UNIVERSAL TRAVEL GROUP - FORM 10-K

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EX-31.2 - UNIVERSAL TRAVEL GROUP	v176458_ex31-2.htm
EX-31.1 - UNIVERSAL TRAVEL GROUP	v176458_ex31-1.htm
EX-32.1 - UNIVERSAL TRAVEL GROUP	v176458_ex32-1.htm
EX-21.1 - UNIVERSAL TRAVEL GROUP	v176458_ex21-1.htm
EX-32.2 - UNIVERSAL TRAVEL GROUP	v176458_ex32-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

FORM 10-K

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

For the fiscal year ended December 31, 2009

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

For the transition period from _____________to ______________

Commission file number 001-34284

UNIVERSAL TRAVEL GROUP

(Exact name of registrant as specified in its charter)

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

5th Floor, South Block, Building 11, Shenzhen Software Park, Zhongke 2nd Road, Nanshan District,

Shenzhen, PRC 518000

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code 011-86- 755-836-68489

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, par value $0.001 par value per share	New York Stock Exchange, LLC

Securities registered pursuant to section 12(g) of the Act:

Preferred Stock, $0.001 par value per share

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

¨ Yes x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. xYes ¨ No

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes ¨ No

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

¨ Yes ¨ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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

Large accelerated filer ¨		Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)		Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

¨ Yes x No

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.

Note.—If a determination as to whether a particular person or entity is an affiliate cannot be made without involving unreasonable effort and expense, the aggregate market value of the common stock held by non-affiliates may be calculated on the basis of assumptions reasonable under the circumstances, provided that the assumptions are set forth in this Form.

The aggregate market value of the voting and non-voting common stock of the issuer held by non-affiliates as of June 30, 2009 was approximately $60,539,791 (5,410,169 shares of common stock) based upon the closing price of the common stock as quoted by NYSE Amex on such date.

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

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

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

As of March 2, 2010, there are presently 16,714,457 shares of common stock, par value $0.001 issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980).

Table of Contents

		Page

	PART I

Item 1.	Description of Business	3

Item 1A.	Risk Factors	13

Item 1B.	Unresolved Staff Comments	19

Item 2.	Description of Property	19

Item 3.	Legal Proceedings	20

Item 4.	Submission of Matters to a Vote of Security Holders (Removed and Reserved)

	PART II

Item 5.	Market for Common Equity and Related Stockholder Matters	21

Item 6.	Selected Financial Data	24

Item 7.	Management’s Discussion and Analysis of Financial Condition orPlan of Operation	24

Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	38

Item 8	Financial Statements	38

Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	38

Item 9A.	Controls and Procedures	38

Item 9B.	Other Information	39

	PART III	48

Item 10.	Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act	40

Item 11.	Executive Compensation

Item 12.	Security Ownership of Certain Beneficial Owners and Management

Item 13.	Certain Relationships and Related Transactions	50

Item 14.	Principal Accountant Fees and Services	51

	PART IV

Item 15.	Exhibits and Financial Statement Schedules	52

PART I

Item 1.

Business.

History and Organization

We were incorporated on January 28, 2004, pursuant to the laws of the state of Nevada.

On March 15, 2006, we entered into an Acquisition Agreement and Plan of Merger (the "Acquisition Agreement") with TAM of Henderson, Inc. ("TAM"), whereby TAM acquired all of our outstanding shares of Common Stock from our then sole stockholder and simultaneously merged with and into the Company, with the Company as the surviving corporation.

On June 20, 2006, Mr. Xiao Jun ("Jun"), our former officer and director, acquired from the then-majority-shareholder of our Company 2,666,667 shares of our Common Stock, for an aggregate purchase price of $435,000 (the "Stock Transaction"). After giving effect to such acquisition, Jun held 2,666,667 of the 3,483,333 shares of our Common Stock then issued and outstanding, constituting, in the aggregate, 77% of the then issued and outstanding shares of Common Stock of the Company. In connection with his acquisition of shares in the Company, Jun was appointed as our Chief Executive Officer.

On July 12, 2006, we consummated the transaction contemplated by the Agreement and Plan of Merger, dated as of June 26, 2006 (the "Merger Agreement"), by and among the Company, Merger Sub of Tam, Inc. ("Merger Subsidiary"), a wholly owned subsidiary of us, Full Power Enterprise Global Limited (“Full Power”), and the shareholders of Full Power. In accordance with the Merger Agreement, Merger Subsidiary merged with and into Full Power, Merger Subsidiary ceased to exist and Full Power was the surviving entity (the "Merger Transaction").

The Full Power Shareholders received 6,666,667 shares of Common Stock in exchange for all of the issued and outstanding shares of Full Power. As a result of the Merger Transaction, Full Power became the Company's wholly owned subsidiary. Full Power owns all of the issued and outstanding capital stock of Shenzhen Yu Zhi Lu Aviation Service Company Limited (“YZL”).

In connection with the Merger Transaction, Jiangping Jiang (who, prior to the Merger Transaction was a shareholder of Full Power), Xin Zhang and Hoi-Yui Lee were appointed to our Board of Directors and Jun resigned from all positions with us.

Business Overview

With the acquisition of Full Power and hence YZL, we shifted our business to the online travel service industry in the People’s Republic of China (“PRC”). YZL, a company organized under the laws of the PRC, is primarily engaged in the business of providing domestic and international airline ticketing services and cargo transportation agency services. Additionally, YZL provides hotel reservations, packaged tours, and air delivery services both online and through customer representative offices. YZL also owns an aviation network (www.cnutg.com) that provides a complete air ticket sales network.

During 2007, we made several acquisitions, which expanded our scope of business.

On April 10, 2007, we acquired Shenzhen Speedy Dragon Enterprise Limited ("SSD") in exchange for 238,095 shares of our shares of Common Stock and an interest-free promissory note in the principal amount of $3,000,000, payable no later than April 10, 2008. The note has been repaid in full. SSD is mainly a cargo logistics company providing commercial, point-to-point parcel and container transportation services within the PRC.

On June 12, 2009, the Company entered into a termination agreement with Xiangsheng Song, the legal representative of SSD to return all its equity interest in SSD to Mr. Song. As a result of the termination agreement, SSD is spun off from our business.

On August 6, 2007, we acquired Xi'an Golden Net Travel Serve Service Company Limited ("XGN") in exchange for 50,588 shares of our Common Stock and interest-free promissory notes in the aggregate principal amount of $1,542,000, payable no later than August 6, 2008. The note has been repaid in full.

