares of Common Stock to the former shareholders of Xian Golden Net Travel
Serve Services, Inc. The shares were valued at $258,000, which was the fair
value of the shares at the date the of the exchange agreement. This amount is
included in the cost of net assets and goodwill purchased.
  On August
6, 2007 the Company consummated the acquisition of a 100% interest in Xian
Golden Net Travel Serve Services, Inc. ("XGN") for a cash and stock transaction
valued at approximately US$1.8 million in aggregate. This amount is included in
the cost of net assets and goodwill purchased.
  The stock
consideration consisted of 50,588 newly issued shares of the Registrant’s common
stock, which were given to XGN’s Shareholders immediately before the completion
of the Share Exchange Transaction. The cash consideration consisted of
$1,542,000 in cash and payable no later than the first anniversary of the Merger
Transaction. The obligation to pay the cash consideration is evidenced by an
interest-free promissory note between the Registrant and the XGN’s
Shareholders.
  XGN is
engaged in the business of Chinese domestic tourism. The purchase price was
determined based on arms' length negotiations between Universal Travel Group and
the shareholders of XGN.
  The
acquisition had been accounted for as a purchase business combination and the
results of operations from the acquisition date have been included in the
Company's consolidated financial statements in accordance with ASC 810. The
allocation of the purchase price is as follows:
  Cash
      acquired
                        
                        $
                        45,356Accounts
      Receivable
                        
                        
                        142,462Loans  to
      Shareholder
                        
                        
                        1,075,504Property
      Plant & Equipment
                        
                        
                        773Goodwill
                        
                        
                        764,895Total
      assets acquired
                        
                        
                        2,028,990Liabilities
      assumedAccounts
      & Income Taxes payable
                        
                        
                        131,875Other
      payable
                        
                        
                        97,115Total
                        
                        $
                        1,800,000
  The
excess of purchase price over tangible assets acquired and liabilities assumed
of $764,895 was recorded as goodwill. At the time of the acquisition no
identifiable intangibles assets existed under the contractual-legal or the
separability criterion as required under ASC 805.
  31
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2010
 (UNAUDITED)
 
 Note 8
– COMMON STOCK
(CONTINUED)
  Prior to
the acquisition, Xian Golden Net Travel Serve Services, Inc. prepared its
financial statements under accounting principles generally accepted in the
United States of America.
  Pursuant
to a share exchange agreement, the Company issued 200,000 shares of newly issued
shares of Common Stock to the former shareholders of Shanghai Lanbao Travel
Services Co., Ltd. The shares were valued at $1,092,000, which was the fair
value of the shares at the date of the exchange agreement. This amount is
included in the cost of net assets and goodwill purchased.
  On August
8, 2007, the Company consummated the acquisition of a 100% interest in Shanghai
Lanbao Travel Services Co., Ltd. ("SLB") for a cash and stock transaction valued
at approximately US$3.92 million in aggregate. This amount is included in the
cost of net assets and goodwill purchased.
  The stock
consideration consisted of 200,000 newly issued shares of the Registrant’s
common stock immediately before the completion of the Share Exchange
Transaction. The cash consideration consisted of $2,828,000 in cash and payable
no later than the first anniversary of the Merger Transaction. The obligation to
pay the cash consideration is evidenced by interest-free promissory notes
between the Registrant and each of the SLB Shareholders.
  SLB is
engaged in the business of real time booking of travel related products via the
internet. The purchase price was determined based on arms' length negotiations
between Universal Travel Group and the shareholders of SLB.
  The
acquisition 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  to  shareholders
                            
                            
                            178,665Property
      Plant & Equipment
                            
                            
                            9,376Goodwill
                            
                            
                            3,081,799Total
      assets acquired
                            
                            
                            4,563,702Liabilities
      assumedAccounts
      & Income Taxes payable
                            
                            
                            566,809Other
      payable
                            
                            
                            76,893Total
                            
                            $
                            3,920,000
  The
excess of purchase price over tangible assets acquired and liabilities assumed
of $3,081,799 was recorded as goodwill. At the time of the acquisition no
identifiable intangibles assets existed under the contractual-legal or the
separability criterion as required under ASC 825.
  Prior to
the acquisition, Shanghai Lanbao Travel Services Co., Ltd. prepared its
financial statements under accounting principles generally accepted in the
United States of America.
  32
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2010
 (UNAUDITED)
 
 Note 8
– COMMON STOCK
(CONTINUED)
  Pursuant
to a share exchange agreement, the Company issued 374,321 shares of newly issued
shares of Common Stock and a promissory note to the former shareholders of
Foshan Overseas International Travel Service Co., Ltd. The shares were valued at
$3,346,500, which was the fair value of the shares at the date of exchange
agreement. This amount is included in the cost of net assets and goodwill
purchased.
  On
September 20, 2007, the Company consummated the acquisition of a 100% interest
in Foshan Overseas International Travel Service Co., Ltd. ("FOI") for a cash and
stock transaction valued at approximately US$6.5 million in aggregate. This
amount is included in the cost of net assets and goodwill
purchased.
  The
stock consideration consisted of 374,329 newly issued shares of the Registrant’s
common stock, immediately before the completion of the Share Exchange
Transaction. The cash consideration consisted of $3,153,500 due immediately
before the completion of the Share Exchange Transaction and payable no later
than the first anniversary of the Merger Transaction. The obligation to pay the
cash consideration is evidenced by two interest-free promissory notes between
the Registrant and each of the FOI Shareholders.
  FOI is
engaged in the business of domestic and international travel inquiries as well
as corporate travel, offering specialized packages that include national and
international air ticket booking, hotel reservations, conference center
reservations and rental cars. The purchase price was determined based on arms'
length negotiations between Universal Travel Group and the shareholders of FOI.
The acquisition had been accounted for as a purchase business combination and
the results of operations from the acquisition date have been included in the
Company's consolidated financial statements in accordance with ASC 810. The
allocation of the purchase price is as follows:
  Cash
      acquired
                            
                            $
                            423,292Accounts
      Receivable
                            
                            
                            2,204,094Loans
      Shareholders
                            
                            
                            686,936Trade
      Deposits
                            
                            
                            513,317Prepaid
      Expenses
                            
                            
                            3,285Property
      Plant & Equipment
                            
                            
                            42,244Goodwill
                            
                            
                            6,049,576Total
      assets acquired
                            
                            
                            9,922,744Liabilities
      assumedAccounts
      & Income Taxes payable
                            
                            
                            3,126,718Other
      payable
                            
                            
                            296,026Total
                            
                            $
                            6,500,000
 
 The
excess of purchase price over tangible assets acquired and liabilities assumed
of $6,049,576 was recorded as goodwill. At the time of the acquisition no
identifiable intangibles assets existed under the contractual-legal or the
separability criterion as required under ASC 805.
  Prior to
the acquisition, Foshan Overseas International Travel Service Co., Ltd. prepared
its financial statements under accounting principles generally accepted in the
United States of America.
  33
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2010
 (UNAUDITED)
 
 Note 8
– COMMON STOCK
(CONTINUED)
  On
August 28, 2008, Universal Travel Group (the “Company”) entered into a
Securities Purchase Agreement with Access America Fund, LP, Chinamerica Fund LP,
Pope Investments II LLC, Heller Capital Investments, LLC, CGM as C/F Ronald I.
Heller IRA, Investment Hunter, LLC, MARed Investments, High Capital Funding,
LLC, and Merrill Lynch, Pierce, Fenner & Smith, FBO Beau L. Johnson
(collectively, the “Buyers”) to sell to the Buyers 1,529,569 shares of common
stock, par value $0.001 of the Company (“Common Stock”) and warrants to purchase
764,785 shares of Common Stock for an aggregate purchase price of $7,112,500
(the “Financing”). (See footnote 2, derivative liability)
  On
December 15, 2009, the Company closed a Subscription Agreements with certain
investors to sell to them an aggregate of 2,222,222 shares of common stock of
the Company, par value $0.001 (the “Shares”) for a purchase price of $9.00 per
share and an aggregate purchase consideration of $19,999,998. In connection with
the subscription the company paid fees and other costs pertaining to the
agreement totaling $1,049,749. Net proceeds of the transaction were
$18,950,249.  The offer and sale of the Shares were made pursuant to
an effective Registration Statement on Form S-3 (Registration No. 333- 161139)
initially filed with the Securities and Exchange Commission on August 7, 2009
and amended on November 2, 2009. The Registration Statement was declared
effective on November 5, 2009.
  On June
21, 2010, the Company closed an underwriting agreement with Brean Murrary,
carret & Co., LLC, as representative of the underwriters, related to a
public offering of 2, 857, 143 shares of the common stock, par value $0.001 (the
“shares”) for a purchase price of $7.00 per share and an aggregate purchase
consideration of $20,000,001. In connection with the subscription the company
paid 5% underwriting commission, fees and other costs pertainning to the
agreement totaling $1,231,947. Net proceeds of the transaction were $18,768,054.
The offer and sale of the Shares were made pursuant to an effective Registration
Statement on Form S-3 (Registration No. 333- 161139) initially filed with the
Securities and Exchange Commission on August 7, 2009 and amended on November 2,
2009. The Registration Statement was declared effective on November 5,
2009.
 