XGN was established in 2001 and focuses on the domestic tourism market. It provides air tickets, train tickets and other travel-related services including servicing individuals and groups attending conferences and exhibitions, making travel arrangements for business studies, academic exchanges, travel adventures, cultural education, sports competition, and theatrical performances. XGN also specializes in central plains tours of Xi'an. Since 2005, XGN has formed joint ventures with other travel agencies in Tibet, Xinjiang, Shanxi and Inner Mongolia that focus on western plains routes.

In August 8, 2007, we acquired Shanghai Lanbao Travel Service Company Limited ("SLB") in exchange for 200,000 shares of our Common Stock and interest-free promissory notes in the aggregate principal amount of $2,828,000, payable no later than August 8, 2008. The note has been repaid in full.

SLB was established in 2002 and its core business focus is a centralized real-time booking system providing consumers and travel related businesses with hotel bookings, air ticket and tourism information via the internet and mobile phone text-messaging technology. It owns and manages the award winning China Booking Association website, http://www.cba-hotel.com/, which receives approximately 200,000 visitors daily.

In October 29, 2007, we acquired Foshan Overseas International Travel Service Co., Ltd. ("FOI") in exchange for 374,329 shares of our Common Stock and interest-free promissory notes in the aggregate principal amount of $3,153,500, payable no later than October 29, 2008. This note has been repaid in full.

FOI was established in 1990. Its core business focuses on both domestic and international tourism, as well as packaged airfare, hotel and conference reservations with ground transportation within the PRC. For three consecutive years, FOI has been recognized as one of the 100 outstanding enterprises by the China Tourism Bureau and in 2004 was voted one of the most credible enterprises in the country. Last year it served more than 120,000 people with packaged tours and conferences.

Also on December 16, 2008, we established Shenzhen Universal Travel Agency Co. Ltd, a PRC company (“STA”), to meet the increasing packaged-tour demand in Shenzhen City. However, operations of STA did not start until June 6, 2009.

On March 23, 2009, in order to seize upon opportunities arising from the economic promotion by the Chinese government of the middle and western regions of the PRC, we strategically set up Chongqing Universal Travel E-Commerce Co., Ltd, a PRC company (“CTE”), to strengthen our presence in that region. However, operations of CTE did not start until June 16, 2009.

On December 10, 2009, we entered into Subscription Agreements with certain investors to sell to them an aggregate of 2,222,222 shares of common stock of the Company, for a purchase price of $9.00 per share and an aggregate gross purchase consideration of $19,999,998. The offer and sale of the shares were made pursuant to an effective Registration Statement on Form S-3 (Registration No. 333- 161139) initially filed with the Securities and Exchange Commission on August 7, 2009 and amended on November 2, 2009. The Registration Statement was declared effective on November 5, 2009. The sale and purchase of the shares closed on December 15, 2009.

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

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

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

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

Sources of Revenue

We have three lines of business and revenue, namely (i) air-ticketing (Shenzhen Yu Zhi Lu Aviation Service Company Limited and Chongqing Universal Travel E-Commerce Co., Ltd), (ii) hotel reservations (Shenzhen Yu Zhi Lu Aviation Service Company Limited and Shanghai Lanbao Travel Service Company Limited), and (iii) packaged tours (Xi'an Golden Net Travel Serve Service Company Limited, Foshan Overseas International Travel Service Co., Ltd, and Shenzhen Universal Travel Agency Co. Ltd). We previously provided air cargo agency services through Shenzhen Speedy Dragon Enterprise Limited, which we spun off in June 2009.

Air-ticketing

We are, through our subsidiary, YZL and CTE, in the air-ticketing business. YZL has contracted with certain Chinese domestic airlines such as Air China, China Southern Airlines and China Eastern Airlines and 34 international airlines such as United Airlines, Cathay Pacific and Virgin Airlines to sell Chinese domestic and international air tickets. YZL holds the “First Class Air-Ticketing Agency” license from the General Administration of Civil Aviation of China (“CAAC”). YZL has been in operation for more than ten years.

We and our agents utilize a centralized air-ticketing booking system called the “eTerm system” maintained and owned by the PRC government to issue air tickets. We pay a license fee the use of the “eTerm system” and charge our agents a pro-rated portion of that fee for their use of the system through us.

YZL receives commissions (averaging 6%) from travel suppliers for air-ticketing under various services agreements. Commissions from air-ticketing services rendered are recognized at the time when the air tickets are issued. Our customers pay for their tickets online or through our TRIPEASY Travel Service Kiosks (the “Kiosks”) with credit cards or bank debit cards and are then issued their tickets. Our revenue from such transactions is on a net basis in the consolidated statements of income as we generally do not assume inventory risks and have no obligations for cancelled air-ticket reservations. We are, typically, paid our aggregated commissions once a month.

Our air-ticketing business is affected by the condition of the travel industry in China. Travel expenditures are highly sensitive to business and personal discretionary spending levels and thus tend to decline during general economic downturns, such as the slowdown in economic growth arising from the international financial crisis which began in 2008. Adverse trends or events that tend to reduce travel and are likely to reduce our revenues include:

declines in economic growth, recessions, and financial or other economic crises;

increases in prices in the hotel, airline or other travel-related sectors;

the occurrence of travel-related accidents;

outbreaks, or the fear of outbreaks, of H1N1 flu (swine flu), severe acute respiratory syndrome, avian flu or other diseases;

terrorist attacks or threats of terrorist attacks or wars;

natural disasters or poor weather conditions;

increase in oil prices;

a decrease in the number of extended holiday periods like the Spring Festival and long weekend holidays.

As a result of any of these events, over which we have no control, our results could be severely and adversely affected.

Further, because we are agents for the sale of air tickets, we do not have any control over air ticket prices, which directly affect their demand and our profitability. Conversely, we do not bear any risk for unsold tickets and maintain no inventory. Also, we are affected by the seasonality of travel in general and global events such as the World Expo in Shanghai in 2010 which, we anticipate, will increase the demand for travel.

Hotel reservations

We are, through our subsidiaries, YZL and SLB, are involved in the hotel reservations business.

We have contracted with approximately 9,000 hotels and have established a China Booking Association comprising more than 1,000 travel agencies which share more than 200,000 hotel resources internationally.

Our customers are able to inquire via either our centralized website (www.cnutg.com) or SLB's website (www.cba-hotel.com). Additionally, SLB maintains a 100 square meters call center in Shanghai with 20 seats to handle hotel reservation enquiries.

We act as agent in substantially all of our hotel-related transactions. Our customers receive confirmed bookings and generally pay the hotels directly upon completion of their stays, and in general, we pay no penalty to the hotels if our customers do not check in. For our hotel suppliers, we earn pre-negotiated fixed commissions on hotel rooms we sell.

We contract with hotels for rooms under two agency models, the “guaranteed allotment” model and the “on-request” model. Under our agreements with our hotel suppliers, hotels are generally required to offer us prices that are equal to or lower than their published prices, and notify us in advance if they have promotional sales, so that we can lower our prices accordingly.

In addition to the agreements that we enter into with all of our hotel suppliers, we enter into a supplemental agreement with each of the hotel suppliers with which we have a guaranteed allotment arrangement. Pursuant to this agreement, a hotel guarantees us a specified number of available rooms every day, allowing us to provide instant confirmations on such rooms to our customers before notifying the hotel. The hotel is required to notify us in advance if it will not be able to make the guaranteed rooms available to our customers due to reasons beyond its control.

We receive commission from travel suppliers for hotel room reservations based on the transaction value of the rooms. Commission from hotel reservation services rendered is recognized after hotel customers have completed their stay at the applicable hotel and upon confirmation of pending payment of the commission by the hotel. Our revenue from such transactions is on a net basis in the consolidated statements of income. We, generally, do not assume inventory risks and have no obligations for cancelled hotel reservations. Our customers reserve hotel rooms through us, our website, or our Kiosks and pay for their rooms directly to the hotel.

Our primary customers in this segment are business and leisure travelers in China who do not travel in groups. These types of travelers, who are referred to in the travel industry as FITs (free individual travelers) and whom we refer to as independent travelers, form a traditionally under-served yet fast-growing segment of the China travel market. We act as agent in substantially all of our transactions and generally do not take inventory risks with respect to the hotel rooms booked through us.

Apart from the same factors affecting our air-ticketing business, other factors affecting our hotel reservations segment include:

our ability to secure more room supply relationships with hotels;

the quality and depth of our hotel supplier network and our ability to provide a diverse range of hotel rooms, locations and price points to appeal to our customers;

our commission rates which are largely determined by the hotels;

our ability to offer reservations at highly rated hotels is particularly appealing to our customers.

Packaged Tours

We are, through our subsidiaries, FOI, XGN and STA, in the business of providing domestic and cross border packaged tour travel services.

We contract with traffic service providers, accommodation providers and leisure service providers so tha we are able to purchase air tickets, train and coach tickets, accommodation and leisure or entertainment packages in bulk and then resell them to our customers with a mark-up. We have two sources of revenue: one from payment by individual customers and the other, through group sales. We recognize gross revenue when a tour is completed.

As we are the agent for packaged tours, we do not have any control over the components for air-ticket prices, hotel accommodation, transportation and tourism attraction ticket prices, which directly relates to the demand for packaged tours and their popularity or lack thereof.

We also bear no risk because we maintain no inventory of air tickets, hotel rooms or attraction tickets. We only purchase the various components comprising a packaged tour when an order or request for such a tour is made and paid for by a customer. Our customers may make an order for a packaged tour by booking it directly through us, our website or Kiosks. However, they may only pay for the packaged tour at our offices.

Because the packaged tour segment is tourism related and a packaged tour typically comprises a bundled travel and accommodation package, the significant factors, trends, demands and uncertainties affecting this segment are the same for air-ticketing and hotel reservations.

Insurance

We presently have directors and officers insurance with Navigators Insurance Company. The policy is for a term of one year commencing June 23, 2009 to June 23, 2010 for an aggregate liability of $5,000,000. We have paid a premium of $42,000 for the policy. We do not have any other insurance.

Intellectual Property

We have applied to register the following trademarks with the Trademark Bureau of the State Administration for Industry & Commerce

Trademark	Class	Registrant
UTG	16, 39, 43	Shenzhen Yu Zhi Lu Aviation Service Company Limited
TRIPEASY	39, 42	Shenzhen Yu Zhi Lu Aviation Service Company Limited

We, through our subsidiary, XGN, have the “古都之旅” trademark registered under Class 39 with the Trademark Bureau of the State Administration for Industry & Commerce. The term of the registration is valid from January 7, 2005 through to January 6, 2015.

Class 16 (Paper goods and printed matter) covers paper, cardboard and goods made from these materials, not included in other classes; printed matter; bookbinding material; photographs; stationery; adhesives for stationery or household purposes; artists' materials; paint brushes; typewriters and office requisites (except furniture); instructional and teaching material (except apparatus); plastic materials for packaging (not included in other classes); playing cards; printers' type; printing blocks.

Class 39 covers transport, packaging and storage of goods and travel arrangements.

Class 42 (Computer, scientific & legal) covers scientific and technological services and research and design relating thereto: industrial analysis and research services; design and development of computer hardware and software; legal services.

Class 43 (Hotels and Restaurants) covers services for providing food and drink; temporary accommodations.

We have also registered the following domain names:

Domain Name	Owner	Registration Date		Expiration Date
www.cnutg.com	Shenzhen Yuzhilu Aviation Service Company Ltd		2006-05-05		2011-05-05
www.cnutg.com.cn	Shenzhen Yuzhilu Aviation Service Company Ltd		2006-07-27		2013-07-27
www.cnutg.cn	Shenzhen Yuzhilu Aviation Service Company Ltd		2006-07-27		2012-07-27
www.cnutg.net	Shenzhen Yuzhilu Aviation Service Company Ltd		2006-07-27		2012-07-27
www.cnutg.net.cn	Shenzhen Yuzhilu Aviation Service Company Ltd		2006-07-27		2012-07-27

Customers

Our customer base is very diversified and numerous. Almost all our customers are individuals and none of our customers comprise more than 1% of our revenue. The loss of any one of our customer will not have a material adverse effect on any segment of our business or our business, as a whole.

Revenue Breakdown

Packaged Tours

Below is a breakdown the number of sales of our packaged tours for the past three years:

Year	Visitors		Number of visitors multiplied by the number of days comprising the tour

2007		93,984	364,676
2008		139,242	521,270
2009		212,460	807,300

Air-ticketing

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

Year	Number of Tickets

2007		1,084,000
2008		1,720,000
2009		2,360,000

Hotel Reservations

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

Year	Number of Room Nights

2007		680,000
2008		1,466,000
2009		2,349,000

The management of the Company uses these performance metrics to monitor the performance of each of its business segments on a continuing basis and to assess, discern and anticipate any trends or cycles in the industry. With such tools, the Company is able to make calculated decisions and take any pre-emptive measures to safeguard the Company’s interests.