 Note 9
– STOCK WARRANTS,
OPTIONS, AND COMPENSATION
  On
February 4, 2008, under the terms of an equity financing commitment, the company
issued 74,074 shares of common stock at the closing price of $ 8.10 per
share.  The proceeds of $599,994 were paid directly to the
shareholders of Foshan Overseas International Travel Service Co, for amount due
them under Note obligation of the company.
  On May 7,
2007, the Company issued, to a newly appointed Board member, an option grant to
purchase 33,333 shares of common stock at the closing price at $ 5.85 per share.
The exercisable period is two years from issuance. On June 23, 2008, upon
resignation, Board member has forfeited all options.
  On
September 6, 2007, the Company issued, to a newly appointed Board member, an
option grant to purchase 33,333 shares of common stock at the closing price at $
8.55 per share. The options are exercisable until June 1, 2017. On June 23,
2008, upon resignation, Board member has forfeited 22,222
options.
  34
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2010
 (UNAUDITED)
 
 Note 9
– STOCK WARRANTS,
OPTIONS, AND COMPENSATION (CONTINUED)
  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. On July 23, 2009 3,300 were exercised
at $2.90.
  On
September 1, 2009, the Company issued, to another newly appointed Board member,
an option grant to purchase 10,000 shares of common stock at the closing price
of $ 8.82 per share. The options are exercisable until August 2019. Stock
options— the option holder has no voting or dividend rights. The company records
the expense of the stock options over the related vesting period. The options
were valued using the Black-Scholes option-pricing model at the model at the
date of grant stock option pricing.
  On
September 1, 2009, the Company issued, to the newly appointed CFO an option
grant to purchase 105,000 shares of common stock at the closing price of $ 8.82
per share. The options are exercisable until August 2019.
  Expected
volatility is based on the historical volatility of the Company’s stock price.
The expected term represents the estimated average period of time that the
options remain outstanding. No dividend payouts were assumed, as the Company has
no plans to declare dividends during the expected term of the stock options. The
risk-free rate of return reflects the weighted average interest rate offered for
zero coupon treasury bonds over the expected term of the options. Based upon
this calculation and pursuant to, ASC 718, the Company recorded a service period
expense of $677,004 and $495,725 for the six months ended June 30, 2010 and
2009, and $340,372 and $330,725 for the three months ended June 30, 2010 and
2009, respectively.
  35
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2010
 (UNAUDITED)
  Note 9
– STOCK WARRANTS,
OPTIONS, AND COMPENSATION (CONTINUED)
  Total
                                  
                                  Exercise Price
                                  
                                  Remaining Life
                                  
                                  Aggregate
                                    Intrinsic ValueOutstanding,
      December 31, 2009
                                  
                                  
                                  1,603,888
                                  
                                  
                                  $
                                  2.70–11.25
                                  
                                  7.44-9.67yrs
                                  
                                  
                                  -Outstanding,
      June 30, 2010
                                  
                                  
                                  1,603,888
 
 Pursuant
to the Securities Purchase Agreement entered into On August 28, 2008, the
Company issued warrants to purchase 764,786 shares of Common Stock. The unit
purchase price was $4.65per Common Share and a
related Warrant for the purchase of one-half a Common Share, times the number of
Common Shares purchased. Market Value of the Company’s stock on August 28, 2008
was $4.05. Each warrant has an Exercise Price of $8.13 and a term of 5 years
from the date of issuance.  The Company measured and recognized an
aggregate of $2,091,738 of the proceeds to additional paid in capital upon
issuance of these warrants. The terms of the warrants provide for an adjustment
to the exercise price of these warrants if the company closes on the sale or
issuance of common stock at a price which is less than the exercise price then
in effect for these warrants. Upon the Company’s adoption of EITF No. 07-05
on January 1, 2009, the Company determined that the warrants did not
qualify for a scope exception under SFAS No. 133 as they were determined to
not be indexed to the Company’s stock as prescribed by EITF
No. 07-05.  On January 1, 2009, the warrants were reclassified
from equity to derivative liability for the then fair market value and marked to
market (see Note 2 Derivative Liability).  On August 20, 2009 322,580
warrants valued at $3,598,571 as of that date, were exercised under the cashless
exercise provisions of the warrants. The Company issued 132,251 shares of common
stock. On October 15, 2009, 215,054 warrants valued at $2,888,495 as of that
date were exercised under the cashless exercise provision of the warrants. The
company issued 103,318 shares of common stock.
  Note 10
- OTHER COMPREHENSIVE
INCOME
  Balances
of related after-tax components comprising accumulated other comprehensive
income, included in stockholders equity, as of June 30, 2010 and December 31,
2009 are as follows:
  Foreign Currency
                                    
                                    
                                    Accumulated OtherTranslation
                                    
                                    
                                    ComprehensiveAdjustment
                                    
                                    
                                    IncomeBalance
      December 31, 2008
                                    
                                    $
                                    1,520,166
                                    
                                    
                                    $
                                    1,520,166Changes
      for year ended December 31, 2009
                                    
                                    
                                    124,967
                                    
                                    
                                    
                                    124,967Balance
      December 31, 2009
                                    
                                    
                                    1,645,133
                                    
                                    
                                    
                                    1,645,133Changes
      for  the six months ended June 30, 2010
                                    
                                    
                                    (360,699
                                    )
                                    
                                    
                                    (360,699
                                    )Balance
      at June 30, 2010
                                    
                                    $
                                    1,284,434
                                    
                                    
                                    $
                                    1,284,434
  36
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2010
 (UNAUDITED)
 
 Note
11 - 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
12 – MAJOR CUSTOMERS
AND CREDIT RISK
  The
Company derives a portion of its income from various Airlines. Most revenue is
cleared through IATA, a centralized reporting platform.
  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
eleven major business organizations (Shenzhen Yuzhilu Aviation Service Co.,
Ltd., Shanghai Lanbao Travel Service Co., Ltd., Foshan International Travel
Service Co., Ltd.,  Xian Golden Net Travel Serve Services, Chongqing
Travel World E-Business Co., Ltd., Shenzhen Universal Travel Agency Co., Ltd.,
Hebei Tianyuan Travel Agency Co., Ltd., Zhengzhou Yulongkang Travel Agency Co.,
Ltd., Huangshan Holiday Travel Service Co., Ltd., Kunming Business Travel
Service Co., Ltd., and Shanxi Jinyang Travel Agency Co., Ltd.). 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., Xi’an Golden Net Travel Serve Service Company Ltd.,
Shenzhen Universal Travel Agency Co., Ltd., Hebei Tianyuan Travel Agency Co.,
Ltd., Zhengzhou Yulongkang Travel Agency Co., Ltd., Huangshan Holiday Travel
Service Co., Ltd., Kunming Business Travel Service Co., Ltd., and Shanxi Jinyang
Travel Agency Co., Ltd.. Management monitors these segments regularly to
make decisions about resources to be allocated to the segment and assess its
performance,
  37
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2010
 (UNAUDITED)
 
 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, 2010Sales,
      net
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                10,442,953
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                6,169,248
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                46,259,418
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                62,871,619Cost
      of sales
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                1,202,103
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                2,160,523
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                40,453,880
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                43,816,506Gross
      profit
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                9,240,850
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                4,008,725
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                5,805,538
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                19,055,113Income
      from operations
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                4,833,592
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                3,918,849
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                5,429,109
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                (654,482
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                13,527,068Depreciation
      & Amortization
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                641,117
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                879
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                49,469
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                260,937
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                952,402Asset
      Expenditures
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                1,881,654
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                33,467
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                1,012
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                1,916,133Total
      assets
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                30,987,883
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                9,499,533
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                8,024,758
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                5,210,309
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                53,722,483Six
      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
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                53,722,483Three
      Months Ended June 30, 2010Sales,
      net
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                6,005,989
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                3,018,872
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                27,716,752
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                36,741,613Cost
      of sales
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                399,514
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                1,071,350
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                24,717,610
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                26,188,474Gross
      profit
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                5,606,475
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                1,947,522
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                2,999,142
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                10,553,139Income
      from operations
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                2,566,078
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                1,890,597
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                2,845,473
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                649,951
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                7,952,099Depreciation
      & Amortization
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                342,699
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                440
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                35,087
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                161,819
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                540,045Asset
      Expenditures
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                1,243,298
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                22,061
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                1,011
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                1,266,371Total
      assets
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                30,987,883
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                9,499,533
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                8,024,758
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                5,210,309
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                53,722,483Three
      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
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                53,722,483
 38
  UNIVERSAL
TRAVEL GROUP
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 JUNE
30, 2010
 (UNAUDITED)
 
 Note
14 -   SUBSEQUENT
EVENTS
  On March 4, 2010, the company announced that it has entered into
letters of intent to acquire four travel agency businesses in China – Tianjin
Hongxun Aviation Agency Co., Ltd. (“Tianjin Hongxun”), Shanxi Jinyang Travel
Agency Co., Ltd. (“Shanxi Jingyang”), Kunming Business travel Agency Co., Ltd.
(“Kunming Business Travel”), and Shandong Century Aviation Development Co., Ltd.
(“Shandong Century”) – for a total purchase consideration of $19.5 million. The
combined unaudited 2009 revenue and net income for the four travel agencies were
$23.0 million and $3.0 million, respectively.  The final purchase
consideration of Tianjin Hongxun and Shandong Century may be subject to
adjustment after completion of the diligence by the Company.
  On July
13, 2010, the company announced a partnership with Agoda, a subsidiary of
Priceline.com, to strengthen its hotel reservation business segment and upgrade
its website, www.cnutg.com. Under
the agreement, Universal Travel Group will offer its customers access to Agoda’s
international network of hotels. Through the updated cnutg.com website,
travelers will be able to enjoy special Agoda promotions and instant
confirmation at tens of thousands of hotels worldwide.  Through this
partnership with Universal Travel Group, Agoda intends to increase its exposure
in the large Chinese travel market.
  For the
six months ended June 30, 2010, the Company has evaluated subsequent events for
potential recognition and disclosure through August 9, 2010, the date of the
financial statement issuance.
  39
  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
 
 Headquartered
in Shenzhen, Guangdong Province, the Company is a travel services provider in
the People’s Republic of China and is engaged in providing reservation, booking,
and domestic and international travel and tourism services throughout the
People’s Republic of China via the internet, its TRIPEASY Kiosks 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 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. 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 set up
Chongqing Universal Travel E-Business Co., Ltd. to strengthen our presence in
that region in the second quarter of 2009 and began generating revenues in the
third quarter of 2009.
 
 In March
2010, we completed the acquisition of Huangshan Holiday Travel Service Co., Ltd.
("Huangshan Holiday"), Hebei Tianyuan International Travel Agency Co., Ltd.
("Tianyuan"), and Zhengzhou Yulongkang Travel Agency Co., Ltd. ("Yulongkang").
At the end of June 2010, we also completed the acquisition of Shanxi Jinyang
Travel Agency Co., Ltd ("Shanxi Jinyang") and Kunming Business Travel Agency
Co., Ltd (“Kunming Business Travel”), two other packaged tour services
providers.
 
 We
believe that these acquisitions of travel service providers would help us
further expand our geographic coverage in the fast growing domestic travel
market. We believe our comprehensive service platform and broad customer reach
will enable us to improve the sales volume and operation efficiency of these new
acquisitions. On the other hand, they will also help lift the sales volume and
operation efficiency of our existing subsidiaries, and thus improve our overall
earnings and profit margins.
 
 40
 
 We
currently have three discrete lines of business and revenue. Our air-ticketing
segment relates to the segment reporting of Shenzhen Yuzhilu Aviation Service
Co., Ltd. and Chongqing Travel World E-Business Co., Ltd. Our hotel reservation
segment relates to Shanghai Lanbao Travel Service Co., Ltd. Our packaged tours
segment relates to the remaining eight operating subsidiaries: Foshan
International Travel Service Co., Ltd, Xi’an Golden Net Travel Serve Service
Company Limited, Shenzhen Universal Travel Agency Co. Ltd, Huangshan Holiday
Travel Service Co., Ltd., Hebei Tianyuan International Travel Agency Co., Ltd,
Zhengzhou Yulongkang Travel Agency Co., Ltd, Shanxi Jinyang Travel Agency Co.,
Ltd and Kunming Business Travel Agency Co., Ltd.
 
 Operations
of each segment are exclusive to the operations of the associated subsidiary
company. Those new subsidiaries which previously had air-ticketing service or
hotel reservation services were consolidated into our existing air-ticketing and
hotel reservation services. With higher volume in these two business segments,
we believe that we now have better bargaining power with our suppliers, the
airlines or hotels.
 
 On June
21, 2010 we closed a common stock offering transaction. In this transaction, we
issued 2,857,143 shares of common stock at $7.00 per share for an aggregate
amount of $20 million.
 
 On June
24, 2010, upon the approval of the Civil Aviation Administration of China
(CAAC), a number of Chinese airlines claimed that they were authorized to cut
the commission paid to travel agencies from 5% to 3%. Currently there has been
no major impact on our existing businesses, since these airlines had
only reduce the commission rate for a few flights departing from Beijing and
Shanghai.
 
 We
believe that airlines will still heavily rely on travel agencies to sell their
tickets in the near future and will have to continue payment sales commissions
to them.
 
 We also
anticipate the proposed airline commission rate cut would accelerate the
consolidation of  the Chinese travel industry. The more efficient
and better managed service providers will excel over their competitions and gain
more market shares in this industry, while their smaller competitors would
either consolidate with other agencies or wind up.
 
 In July
2010, we partnered with Agoda, a subsidiary of Priceline.com, to strengthen our
hotel reservation business segment. Under this partnership agreement, we offer
our customers access to Agoda's international network of hotels. Through our
website, travelers will be able to enjoy special Agoda promotions and instant
confirmation at tens of thousands of hotels worldwide. Also through this
partnership, Agoda intends to increase its exposure in the large Chinese travel
market. This partnership offers us the opportunity to work with one of the
world's largest online hotel reservation agencies and further strengthen our
hotel reservation segment. The cooperation with Agoda fits with our strategy of
expanding our higher margin business segments. We intend to leverage Agoda's
global brand awareness and look forward to higher volume in hotel
reservation.
 
 In 2009,
we were selected one of the Top Ten Brands of Travel Services in the People’s
Republic of China. We believe our quality of services will distinguish us in our
long term competitiveness.
 
 RESULTS
OF OPERATIONS
 
 THREE
MONTHS ENDED JUNE, 2010 AND 2009
 
 The
following table presents certain consolidated statement of operations
information derived from the consolidated statements of income for the three
months ended June 30, 2010 and 2009 respectively.
 
 Because
the Company had spun off its Speedy Dragon Enterprise Limited subsidiary and
exited the air cargo business in the second quarter of 2009, all numbers
attributable to continuing operations in the following discussion do not include
the operating results of Speedy Dragon Enterprise Limited for the second quarter
of 2009 and its historical results.  Such had been reclassified as
discontinued operations.
 