However, because of a confluence of other pertinent factors affecting the segments, the actual results of each segment may differ materially from what the metrics would suggest and any undue weight on these metrics in isolation is discouraged. For example, an increase in the number of room nights booked should conceivably mean an increase in revenue and hence an increase on commissions earned. However, this may be offset by lower room rates and lower commission rates.

Suppliers

For our air-ticketing business, our major suppliers are mainly the PRC domestic airlines. We contract directly and individually with each hotel and supplier of the various components of our packaged tours.

We do not have long term contracts with any one of our suppliers. We typically signed one year contracts which renew for successive one-year terms unless earlier terminated by either party. The main terms of such contracts would typically comprise terms pertaining to authorizations, trade deposits and payment method.

We are not dependent on any one supplier and most of our suppliers are competitors against each other within their own industry. Accordingly, we are able to choose the supplier with the most favorable terms to contract with and because such terms vary from time to time, our list of suppliers constantly changes too.

Our online reservation database is managed in-house and we are not dependent on a third party service provider to maintain our database and ensure that it is stable and secure.

Sales and Marketing

We advertise our services for the general public through roadside billboards, brochures, internet ads, cell phone message ads, newspapers and magazines ads.

Sales and marketing for the past three years account for very small percentage of our revenue, and as our Kiosks will be serving as an effective media platform in coming years and a marketing tool for us, we believe our sales and marketing expenses will not increase materially.

Subsidiary		Amount (RMB)/ (US$)
Foshan Overseas International Travel Service Co., Ltd.		152,774/$22,369
Shenzhen Yu Zhi Lu Aviation Service Company Limited		1,063,459/ $ 155,713(Media Advertisement expenses) 862,000 / $126,024 (Airport Marketing expenses)
Shanghai Lanbao Travel Service Company Limited		38,000/ $5,564 (Advertisements) 2,000/ $293 (Website)

Chongqing Universal Travel E-Commerce Co., Ltd		4,500/ $659 (Advertisements)
Shenzhen Universal Travel Agency Co., Ltd		45,296/ $6,632 (Advertisements)

We anticipate that our sales and marketing expenses for fiscal year 2010 will increase proportionally with our sales volume.

Competition

Our main competitors in China in the online booking industry for air-tickets and hotel reservations include Ctrip.com International, Ltd. and eLong, Inc.

It is very difficult to assess our competitors in the packaged tour business as there are numerous packaged tour providers in the PRC that operate different routes every year.

Many of our competitors, particularly those engaged in the online booking industry, are better established than us, are more widely known to consumers, and have larger infrastructures and greater capital resources.

Our Competitive Advantage

We believe that we have the following advantages over our competitors:

•

our business model and sources of revenue are diversified in that we are involved in the air ticketing, hotel reservations, and packaged tours businesses and any negative impact on one line of business may buffered by our other lines of businesses;

•

our businesses and presence are spread out throughout the PRC, which makes us less susceptible to a total loss or interruption to our business in the event of a natural calamity; and

•

As of December 31, 2009, we have 623 Kiosks in place to serve our customers. We plan to roll out an additional 1,400 Kiosks in 2010 in selected cities in the PRC. The Kiosks would enable our customer to make travel related inquiries and book their travel when they do not have access to a computer or an internet connection.

Our Future Goals and Expansion Plans

We introduced the Kiosksin selected major cities in the PRC, with 623 Kiosks rolled out in 2009. We plan to further introduce the Kiosks to other cities in the PRC. Locations of our Kiosks will include hotels, office buildings, banks, shopping malls and MTR stations. The Company will promote the Kiosks via local media such as newspapers, billboards and internet ads, including its own award-winning website, www.cnutg.com, as well as other related websites, which will in turn further the Company’s brand recognition. The Kiosks themselves will provide a strong media platform to strengthen Universal Travel Group’s franchise. Additionally, the Kiosks’ interface will feature the same look, feel and functionality as Universal Travel Group’s new website, www.cnutg.com.cn, which integrates the Company’s diversified services into a new platform with selected value- added features and functionality.

The Kiosks are interactive terminals placed in strategically targeted public areas. They enable convenient, fast and easy to use, real-time air ticketing inquiries, reservations and purchases, as well as hotel and tour reservations. The Kiosks provide full 360° views of hotels and travel destinations and accept payment via bank cards, debit cards and VISA. According to Credit Suisse Research, the number of domestic travelers in the PRC that use online travel services continues to rise, accounting for 16% of users in 2007, up from 12% in 2005. Major cities such as Shanghai and Shenzhen have a higher proportion of people using online travel services as compared to the rest of the PRC, representing 23% and 20% of the users in 2007, respectively. According to the China Internet Network Information Center, the PRC is the world’s largest market for internet users. Despite this, 95% of internet users still do not make purchases over the internet. The Kiosks eliminate the need for a personal computer or online access in order to make travel arrangements and are specifically targeted at this demographic of users. We expect to roll out 1,400 additional Kiosks in 2010.

The Kiosks, together with our website and call center, will serve to integrate our air ticket sales, hotel room sales, and packaged tours businesses. We are working on a cost-effective way for a potential rollout by bundling it with Byte Power (CQ) Info Tech Limited's (a subsidiary of Byte Power Group Limited - ASE: BPG.AX) E-Kiosks. This will allow us to enter a new market in Chongqing quickly and efficiently.

Employees

At the current time, including our officers, we have approximately 780 full-time employees, including 80 administrative employees, 200 marketing employees and approximately 500 employees working at our three call centers. None of our employees is a member of a union and our relationships with our employees are generally satisfactory. In accordance with Chinese Labor Law, we provide social security and medical insurance to all our employees.

Government Regulations

General Regulation of Businesses

Air-ticketing. The air-ticketing business is subject to the supervision of China National Aviation Transportation Association, or CNATA, and its regional branches. Prior to March 31, 2006, the principal regulation governing air-ticketing in China is the Administration on Civil Aviation Transporting Marketing Agency Business Regulations (1993). The said regulation was abolished by PRC government on January 24, 2008. Currently the principal regulation governing air-ticketing in the PRC is the Rules on Cognizance of Qualification for Civil Aviation Transporting Marketing Agencies (2006) which became effective on March 31, 2006.

Under these regulations, prior to May 19, 2005, an air-ticketing agency was required to obtain a permit from CAAC or its regional branch in every city in which the agency propose to conduct its air-ticketing business. On and after May 19, 2005, any entity that wishes to conduct the air-ticketing business in the PRC must apply for an air-ticketing permit from CNATA. The regulations provide for a transitional grace period for air-ticketing agencies that have obtained a valid license from CAAC or its regional branch prior to the promulgation of the new rules. These agencies are permitted to use their original licenses until such licenses expire.