 41
 
 Three months ended
                                  June 30, 2010
                                
                                
                                Three months ended
                                  June 30, 2009
                                
                                
                                Increase /
                                  Decrease
                                
                                PercentageRevenues
                                
                                $
                                36,741,612
                                
                                
                                $
                                18,405,473
                                
                                
                                $
                                18,336,139
                                
                                100
                                %Cost
      of Services
                                
                                
                                (26,188,473
                                )
                                
                                
                                (11,875,779
                                )
                                
                                
                                (14,312,694
                                )
                                121
                                %Gross
      Profit
                                
                                
                                10,553,139
                                
                                
                                
                                6,529,694
                                
                                
                                
                                4,023,445
                                
                                62
                                %SG&A
                                
                                
                                (3,461,037
                                )
                                
                                
                                (1,564,919
                                )
                                
                                
                                (1,896,118
                                )
                                121
                                %Income
      from Operations
                                
                                
                                7,092,102
                                
                                
                                
                                4,964,775
                                
                                
                                
                                2,127,327
                                
                                43
                                %Other
      income
                                
                                
                                3,363
                                
                                
                                
                                2,591
                                
                                
                                
                                772
                                
                                23
                                %Gain
      (Loss) on change in fair value of derivative liabilities
                                
                                
                                839,553
                                
                                
                                
                                (5,819,481
                                )
                                
                                
                                6,659,034
                                
                                N/MInterest
      income
                                
                                
                                17,081
                                
                                
                                
                                12,358
                                
                                
                                
                                4,723
                                
                                38
                                %Income
      before income taxes
                                
                                
                                7,952,099
                                
                                
                                
                                (839,757
                                )
                                
                                
                                8,791,856
                                
                                N/MProvision
      for income taxes
                                
                                
                                (1,907,901
                                )
                                
                                
                                (1,020,955
                                )
                                
                                
                                (886,945
                                )
                                87
                                %Income
      (Loss)  from continuing operations
                                
                                
                                6,044,198
                                
                                
                                
                                (1,860,712
                                )
                                
                                
                                7,904,910
                                
                                N/MIncome
      from discontinued operations
                                
                                
                                
                                
                                
                                
                                46,282
                                
                                
                                
                                (46,282
                                )Loss
      on disposition of discontinued operations
                                
                                
                                
                                
                                
                                
                                (770,595
                                )
                                
                                
                                770,595Net  Income
      (Loss)
                                
                                
                                6,044,198
                                
                                
                                
                                (2,585,025
                                )
                                
                                
                                8,629,223
                                
                                N/M
 
 For the three months ended
June 30, 2010:
  Revenue Segment
                      
                      Air tickets
                        (YZL &
                        CTE)
                      
                      
                      (%) of
                        sector
                      
                      
                      Hotel (SLB)
                      
                      
                      (%) of
                        sector
                      
                      
                      Tours
                        (All Others)
                      
                      
                      (%) of
                        sector
                      
                      
                      TotalRevenue
                      
                      $
                      6,005,989
                      
                      
                      
                      16.3
                      %
                      
                      
                      3,018,872
                      
                      
                      
                      8.2
                      %
                      
                      
                      27,716,751
                      
                      
                      
                      75.4
                      %
                      
                      
                      36,741,612Cost
      of Services
                      
                      
                      (399,513
                      )
                      
                      
                      1.5
                      %
                      
                      
                      (1,071,350
                      )
                      
                      
                      4.1
                      %
                      
                      
                      (24,717,610
                      )
                      
                      
                      94.4
                      %
                      
                      
                      (26,188,473
                      )Gross
      Profit
                      
                      $
                      5,606,475
                      
                      
                      
                      53.1
                      %
                      
                      
                      1,947,522
                      
                      
                      
                      18.5
                      %
                      
                      
                      2,999,142
                      
                      
                      
                      28.4
                      %
                      
                      
                      10,553,139Gross
      Margin
                      
                      
                      93.3
                      %
                      
                      
                      
                      
                      
                      
                      64.5
                      %
                      
                      
                      
                      
                      
                      
                      10.8
                      %
                      
                      
                      
                      
                      
                      
                      28.7
                      %Segment
      effect in Gross Margin (*)
                      
                      
                      15.3
                      %
                      
                      
                      
                      
                      
                      
                      5.3
                      %
                      
                      
                      
                      
                      
                      
                      8.2
                      %
                      
                      
                      
                      
                      
                      
                      28.7
                      %
  For the three months ended
June 30, 2009:
 
 Revenue Segment
                                        
                                        Air tickets
                                          (YZL)
                                        
                                        
                                        (%) of
                                          sector
                                        
                                        
                                        Hotel (SLB)
                                        
                                        
                                        (%) of
                                          sector
                                        
                                        
                                        Tours
                                          (All Others)
                                        
                                        
                                        (%) of
                                          sector
                                        
                                        
                                        TotalRevenue
                                        
                                        $
                                        3,294,514
                                        
                                        
                                        
                                        17.9
                                        %
                                        
                                        
                                        2,714,144
                                        
                                        
                                        
                                        14.7
                                        %
                                        
                                        
                                        12,396,815
                                        
                                        
                                        
                                        67.4
                                        %
                                        
                                        
                                        18,405,473Cost
      of Services
                                        
                                        
                                        (349,173
                                        )
                                        
                                        
                                        2.9
                                        %
                                        
                                        
                                        (910,164
                                        )
                                        
                                        
                                        7.7
                                        %
                                        
                                        
                                        (10,616,442
                                        )
                                        
                                        
                                        89.4
                                        %
                                        
                                        
                                        (11,875,779
                                        )Gross
      Profit
                                        
                                        $
                                        2,945,341
                                        
                                        
                                        
                                        45.1
                                        %
                                        
                                        
                                        1,803,980
                                        
                                        
                                        
                                        27.6
                                        %
                                        
                                        
                                        1,780,373
                                        
                                        
                                        
                                        27.3
                                        %
                                        
                                        
                                        6,529,694Gross
      Margin
                                        
                                        
                                        89.4
                                        %
                                        
                                        
                                        
                                        
                                        
                                        
                                        66.5
                                        %
                                        
                                        
                                        
                                        
                                        
                                        
                                        14.4
                                        %
                                        
                                        
                                        
                                        
                                        
                                        
                                        35.5
                                        %Segment
      effect in Gross Margin (*)
                                        
                                        
                                        16.0
                                        %
                                        
                                        
                                        
                                        
                                        
                                        
                                        9.8
                                        %
                                        
                                        
                                        
                                        
                                        
                                        
                                        9.7
                                        %
                                        
                                        
                                        
                                        
                                        
                                        
                                        35.5
                                        %
 
 (*)
"Segment effect in Gross Margin" was calculated by multiplying "the percentage
of the segment revenue over the total revenue" with "gross margin of the related
sector". This outlines how each segment contributes to the total gross
margin.
 
 Revenue
 
 Our
air-ticketing segment relates to the segment reporting of Shenzhen Yuzhilu
Aviation Service Co., Ltd. and Chongqing Travel World E-Business Co., Ltd. Our
hotel reservation segment relates to Shanghai Lanbao Travel Service Co., Ltd.
Our packaged tours segment relates to the remaining eight operating
subsidiaries: Foshan International Travel Service Co., Ltd, Xi’an Golden Net
Travel Serve Service Company Limited, Shenzhen Universal Travel Agency Co. Ltd,
Huangshan Holiday Travel Service Co., Ltd., Hebei Tianyuan International Travel
Agency Co., Ltd, Zhengzhou Yulongkang Travel Agency Co., Ltd, Shanxi Jinyang
Travel Agency Co., Ltd and Kunming Business Travel Agency Co., Ltd. Operations
of each segment are exclusive to the operations of the associated subsidiary
company.
 
 42
 
 Revenues
for the three months ended June 30, 2010 were $36,741,612, compared to
$18,405,473 for the same period 2009, an increase of $18,336,139, or
approximately 100%. The contributions from the five newly acquired subsidiaries
were $11,643,472, or 31.7% of our total revenues for these three months.
Excluding this effect, revenues for the three months ended June 30, 2010 were
$25,098,140, compared to $18,405,473 for the same period 2009, an increase of
$6,292,666, or approximately 36 %.
 
 We have
expended considerable efforts to expand our businesses, especially the packaged
tour business. This resulted in the acquisition of five new packaged tour
subsidiaries this year.  For that reason, along with the strong demand
for travel demand as a result of the recovery of Chinese economy, and the
continuing effect of the Chinese government’s stimulus package, our revenue for
the quarter ended June 30, 2010 increased significantly from the same period the
year before.  The high growth rate is also helped by the comparatively
lower numbers in the same quarter last year, when the tourism industry was
adversely affected by H1N1. We continue to see success in cross marketing and
selling our travel related products across our business segments and increased
brand awareness from online resales and the deployment of our TRIPEASY
kiosks.
 
 Revenue
from air-ticketing segment were $6,005,989 for the three months ended June 30,
2010 compared to $3,294,514 for the same period last year, an increase of
$2,711,475, or approximately 82%. This increase is generally driven by the same
factors mentioned above, but more specifically, a result of the increased demand
for air passenger transportation and higher ticket prices. We attribute the
higher air ticket prices to the booming tourism, general inflation in Chinese
economy, as well as the airlines acting together on pricing. As China’s economy
recovers, we believe that our growth in air-ticketing is sustainable in the
coming quarters.
 
 Revenue
from hotel reservations segment were $3,018,872 for the three months ended June
30, 2010 compared to $2,714,144 for the same period in 2009, an increase of
$304,728, or approximately 11%. This increase is a result of the factors
mentioned above for air tickets and the successful cross marketing of our
various business segments. For this specific segment, we expect higher
reservation volumes and higher revenue growth in the coming quarters, after our
partnership with Agoda to leverage its global brand awareness and international
hotel network.
 
 Revenue
from our packaged tour segment were $27,716,751 for the three months ended June
30, 2010, compared to $12,396,815 for the same period in 2009, an increase of
$15,319,936, or approximately 124%. Excluding the effect of the five newly
acquired subsidiaries, which was $11,643,472, our revenues from this segment
were $16,073,279 for the three months ended June 30, 2010, compared to
$12,396,815, for the same period in 2009, an increase of $3,676,465, or
approximately 24%. This increase is a result of the recovery of Chinese economy,
the government’s stimulus package, and our strong efforts in carrying our
various marketing programs.
 
 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.
 
 43
 
 Costs of
services for the three months ended June 30, 2010 were $26,188,474 compared to
$11,875,779 for the same period in 2009, an increase of $14,312,695, or
approximately 121%. The comparatively higher costs of services resulted from
packaged tours making up a greater percentage of our total revenue and their
corresponding higher cost of services. Excluding the costs of services for the
five newly acquired subsidiaries, which was $9,821,769, costs of services for
the three months ended June 30, 2010 were $16,366,705, compared to $11,875,779,
for the same period 2009, an increase of $4,490,926, or approximately 38%. The
increase is in tandem with the increase in revenue.
 
 Costs of
services from air-ticketing were $399,514 for the three months ended June 30,
2010, compared to $349,173 for the same period last year, an increase of
$50,341, or approximately 14%. This increase is associated with the higher
booking volumes, and the much higher increase of revenue in this
segment.
 
 Costs of
services from hotel-reservation were $1,071,350 for the three months ended June
30, 2010, compared to $910,164 for the same period last year, an increase of
$161,186, or approximately 18%. The increase is in tandem with the increase of
revenue.
 
 Costs of
services from packaged-tour were $24,717,610 for the three months ended June 30,
2010, compared to $10,616,442 for the same period last year, an increase of
$14,101,168 or approximately 133%. The increase is in tandem with the increase
of revenue. Excluding the effect of the costs of services for the five newly
acquired subsidiaries, which was $9,821,769, our costs of services from this
segment were $14,895,841, for the three months ended June 30, 2010 compared to
$10,616,442, for the same period in 2009, an increase of $4,279,399, or
approximately 40%. The increase is also in tandem with the increase of revenue
in this segment.
 
 Gross
Profit
 
 Gross
profit for the three months ended June 30, 2010 was $10,553,139, compared to
$6,529,694, for the same period 2009, an increase of $4,023,445, or
approximately 62%. 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 $5,606,475 for the three months ended
June 30, 2010, compared to $2,945,341 for the same period last year, an increase
of $2,661,134, or approximately 90%. Gross profit margin for the three months
ended June 30, 2010 was 93.3%, compared to 89.4% for the same period 2009, an
increase of approximately 3.9%. The increase of gross margin for this segment
was mainly attributable to the increased demand for air passenger transportation
and higher ticket prices. The higher air ticket prices are a result of the
booming tourism in China, the general inflation in Chinese economy, as well as
the airlines acting together to determine pricing.
 
 Gross
profit in our hotel reservation segment was $1,947,522 for the three months
ended June 30, 2010 compared to $1,803,980 for the same period last year, an
increase of $143,542, or approximately 8%. Gross profit margin in this segment
for the three months ended June 30, 2010 was 64.5% compared to 66.5% for the
same period 2009, a decrease of approximately 2%. The slightly decreased gross
profit margin is mostly due to the reclassification of the costs
associated.
 
 Gross
profit in our packaged tour segment was $2,999,142 for the three months ended
June 30, 2010 compared to $1,780,373 for the same period last year, an increase
of $1,218,769, or approximately 68%.  Gross profit margin in this
segment for the three months ended June 30, 2010 was 10.8% compared to 14.4% for
the same period 2009, a decrease of 3.6%.  The reason for the lower
overall gross profit margin is that we had to consolidate the five newly
acquired subsidiaries in this segment and they had lower gross profit margins
generally. Although currently these subsidiaries have lower profit margins than
the existing subsidiaries, we believe that they have great potential to improve,
and their strong local networks are critical in our nationwide expansion
strategy.
 
 44
 
 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 generate and our costs of service are mainly
business taxes, systems and related technologies used in operations, costs
associated with payment processing, and allocation of costs of labor and
facilities, communications, and utility expenses, which all together are not
substantial; 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, 2010 came in at 28.7%, a 6.8%
decrease from the 35.5% the Company posted in the same period last year. The
lower gross margin is mainly due to our changes in revenues mix. Due to the
difference in revenues recognition, our packaged tour has lower gross margin.
During the three months ended June 30, 2010, revenues generated from packaged
tours, which have a smaller profit-margin, grew at a much higher rate than
revenues generated from air ticketing and hotel reservations, leading to lower
overall gross margin.
 
 Selling, General and
Administrative Expenses
 
 Major
selling, general, and administrative expenses for the three months ended June
30, 2010 and 2009 are as follows:
 
 For the three months ended June 30,2010
                          
                          
                          2009Business
      related tax
                          
                          $
                          203,485
                          
                          
                          $
                          172,547Salary
      and commission
                          
                          
                          1,782,021
                          
                          
                          
                          744,230Marketing
                          
                          
                          120,241
                          
                          
                          
                          508Rent
                          
                          
                          93,355
                          
                          
                          
                          44,151Depreciation
      and amortization
                          
                          
                          384,002
                          
                          
                          
                          10,655Professional
      fees
                          
                          
                          394,245
                          
                          
                          
                          85,742Stock-based
      compensation
                          
                          
                          340,372
                          
                          
                          
                          330,724Other
      general and administrative expenses
                          
                          
                          143,316
                          
                          
                          
                          176,362Total
                          
                          $
                          3,461,037
                          
                          
                          $
                          1,564,919
 
 Selling,
general and administrative expenses totaled $3,461,037 for three months ended
June 30, 2010 compared to $1,564,919 for the same period last year, an increase
of approximately 121%.
 