Travel Agency. The travel industry is subject to the supervision of the China National Tourism Administration and local tourism administrations. The principal regulations governing travel agencies in the PRC include:

•

Administration of Travel Agencies Regulations (1996), as amended in December 2001; and

•

Administration of Travel Agencies Regulations Implementing Rules (2001).

Under these regulations, a travel agency must obtain a license from the China National Tourism Administration to conduct cross-border travel business, and a license from the provincial-level tourism administration to conduct domestic travel agency business.

Advertising. The State General Administration of Industry and Commerce is responsible for regulating advertising activities in the PRC. The principal regulations governing advertising (including online advertising) in China include:

•

Advertising Law (1994);

•

Administration of Advertising Regulations (1987); and

•

Implementing rules of the Administration of Advertising Regulations (2004).

Under these regulations, any entity conducting advertising activities must obtain an advertising permit from the local Administration of Industry and Commerce.

Value-added Telecommunications Business and Online Commerce. Our provision of travel-related content on our websites is subject to PRC laws and regulations relating to the telecommunications industry and Internet, and regulated by various government authorities, including the Ministry of Information Industry and the State General Administration of Industry and Commerce. The principal regulations governing the telecommunications industry and Internet include:

•

Telecommunications Regulations (2000);

•

The Administrative Measures for Telecommunications Business Operating Licenses (2001); and

•

The Internet Information Services Administrative Measures (2000).

Under these regulations, Internet content provision services are classified as value-added telecommunications businesses, and a commercial operator of such services must obtain a value-added telecommunications business license from the appropriate telecommunications authorities to conduct any commercial value-added telecommunications operations in the PRC.

With respect to online commerce, there are no specific PRC laws at the national level governing online commerce or defining online commerce activities, and no government authority has been designated to regulate online commerce. There are existing regulations governing retail business that require companies to obtain licenses to engage in the business. However, it is unclear whether these existing regulations will be applied to online commerce.

Regulation of Foreign Currency Exchange and Dividend Distribution

Foreign Currency Exchange. The principal regulation governing foreign currency exchange in the PRC is the Foreign Currency Administration Rules (1996), as amended. Under these Rules, RMB is freely convertible for trade and service-related foreign exchange transactions, but not for direct investment, loan or investment in securities outside China unless the prior approval of the State Administration for Foreign Exchange of the People’s Republic of China is obtained.

Pursuant to the Foreign Currency Administration Rules, foreign investment enterprises in the PRC may purchase foreign currency without the approval of the State Administration for Foreign Exchange of the PRC for trade and service-related foreign exchange transactions by providing commercial documents evidencing these transactions. They may also retain foreign exchange (subject to a cap approved by the State Administration for Foreign Exchange of the PRC) to satisfy foreign exchange liabilities or to pay dividends. In addition, if a foreign company acquires a company in the PRC, the acquired company will also become a foreign investment enterprise. However, the relevant PRC government authorities may limit or eliminate the ability of foreign investment enterprises to purchase and retain foreign currencies in the future. In addition, foreign exchange transactions for direct investment, loan and investment in securities outside the PRC are still subject to limitations and require approvals from the State Administration for Foreign Exchange of the PRC.

Dividend Distribution. The principal regulations governing distribution of dividends of wholly foreign-owned companies include:

•

The Foreign Investment Enterprise Law (1986), as amended in October 2000;

•

Administrative Rules under the Foreign Investment Enterprise Law (2001);

•

Company Law of the PRC (2005); and

•

Enterprise Income Tax Law and its Implementation Rules (2007).

Under these regulations, foreign investment enterprises in the PRC may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, wholly foreign-owned enterprises in the PRC are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds, unless such reserve funds have reached 50% of their respective registered capital. These reserves are not distributable as cash dividends.

Under the new EIT Law, dividends, interests, rent, royalties and gains on transfers of property payable by a foreign-invested enterprise in the PRC to its foreign investor who is a non-resident enterprise will be subject to a 10% withholding tax, unless such non-resident enterprise’s jurisdiction of incorporation has a tax treaty with the PRC that provides for a reduced rate of withholding tax.

Under the new EIT Law, an enterprise established outside the PRC with its “de facto management body” within the PRC is considered a resident enterprise and will be subject to the enterprise income tax at the rate of 25% on its worldwide income. The “de facto management body” is defined as the organizational body that effectively exercises overall management and control over production and business operations, personnel, finance and accounting, and properties of the enterprise. It remains unclear how the PRC tax authorities will interpret such a board definition.

According to the new EIT law, enterprises that currently enjoy a preferential tax rate will transition to the statutory enterprise income tax rate of 25% over five years. The applicable tax rate would increase to 18% for 2008, 20% in 2009, 22% in 2010, 24% in 2011 and 25% in 2012. Enterprises that were currently subject to an enterprise income tax rate of 24% had their rates increased to 25% in 2008.

The tax rates of our various subsidiaries in 2009 were all 25% except for YZL, the tax rate of which was 20%. For 2010, these rates will remain 25% except for YZL, the tax rate of which will become 22%.

Notwithstanding the foregoing provision, the new EIT Law also provides that, if a resident enterprise directly invests in another resident enterprise, the dividends received by the investing resident enterprise from the invested enterprise are exempted from income tax, subject to certain conditions.

Moreover, under the new EIT Law, foreign ADS holders may be subject to a 10% withholding tax upon dividends payable by a Chinese entity and gains realized on the sale or other disposition of ADSs or ordinary shares, if such income is sourced from within the PRC and we are classified as a PRC resident enterprise.

Approvals, licenses and certificates

We have received the following licenses and approvals:

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“First Class Air-Ticketing Agency” awarded by the CAAC and IATA to YZL;

•

“International Travel Agency” awarded by the China Travel Bureau to FOI; and

•

“Domestic Travel Agency” awarded by the China Travel Bureau to XGN.

Item 1A.

Risk Factors.

The reader should carefully consider each of the risks described below. If any of the following risks described below should occur, our business, financial condition or results of operations could be materially adversely affected and the trading price of our common stock could decline significantly.

An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below and the other information contained in this prospectus before deciding to invest in our common stock.

Risks Related to the Company

Risks associated with business declines or disruptions in the travel industry generally could reduce our revenue.