 Selling,
general and administrative expenses were approximately 9.4% of revenue for the
three months ended June 30, 2010 as compared to 8.5% for the same period last
year. General increase in selling, general and administrative expenses are in
connection with the growth in business operations during the three months ended
June 30, 2010, as compared to the same period of last year. During the second
quarter of 2010, we incurred extra professional fees and consolidation expenses
for the aforesaid mergers and acquisitions, as well as for the $20 million of
common stock offering in June. To promote our businesses, especially the
packaged tour programs, we spent $120,241 on  advertisements this
quarter when we did not incur so much last year. In the second half of 2009, we
established two subsidiaries, Chongqing Universal Travel E-Business Co., Ltd and
Shenzhen Universal Travel Agency Co. Ltd. Depreciation and amortization expenses
of these two newly established companies, have been taken into account into
selling, general and administrative expenses since the third quarter of
2009.
 
 Other Income
(Expenses)
 
 Gain on
change in fair value of derivative liability for the three months ended June,
2010 was $839,553 compared to a loss of $5,819,481 for same period last year.
The Company adopted Derivative and Hedging, ASC 815-40 effective January 1,
2009. The warrants issued in connection with the “Securities Purchase Agreement”
dated August 28, 2008 were reclassified from equity to derivative liability and
marked to market.  Therefore, the Company recorded a gain on change in
fair value of derivative liability of $839,553 on June 30, 2010 to mark to
market for the decrease in fair value of the warrants from April 1, 2010 to June
30, 2010.
 
 45
  Net
Income
 
 Net
income was $6,044,198, or 16.5% of revenues for the three months ended June 30,
2010, compared to a loss of $2,585,025 for the same period last year. The
significant increase in net income is mostly due to our efforts to expand our
business, our merger and acquisition strategy, as well as the non-cash gain on
change in fair value of derivative liability and the effect of the discontinued
operation.
 
 SIX
MONTHS ENDED JUNE, 2010 AND 2009
 
 The
following table presents certain consolidated statement of operations
information derived from the consolidated statements of income for the six
months ended June 30, 2010 and 2009 respectively.
 
 Because
the Company had spun off its Speedy Dragon Enterprise Limited subsidiary and
exited the air cargo business in the second quarter of 2009, all numbers
attributable to continuing operations in the following discussion do not include
the operating results of Speedy Dragon Enterprise Limited for the first quarter
of 2009 and its historical results.  Such had been reclassified as
discontinued operations.
 
 Six months ended
                            June 30, 2010
                          
                          
                          Six months ended
                            June 30, 2009
                          
                          
                          Increase /
                            Decrease
                          
                          
                          PercentageRevenues
                          
                          $
                          62,871,619
                          
                          
                          $
                          33,916,152
                          
                          
                          $
                          28,955,467
                          
                          
                          
                          85
                          %Cost
      of Services
                          
                          
                          (43,816,506
                          )
                          
                          
                          (21,614,152
                          )
                          
                          
                          (22,201,857
                          )
                          
                          
                          103
                          %Gross
      Profit
                          
                          
                          19,055,113
                          
                          
                          
                          12,301,503
                          
                          
                          
                          6,753,610
                          
                          
                          
                          55
                          %SG&A
                          
                          
                          (6,524,679
                          )
                          
                          
                          (3,097,716
                          )
                          
                          
                          (3,426,962
                          )
                          
                          
                          111
                          %Income
      from Operations
                          
                          
                          12,530,434
                          
                          
                          
                          9,203,787
                          
                          
                          
                          3,326,648
                          
                          
                          
                          36
                          %Other
      income
                          
                          
                          6,917
                          
                          
                          
                          6,419
                          
                          
                          
                          498
                          
                          
                          
                          8
                          %Gain
      on change in fair value of derivative liabilities
                          
                          
                          949,004
                          
                          
                          
                          (5,706,217
                          )
                          
                          
                          6,655,221
                          
                          
                          
                          N/MInterest
      income
                          
                          
                          40,712
                          
                          
                          
                          23,296
                          
                          
                          
                          17,416
                          
                          
                          
                          75
                          %Income
      before income taxes
                          
                          
                          13,527,068
                          
                          
                          
                          3,527,285
                          
                          
                          
                          9,999,783
                          
                          
                          
                          283
                          %Provision
      for income taxes
                          
                          
                          (3,393,028
                          )
                          
                          
                          (2,138,151
                          )
                          
                          
                          (1,254,877
                          )
                          
                          
                          59
                          %Income
      (Loss)  from continuing operations
                          
                          
                          10,134,039
                          
                          
                          
                          1,389,134
                          
                          
                          
                          8,744,905
                          
                          
                          
                          630
                          %Income
      from discontinued operations
                          
                          
                          
                          
                          
                          
                          177,975Loss
      on disposition of discontinued operations
                          
                          
                          
                          
                          
                          
                          (770,595
                          )Net  Income
                          
                          
                          10,134,039
                          
                          
                          
                          796,514
                          
                          
                          
                          9,337,525
                          
                          
                          
                          1172
                          %
 
 For the six months ended
June 30, 2010:
 
 Revenue Segment
                                                            
                                                            Air tickets
                                                              (YZL &
                                                              CTE)
                                                            
                                                            
                                                            (%) of
                                                              sector
                                                            
                                                            
                                                            Hotel (SLB)
                                                            
                                                            
                                                            (%) of
                                                              sector
                                                            
                                                            
                                                            Tours
                                                              (All Others)
                                                            
                                                            
                                                            (%) of
                                                              sector
                                                            
                                                            
                                                            TotalRevenue
                                                            
                                                            $
                                                            10,442,953
                                                            
                                                            
                                                            
                                                            16.6
                                                            %
                                                            
                                                            
                                                            6,169,248
                                                            
                                                            
                                                            
                                                            9.8
                                                            %
                                                            
                                                            
                                                            46,259,418
                                                            
                                                            
                                                            
                                                            73.6
                                                            %
                                                            
                                                            
                                                            62,871,619Cost of Services
                                                            
                                                            
                                                            (1,202,103
                                                            )
                                                            
                                                            
                                                            2.7
                                                            %
                                                            
                                                            
                                                            (2,160,523
                                                            )
                                                            
                                                            
                                                            4.9
                                                            %
                                                            
                                                            
                                                            (40,453,880
                                                            )
                                                            
                                                            
                                                            92.3
                                                            %
                                                            
                                                            
                                                            (43,816,506
                                                            )Gross
      Profit
                                                            
                                                            $
                                                            9,240,850
                                                            
                                                            
                                                            
                                                            48.5
                                                            %
                                                            
                                                            
                                                            4,008,725
                                                            
                                                            
                                                            
                                                            21.0
                                                            %
                                                            
                                                            
                                                            5,805,538
                                                            
                                                            
                                                            
                                                            30.5
                                                            %
                                                            
                                                            
                                                            19,055,113Gross
      Margin
                                                            
                                                            
                                                            88.5
                                                            %
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            65.0
                                                            %
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            12.5
                                                            %
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            30.3
                                                            %Segment
      effect in Gross Margin (*)
                                                            
                                                            
                                                            14.7
                                                            %
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            6.4
                                                            %
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            9.2
                                                            %
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            30.3
                                                            %
  For the six months ended
June 30, 2009:
 
 Revenue Segment
                      
                      Air tickets
                        (YZL)
                      
                      
                      (%) of
                        sector
                      
                      
                      Hotel (SLB)
                      
                      
                      (%) of
                        sector
                      
                      
                      Tours
                        (All Others)
                      
                      
                      (%) of
                        sector
                      
                      
                      TotalRevenue
                      
                      $
                      6,045,642
                      
                      
                      
                      17.8
                      %
                      
                      
                      5,230,975
                      
                      
                      
                      15.4
                      %
                      
                      
                      22,639,535
                      
                      
                      
                      66.8
                      %
                      
                      
                      33,916,152Cost
      of Services
                      
                      
                      (651,979
                      )
                      
                      
                      3.0
                      %
                      
                      
                      (1,683,627
                      )
                      
                      
                      7.8
                      %
                      
                      
                      (19,279,043
                      )
                      
                      
                      89.2
                      %
                      
                      
                      (21,614,649
                      )Gross
      Profit
                      
                      $
                      5,393,663
                      
                      
                      
                      43.8
                      %
                      
                      
                      3,547,348
                      
                      
                      
                      28.8
                      %
                      
                      
                      3,360,492
                      
                      
                      
                      27.3
                      %
                      
                      
                      12,301,503Gross
      Margin
                      
                      
                      89.2
                      %
                      
                      
                      
                      
                      
                      
                      67.8
                      %
                      
                      
                      
                      
                      
                      
                      14.8
                      %
                      
                      
                      
                      
                      
                      
                      36.3
                      %Segment
      effect in Gross Margin (*)
                      
                      
                      15.9
                      %
                      
                      
                      
                      
                      
                      
                      10.5
                      %
                      
                      
                      
                      
                      
                      
                      9.9
                      %
                      
                      
                      
                      
                      
                      
                      36.3
                      %
  46
  (*)
"Segment effect in Gross Margin" was calculated by multiplying "the percentage
of the segment revenue over the total revenue" with "gross margin of the related
sector". This outlines how each segment contributes to the total gross
margin.
 
 Revenue
 
 Our
air-ticketing segment relates to the segment reporting of Shenzhen Yuzhilu
Aviation Service Co., Ltd. and Chongqing Travel World E-Business Co., Ltd. Our
hotel reservation segment relates to Shanghai Lanbao Travel Service Co., Ltd.
Our packaged tours segment relates to the remaining eight operating
subsidiaries: Foshan International Travel Service Co., Ltd, Xi’an Golden Net
Travel Serve Service Company Limited, Shenzhen Universal Travel Agency Co. Ltd,
Huangshan Holiday Travel Service Co., Ltd., Hebei Tianyuan International Travel
Agency Co., Ltd, Zhengzhou Yulongkang Travel Agency Co., Ltd, Shanxi Jinyang
Travel Agency Co., Ltd and Kunming Business Travel Agency Co., Ltd. Operations
of each segment are exclusive to the operations of the associated subsidiary
company.
 
 Revenues
for the six months ended June 30, 2010 were $62,871,619, compared to $33,916,152
for the same period 2009, an increase of $28,955,467, or approximately 85%. The
contributions from the five newly acquired subsidiaries were $16,917,786, or 27%
of our total revenues for these six months. Excluding this effect, revenues for
the six months ended June 30, 2010 were $45,953,833, compared to $33,916,152 for
the same period 2009, an increase of $12,037,681 or approximately
35%.
 
 The
acquisition of the five subsidiaries this year was primarily due to our efforts
to expand our businesses, especially the packaged tour business, along with the
strong demand for travel demand as a result of the recovery of Chinese economy,
and the continuing effect of the Chinese government’s stimulus
package.  The high growth rate is also helped by the comparatively
lower numbers in the same quarter last year, when the tourism industry was
adversely affected by H1N1. We continue to see success in cross marketing and
selling our travel related products across our business segments and increased
brand awareness from online resales and the deployment of our TRIPEASY
kiosks.
 
 Revenues
from air-ticketing segment were $10,442,953 for the six months ended June 30,
2010 compared to $6,045,642 for the same period last year, an increase of
$4,397,311, or approximately 73%. This increase is generally driven by the same
factors mentioned above, but more specifically, a result of the increased demand
for air passenger transportation and higher ticket prices. We attribute the
higher air ticket prices to the booming tourism, general inflation in Chinese
economy, as well as the airlines acting together on pricing. As China’s economy
recovers, we believe that our growth in air-ticketing is sustainable in the
coming quarters.
 
 Revenues
from hotel reservations segment were $6,169,248 for the six months ended June
30, 2010 compared to $5,230,975 for the same period in 2009, an increase of
$938,273, or approximately 18%. This increase is a result of the factors
mentioned above for air tickets and the successful cross marketing of our
various business segments. For this specific segment, we expect higher
reservation volumes and higher revenue growth in the coming quarters, after our
partnership with Agoda to leverage its global brand awareness and international
hotel network.
 
 Revenues
from our packaged tour segment were $46,259,418 for the six months ended June
30, 2010, compared to $22,639,535 for the same period in 2009, an increase of
$23,619,883, or approximately 104%. Excluding the effect of the five newly
acquired subsidiaries, which was $16,917,786, our revenues from this segment
were $29,341,632 for the six months ended June 30, 2010, compared to
$22,639,535, for the same period in 2009, an increase of $6,702,097,
approximately 30%. This increase is a result of the recovery of Chinese economy,
the government’s stimulus package, and our strong efforts in carrying our
various marketing programs.
 
 47
 
 Cost of
Services
 
 Costs of
services for air tickets cover mainly business and revenue related
taxes.  Costs of services for hotel reservations cover mainly business
and revenue related taxes, as well as commissions paid to the sales agents for
selling hotel rooms in the Company’s system.   Costs of services
for packaged tours include meals, transportation (airline tickets, train tickets
and car rental), lodging, airport transfers, tickets to local attractions and
tours.
 
 Other
direct costs such as systems and related technologies used by each segment
operations, and costs associated with payment processing are also included in
the Company’s Costs of Services. In addition, the Company allocates costs of
labor and facilities, depreciation, communications, and utility expenses
incurred by each segment between costs of services and general administrative
expenses.  The percentage, ranging from 50% to 80%, allocated to costs
of sales is based on management estimate, and the percentage allocated is
estimated to be directly associated with the generation of
revenues.
 
 Costs of
services for the six months ended June 30, 2010 were $43,816,506 compared to
$21,614,649 for the same period in 2009, an increase of $22,201,857, or
approximately 103%. The comparatively higher costs of services resulted from
packaged tours making up a greater percentage of our total revenue and their
corresponding higher cost of services . Excluding the effect of the costs of
services of the five newly acquired subsidiaries, which is $14,044,492, costs of
services for the six months ended June 30, 2010 were $29,772,024, compared to
$21,614,649, for the same period 2009, an increase of $8,157,365, or
approximately 38%. The increase is in tandem with the increase of revenue.
 
 Costs of
services from air-ticketing were $1,202,103 for the six months ended June 30,
2010, compared to $651,979 for the same period last year, an increase of
$550,124, or approximately 84%. The increase is in tandem with the increase of
revenue, and the higher percentage increase is mostly due to our
reclassification of costs.
 
 Costs of
services from hotel-reservation were $2,160,523 for the six months ended June
30, 2010, compared to $1,683,627 for the same period last year, an increase of
$476,896, or approximately 28%. The increase is in tandem with the increase of
revenue, and the higher percentage increase is mostly due to our
reclassification of costs.
 
 Costs of
services from packaged-tour were $40,453,880 for the six months ended June 30,
2010, compared to $19,279,043 for the same period last year, an increase of
$21,174,837 or approximately 110%. The increase is in tandem with the increase
of revenue. Excluding the effect of the costs of services for the five newly
acquired subsidiaries, which was $14,044,492, our costs of services from this
segment were $26,409,388 for the six months ended June 30, 2010 compared to
$19,279,043 for the same period in 2009, an increase of $7,130,345, or
approximately 37%. The increase is also in tandem with the increase of
revenue.
 
 Gross
Profit
 
 Gross
profit for the six months ended June 30, 2010 was $19,055,113 compared to
$12,301,503, for the same period 2009, an increase of $6,753,610, or
approximately 55%. 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 $9,240,850 for the six months ended June
30, 2010, compared to $5,393,663 for the same period last year, an increase of
$3,847,187, or approximately 71%. Gross profit margin for the six months ended
June 30, 2010 was 88.5%, slightly lower than 89.2% for the same period 2009. The
stability in gross margin for this segment was mainly attributable to the
increased demand for air passenger transportation and higher ticket prices in
the second quarter, while it slipped a little in the first quarter mostly due to
seasonality. The higher air ticket prices came from the booming tourism, the
general inflation in Chinese economy, as well as the airlines acting together on
pricing.
 
 48
 
 Gross
profit in our hotel reservation segment was $4,008,725 for the six months ended
June 30, 2010 compared to $3,547,348 for the same period last year, an increase
of $461,377, or approximately 13%. Gross profit margin in this segment for the
six months ended June 30, 2010 was 65.0%, compared to 67.8% for the same period
2009, a decrease of 2.8%. The decreased gross profit margin is mostly due to the
reclassification of the costs associated.
 