A large part of our revenue is driven by the trends that occur in the travel industry in the PRC, including the hotel, airline and packaged-tour industries. As the travel industry is highly sensitive to business and personal discretionary spending levels, it tends to decline during general economic downturns. Other adverse trends or events that tend to reduce travel and are likely to reduce our revenue include the following:

an outbreak of political or economic unrest in China;

a recurrence of SARS or any other serious contagious diseases;

increased prices in the hotel, airline, or other travel-related industries;

increased occurrence of travel-related accidents;

outbreak of war or conflict in the Asia-Pacific region;

increases in terrorism or the occurrence of a terrorist attack in the Asia-Pacific region;

poor weather conditions; and

natural disasters.

We could be severely affected by changes in the travel industry and will, in many cases, have little or no control over those changes. As a result of any of these events, our operating results and financial conditions could be materially and adversely affected.

Loss of key personnel could affect our ability to successfully grow our business.

We are highly dependent upon the services of our senior management team. The permanent loss for any of the key executives could have a material adverse effect upon our operating results.

Our management is comprised almost entirely of individuals residing in the PRC with very limited English skills.

Our management is comprised almost entirely of individuals born and raised in the PRC. As a result of differences in culture, educational background and business experiences, our management may analyze, evaluate and present business opportunities and results of operations differently from the way they are analyzed, evaluated and presented by management teams of public companies in Europe and the United States. In addition, our management has very limited skills in English. Consequently, it is possible that our management team will emphasize or fail to emphasize aspects of our business that might customarily be emphasized in a different manner by comparable public companies from different geographical and political areas.

Our management is not familiar with the United States securities laws.

Our management and the former owners of the businesses we acquire are generally unfamiliar with the requirements of the United States securities laws and may not appreciate the need to devote the resources necessary to comply with such laws. A failure to adequately respond to applicable securities laws could lead to investigations by the Securities and Exchange Commission and other regulatory authorities that could be costly, divert management's attention and disrupt our business.

Our operating history is not an adequate basis to judge our future prospects.

We have encountered and will continue to encounter risks and difficulties frequently experienced by companies in evolving industries such as the travel service industry in the PRC. Some of the risks relate to our ability to:

attract and retain customers and encourage our customers to engage in repeat transactions;

retain our existing agreements with travel suppliers such as hotels and airlines and to expand our service offerings on satisfactory terms with our travel suppliers;

operate, support, expand and develop our operations, our call center, our website, and our communications and other systems;

diversify our sources of revenue;

maintain effective control of our expenses; and

respond to changes in our regulatory environment.

If we are not successful in addressing any or all of these risks, our business may be materially affected in an adverse manner.

The travel industry in China is seasonal.

Our business travel operations experience seasonal fluctuations, reflecting seasonal variations in demand for travel services. During the first quarter, demand for travel services generally declines in the PRC and the number of bookings flattens or decreases, in part due to a slowdown in business activity during the Chinese New Year holiday. Demand for travel services generally peaks during the second half of the year and there may be seasonal fluctuations in allocations of travel services made available to us by travel suppliers. Consequently, our revenue may fluctuate from quarter to quarter.

Our business depends on the technology infrastructure of third parties.

We rely on third-party computer systems and other service providers, including the computerized reservation systems of airlines and hotels to make reservations and confirmations. Other third parties provide, for instance, our back-up data center, telecommunications access lines, significant computer systems and software licensing, support and maintenance service and air-ticket delivery. Any interruption in these or other third-party services or deterioration in their performance could impair the quality of our service.

Risks Related to our Common Stock

We have not and do not anticipate paying any dividends on our Common Stock.

We have paid no dividends on our Common Stock to date and it is not anticipated that any dividends will be paid to holders of our Common Stock in the foreseeable future. While our future dividend policy will be based on the operating results and capital needs of the business, it is currently anticipated that any earnings will be retained to finance our future expansion and for the implementation of our business plan. As an investor, you should take note of the fact that a lack of a dividend can further affect the market value of our stock, and could significantly affect the value of any investment in our Company.

We will incur significant costs as a result of operating as a public company and our management will be required to devote substantial time to compliance requirements.

As a public company we incur significant legal, accounting and other expenses under the Sarbanes-Oxley Act of 2002, together with rules implemented by the Securities and Exchange Commission and applicable market regulators. These rules impose various requirements on public companies, including requiring certain corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance requirements.

In addition, the Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls and procedures. In particular, commencing in 2007, we must perform system and process evaluations and testing of our internal controls over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. Our testing may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses. Compliance with Section 404 may require that we incur substantial accounting expenses and expend significant management efforts. If we are not able to comply with the requirements of Section 404 in a timely manner, or if our accountants later identify deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC or other applicable regulatory authorities.

Our Board of Directors has the authority, without stockholder approval, to issue preferred stock with terms that may not be beneficial to common stock holders.

Our Amended and Restated Articles of incorporation authorizes the issuance of preferred shares which may be issued with dividend, liquidation, voting and redemption rights senior to our Common Stock without prior approval by the stockholders. The Preferred Stock may be issued for such consideration as may be fixed from time to time by the Board of Directors. The Board of Directors may issue such shares of Preferred Stock in one or more series, with such designations, preferences and rights or qualifications, limitations or restrictions thereof as shall be stated in the resolution of resolutions.

The issuance of preferred stock could adversely affect the voting power and other rights of the holders of common stock. Preferred stock may be issued quickly with terms calculated to discourage, make more difficult, delay or prevent a change in control of our Company or make removal of management more difficult. As a result, the Board of Directors' ability to issue preferred stock may discourage the potential hostile acquirer, possibly resulting in beneficial negotiations. Negotiating with an unfriendly acquirer may result in, among other things, terms more favorable to us and our stockholders. Conversely, the issuance of preferred stock may adversely affect any market price of, and the voting and other rights of the holders of the Common Stock. We presently have no

plans to issue any preferred stock.

The issuance of shares through our stock compensation plans may dilute the value of existing stockholders and may affect the market price of our stock.

We may use stock options, stock grants and other equity-based incentives, to provide motivation and compensation to our officers, employees and key independent consultants. The award of any such incentives will result in an immediate and potentially substantial dilution to our existing stockholders and could result in a decline in the value of our stock price. The exercise of these options and the sale of the underlying shares of common stock and the sale of stock issued pursuant to stock grants may have an adverse effect upon the price of our stock.

Risks Related to Doing Business in the People’s Republic of China

It may be difficult for our stockholders to enforce their rights against the Company or its officers or directors.

Because our principal assets are located outside of the United States and some of our directors and all of our executive officers reside outside of the United States, it may be difficult for you to enforce your rights based on the United States Federal securities laws against us and our officers and directors in the United States or to enforce judgments of United States courts against us or them in the People's Republic of China.

In addition, our operating subsidiaries and substantially all of our assets are located outside of the United States. You will find it difficult to enforce your legal rights based on the civil liability provisions of the United States Federal securities laws against us in the courts of either the United States or the People's Republic of China and, even if civil judgments are obtained in courts of the United States, to enforce such judgments in the courts of the People's Republic of China. In addition, it is unclear if extradition treaties in effect between the United States and the People's Republic of China would permit effective enforcement against us or our officers and directors of criminal penalties, under the United States Federal securities laws or otherwise.

Our business operations take place primarily in the PRC. Because Chinese laws, regulations and policies are continually changing, our operations will face numerous risks.

Because our operations primarily take place outside of the United States and are subject to Chinese laws, regulations and policies affecting any change of Chinese laws may adversely affect our business, such as exchange controls and currency restrictions, currency fluctuations and devaluations, changes in local economic conditions, changes in Chinese laws and regulations, exposure to possible expropriation or other Chinese government actions, and unsettled political conditions. These factors may have a material adverse effect on our operations or on our business, results of operations and financial condition.

China's economy differs from the economies of most developed countries in many respects, including substantial governmental regulation, development, growth rate, control of foreign exchange, significant restrictions on property rights, taxation levels, and permitted allocation of resources. While the People's Republic of China economy has experienced significant growth in the past 20 years, growth has been uneven across different regions and among various economic sectors of China. The government of the People's Republic of China has implemented various measures to encourage economic development and guide the allocation of resources, which may or may not achieve the desired results or stated goals. Some of these measures may benefit the overall economy of People's Republic of China, but may also have a negative effect on us or on the economy in general. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us. Since early 2004, the government of the People's Republic of China has implemented certain measures to control the pace of economic growth. Such measures may cause a decrease in the level of economic activity in the People’s Republic of China, which could adversely affect our results of operations and financial condition.

Limitations on Chinese economic market reforms may discourage foreign investment in Chinese businesses.

The value of investments in Chinese businesses could be adversely affected by political, economic and social uncertainties in China. The economic reforms in China in recent years are regarded by China's central government as a way to introduce economic market forces into China. Given the overriding desire of the central government leadership to maintain stability in China amid rapid social and economic changes in the country, the economic market reforms of recent years could be slowed, or even reversed.

We face economic risks in doing business in the PRC.

As a developing nation, the PRC's economy is more volatile than that of developed Western industrial economies. It differs significantly from that of the U.S. or a Western European country in such respects as structure, level of development, capital reinvestment, resource allocation and self-sufficiency. Only in recent years has the Chinese economy moved from what had been a command economy through the 1970s to one that during the 1990s encouraged substantial private economic activity. In 1993, the Constitution of China was amended to reinforce such economic reforms. The trends of the 1990s indicate that future policies of the Chinese government will emphasize greater utilization of market forces. For example, in 1999 the Government announced plans to amend the Chinese Constitution to recognize private property, although private business will officially remain subordinated to the state-owned companies, which are the mainstay of the Chinese economy. However, there can be no assurance that, under some circumstances, the government's pursuit of economic reforms will not be restrained or curtailed. Actions by the central government of the PRC could have a significant adverse effect on economic conditions in the country as a whole and on the economic prospects for our Chinese operations.

Any slowdown of economic growth in the PRC could have a negative effect on our business. There can be no assurance that the growth of the economy in the PRC will continue or that any slowdown will not have a negative effect on our business.

Our online business relies on the existence of an adequate telecommunications infrastructure for continued growth of China's internet market.

Although private sector Internet service providers currently exist in the PRC, almost all access to the Internet is maintained through a network owned by China Netcom under the regulatory supervision of China's Ministry of Information Industry. In addition, the national networks in the PRC connect to the Internet through a government-controlled international gateway. This international gateway is the only channel through which a domestic Chinese user can connect to the international Internet network. We rely on this infrastructure and China Netcom to provide data communications capacity, primarily through local telecommunications lines. We cannot assure you that this infrastructure will be further developed. In addition, we will have no access to alternative networks and services, on a timely basis if at all, in the event of any infrastructure disruption or failure. The Internet infrastructure in the PRC may not support the demands associated with continued growth in Internet usage.

We may suffer currency exchange losses if the Renminbi depreciates relative to the U.S. Dollar.

Our reporting currency is the U.S. dollar. However, a substantial portion of our assets and revenues are denominated in the Chinese currency, Renminbi, commonly referred to as RMB. Our assets and revenues expressed in our U.S. dollar financial statements will decline in value of the Renminbi depreciates relative to the U.S. dollar. Any such depreciation could adversely affect the market price of our Common Stock. Very limited hedging transactions are available in the PRC to reduce our exposure to exchange rate fluctuations and we do not intend to engage in any such transactions. In addition, our currency exchange losses may be magnified by Chinese exchange control regulations that restrict our ability to convert Renminbi into U.S. Dollars.

We may not be able to freely convert Renminbi into foreign currency.

A portion of our revenues and operating expenses will be denominated in Renminbi while a portion of our capital expenditures are denominated in U.S. dollars.

Under current Chinese regulations, the payment of dividends, trade and service-related foreign transactions to a foreign investor of a foreign-invested enterprise is treated as a "current account" payment for which the approval of the State Administration of Foreign Exchange is not required. However, in order to distribute dividends we may be required to file documentation to a designated foreign exchange bank. The Bank must certify that all requirements have been met, such as payment of taxes, directors' approval and a capital verification report issued by an accounting firm. If a foreign-invested enterprise dissolves, a return of capital, which includes foreign direct investment, is treated as a "capital account" payment. This typically requires approval of the State Administration of Foreign Exchanges' in addition to the filing of documentation.

We may currently convert Renminbi for transactions under the "current account" without the approval of the State Administration of Foreign Exchange for settlement of "current account" transactions, including payment of dividends, by providing commercial documents evidencing these transactions. They may also retain foreign exchange in their current accounts (subject to a ceiling approved by the State Administration of Foreign Exchange) to satisfy foreign exchange liabilities or to pay dividends. However, the relevant Chinese governmental authorities may limit or eliminate the ability to purchase and retain foreign currencies in the future. Such change of policy would materially and adversely affect our business, financial condition and results of operations.

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

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

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

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

Item 1B. Unresolved Staff Comments.

Not Applicable.