 Gross
profit in our packaged tour segment was $5,805,538 for the six months ended June
30, 2010 compared to $3,360,492 for the same period last year, an increase of
$2,445,046, or approximately 73%.  Gross profit margin in this segment
for the six months ended June 30, 2010 was 12.5% compared to 14.8% for the same
period 2009, a decrease of 2.3%.  The reason for the lower overall
gross profit margin is that we had to consolidate the five newly acquired
subsidiaries into this segment and they had  lower gross profit
margins generally. Although currently these subsidiaries have lower profit
margins than the existing subsidiaries, we believe that they have great
potential to improve, and their strong local networks are critical in our
nationwide expansion strategy.
 
 Our
air-ticketing and hotel reservation have much higher gross margin than our
packaged tour business primarily as our revenues from air-ticketing and hotel
reservation are the commission we generated 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, 2010 came in at 30.3%, a 6%
decrease from the 36.3% we posted in the same period last year. The lower gross
margin is mainly due to our changes in revenues mix. Due to the difference in
revenues recognition, our packaged tour has lower gross margin. During the six
months ended June 30, 2010, revenues generated from packaged tours, which have a
smaller profit-margin, grew at a much higher rate than revenues generated from
air ticketing and hotel reservations, leading to lower overall gross
margin.
 
 Selling, General and
Administrative Expenses
 
 Major
selling, general, and administrative expenses for the six months ended June 30,
2010 and 2009 are as follows:
 
 For the six months ended June 30,2010
                          
                          
                          2009Business
      related tax
                          
                          $
                          359,063
                          
                          
                          $
                          261,233Salary
      and commission
                          
                          
                          2,880,472
                          
                          
                          
                          1,465,152Marketing
                          
                          
                          195,339
                          
                          
                          
                          38,855Rent
                          
                          
                          196,029
                          
                          
                          
                          82,671Depreciation
      and amortization
                          
                          
                          645,905
                          
                          
                          
                          19,074Professional
      fees
                          
                          
                          659,250
                          
                          
                          
                          341,676Stock-based
      compensation
                          
                          
                          677,004
                          
                          
                          
                          495,725Other
      general and administrative expenses
                          
                          
                          911,617
                          
                          
                          
                          402,330Total
                          
                          $
                          6,524,679
                          
                          
                          $
                          3,097,716
 
 Selling,
general and administrative expenses totaled $6,524,679 for six months ended June
30, 2010 compared to $3,097,716 for the same period last year, an increase of
approximately 111%.
 
 49
 
 Selling,
general and administrative expenses were approximately 10.4% of revenue for the
six months ended June 30, 2010 as compared to 9.1% for the same period last
year. General increase in selling, general and administrative expenses are in
connection with the growth in business operations during the six months ended
June 30, 2010, as compared to the same period of last year. During the first
half of 2010, we incurred extra professional fees and consolidation expenses for
the aforesaid mergers and acquisitions, as well as for the $20 million of common
stock offering in June. To promote our businesses, especially the packaged tour
programs, we spent $195,339 of advertisements in the first two quarters of 2010,
while we did not incur so much for the same period last year. In the second half
of 2009, we established two subsidiaries, Chongqing Universal Travel E-Business
Co., Ltd and Shenzhen Universal Travel Agency Co. Ltd. Depreciation and
amortization expenses of these two newly established companies have been taken
into account since the third quarter of 2009.
 
 Other Income
(Expenses)
 
 Gain on
change in fair value of derivative liability for the six months ended June, 2010
was $949,004 compared to a loss of $5,706,217 for same period last year. The
Company adopted Derivative and Hedging, ASC 815-40 effective January 1, 2009.
The warrants issued in connection with the “Securities Purchase Agreement” dated
August 28, 2008 were reclassified from equity to derivative liability and marked
to market.  Therefore, the Company recorded a gain on change in fair
value of derivative liability of $949,004 on June 30, 2010 to mark to market for
the decrease in fair value of the warrants from January 1, 2010 to June 30,
2010.
 
 Net
Income
 
 Net
income was $10,134,039, or 16.1% of revenues for the six months ended June 30,
2010, compared to $796,514, or 4.1% of revenues for the same period last year.
The significant increase in net income is mostly due to our efforts to expand
our business, our merger and acquisition strategy, as well as the non-cash gain
on change in fair value of derivative liability and the effect of the
discontinued operation.
 
 LIQUIDITY AND CAPITAL
RESOURCES
 
 Cash for
operations and liquidity needs are funded primarily through cash flows from
operations and short-term borrowings. Cash and cash equivalents were $43,591,459
as of June 30, 2010. Current assets and current liabilities as of June 30, 2010
were $86,184,528 and $10,771,024, respectively, yielding working capital of
$75,413,504. We believe that the funds available to us from operations are
adequate to meet our operating needs in 2010. For the six months ended June 30,
2010, net cash provided by operating activities was approximately $4,546,144,
which resulted primarily from our organic operations and effective management of
cash flow.
 
 Capital
expenditure
 
 Total
capital expenditure for six months ended June 30, 2010 was $1,864,774 to
purchase fixed assets, primarily machinery and equipment, such as TRIPEASY kiosks. Management
may consider substantial increase in equipment or other supporting machinery
expenditure to support the fast development and expansion of our
business.
 
 Working Capital
Requirements
 
 Historically,
operations and short term financing have been sufficient to meet our cash needs.
We believe that we will be able to generate revenue from operations to provide
the necessary cash flow to meet anticipated working capital requirements.
However, our actual working capital needs for the long and short term will
depend upon numerous factors, including operating results, competition, the
opportunity to acquire or start-up new businesses, and the availability of
credit facilities, none of which can be predicted with certainty. Due to our
rapid growth and expansion, our need for additional capital may arise, and
management will seek to raise capital for the maintenance and expansion of our
operations through the issuance of debt or equity if necessary. To satisfy these
capital needs due to our broad expansion in PRC, as well as to set up more TRIPEASY kiosks, we may incur
additional capital expenditure.
 
 50
 
 We filed
a Registration Statement on Form S-3 to register $50,000,000 worth of securities
on Aug 7, 2009, which became effective on November 5, 2009. In December 15,
2009, we closed Subscription Agreements with certain investors to sell to them
an aggregate of 2,222,222 shares of common stocks for a consideration of $20
million. We also closed another common stock public offering transaction on June
16, 2010. In this transaction we issued 2,857,143 shares of common stocks for an
aggregate amount of $20 million.
 
 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.
However 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
 
 As of the
end of the period covered by this Quarterly Report on Form 10-Q, our principal
executive officer and principal financial officer have evaluated the
effectiveness of our “disclosure controls and procedures” (“Disclosure
Controls”). Disclosure Controls, as defined in Rule 13a-15(e) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), are procedures that are
designed with the objective of ensuring that information required to be
disclosed in our reports filed under the Exchange Act, such as this Quarterly
Report, is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission’s rules and forms.
Disclosure Controls are also designed with the objective of ensuring that such
information is accumulated and communicated to our management, including the CEO
and CFO, as appropriate to allow timely decisions regarding required disclosure.
Our management, including the CEO and CFO, does not expect that our Disclosure
Controls will prevent all error and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within the company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. The design of any
system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future
conditions.
 
 51
 
 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
 
 There
have been 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
 
 There
have not been any material changes to the Company’s risk factors from its
Amendment No. 2 to our Annual Report on Form 10-K/A on June 7,
2010.
 
 Item
2.   Unregistered Sales of Equity Securities and Use of
Proceeds
 
 None.
 
 Item 3.   Defaults Upon Senior
Securities
 
 None.
 
 Item
4.   (Removed and Reserved).
 
 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.
 
 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
2002
  52
 
 3
              
              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
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.
 
 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:
August 10, 2010
 
 UNIVERSAL
      TRAVEL GROUPBy:
                /s/ Jiangping JiangJiangping
      JiangChairwoman
      and Chief Executive Officer(Principal
      Executive Officer)
 
 By:
                /s/ Yizhao ZhangYizhao
      ZhangChief
      Financial Officer(Principal
      Financial Officer)
  53