Item 2. Properties.

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

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

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

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

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

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

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

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

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

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

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

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

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

Item 3. Legal Proceedings.

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

PART II

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

Market Information

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

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

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

Calendar Quarter	Low Bid		High Bid
2008 First Quarter	$	1.45	$	3.82
2008 Second Quarter	$	1.12	$	2.86
2008 Third Quarter	$	0.87	$	1.65
2008 Fourth Quarter	$	0.45	$	1.10

2009 First Quarter	$	0.59	$	2.95
2009 Second Quarter	$	2.01	$	12.60
2009 Third Quarter	$	8.62	$	17.20
2009 Fourth Quarter	$	8.91	$	16.50

Holders of Securities

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

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

Dividends

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

Securities Authorized for Issuance under Equity Compensation Plans

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

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

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

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

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

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

plans and arrangements .

Equity Compensation Plan Information

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

Purchases of Equity Securities by the Company and Affiliated Purchasers

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

Recent Sales of Unregistered Securities

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

None.

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

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

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

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

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

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

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

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

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

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

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

Item 6. Selected Financial Data.

Not applicable.

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

Forward-Looking Statements: No Assurances Intended

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

Business Overview

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

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

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

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

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

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

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

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

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

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

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

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

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

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

RESULTS OF OPERATIONS

THREE MONTHS ENDED DECEMBER 31, 2009 AND 2008

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

Revenue Segment Analysis:

	Three months ended December 31, 2009			Three months ended December 31, 2008			Increase / Decrease			Percentage
Gross Revenues	$	34,174,482		$	27,107,173		$	7,157,3097			26.5	%
Cost of Services		(24,109,170	)		(17,498,796	)		(6,610,374	)		37.8	%
Gross Profit		10,065,312			9,518,377			546,935			5.7	%
SG&A		(2,533,885	)		(1,489,052	)		(1,044,833			70.2	%
Income from Operations		7,531,427			8,029,325			(497,898	)		(6.2	)%

Other income		11,431			(1,461	)		12,892			(882.4	)%
Other expenses		(87,853	)		0			(87,853	)		N/A
Loss on Disposal of Assets		(10,473	)		0			(10,473	)		N/A
Loss on change in fair value of derivative liabilities		(278,215	)		,0			(278,215	)		N/A
Interest income		18,918			15,626			3,292			21.1	%
Interest expenses		0			(27,638	)		27,638			(100	)%
Income before Income Taxes		7,185,235			8,015,852			(830,617	)		(10.4	)%
Provision for income taxes		(1,949,754	)		(1,823,500	)		(126,254	)		6.9	%
Net income-Continuing operations		5,235,481			6,192,352			(956,871	)		(15.0	)%
Income from discontinuing operations		0			133,941			(133,941	)		(100	)%
Net income		5,235,481			6,326,293			(1,090,813	)		(17.2	)%

For the three months ended December 31, 2009:

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

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

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

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

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

Revenue

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

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

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

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

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

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

Cost of Services

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

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

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

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

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

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

Gross Profit

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

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

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

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

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

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

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

Selling, General and Administrative Expenses

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

	For the three months ended December 31,

	2009		2008

Business related tax	$	212,454	$	159,502

Salary		213,772		137,813

Commission paid		1,022,599		851,974

Professional fees		239,000		190,541

Marketing		110,721		42,416

Rent		156,899		23,186

Depreciation and amortization		43,006		1,803

Stock-based compensation		355,346		51,786

Other general and administrative expenses		180,089		30,031

Total	$	2,533,885	$	1,489,052

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

Net Income

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

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

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

FISCAL YEARS ENDED DECEMBER 31, 2009 AND 2008

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

Revenue Segment Analysis:

	Fiscal year 2009			Fiscal year 2008			Increase / Decrease			Percentage
Gross Revenues	$	97,875,552		$	65,821,838		$	32,053,714			48.7	%
Cost of Services		(65,502,426	)		(43,312,826	),		(21,683,702	)		51.2	%
Gross Profit		32,373,126			22,509,012			10,307,012			43.8	%
SG&A		(8,204,579	)		(4,591,903	)		(3,612,676	)		78.7	%
Income from Operations		24,168,547			17,917,109			6,254,832			34.9	%

Other income		11,431			8,402			3,029			36.1	%
Other Expenses		(87,853	)		0			(87,853	)		N/A
Loss on disposal of assets		(1,594	)		(1,105	)		(489	)		44.3	%
Loss on change in fair value of derivative liabilities		(6,832,186	)		0			(6,832,186	)		N/A	%
Interest income	$	58,124			37,099			21,025			56.7	%
Interest expense		0			(106,163	)		(106,163	)		(100	)%
Income before Income Taxes		17,316,469			17,855,342			(538,873	)		(3.0	)%
Provision for income taxes		(5,978,948	)		(4,073,614	)		(1,905,334	)		46.8	%
Net Income-Continuing Operation		11,337,521			13,781,728			(2,444,207	)		(17.7	)%
Income from Discontinued Operation		177,975			750,449			(572,474	)		(76.3	)%
Loss on disposition of discounted operations		(770,595	)		0			(770,595	)		N/A	%
Net income		10,744,901			14,532,177			3,787,276			(26.1	)%

For the fiscal year ended December 31, 2009:

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

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

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

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

Revenue

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

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

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

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

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

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

Cost of services

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

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

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

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

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

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

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

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

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

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

Shenzhen Yuzhilu Aviation Service Co., Ltd. (YZL)	2009		2008
Franchise system cost sharing	$	17,901	$	4,264
Staff salaries		436,076		345,519
Telecommunication expenses		64,609		29,866
Rental expenses		311,016		95,317
Utilities		16,755		12,875
Website maintenance		44,135		21,457
Depreciation and amortization		390,985		39,052
Business tax		888,639		617,805
Subtotal	$	2,170,116		1,166,155

Shanghai Lanbao Travel Service Co., Ltd. (SLB)
Business Tax	$	704,420	$	448,973
Staff salaries and Staff welfare		75,799		43,165
Rental expenses		43,967		51,660
Telecommunication expenses		9,029		6,713
Utilities		6,523		5,585
Depreciation and amortization		3,698		3,965
Franchise commission paid		3,499,851		2,649,716
Subtotal	$	4,343,287	$	3,209,777

Foshan International Travel Service Co., Ltd. (FOI)
Depreciation and amortization	$	11,949	$	12,072
Cost of Services (Package Tours)		36,834,916		23,930,685
Subtotal	$	36,846,865	$	23,942,757

Xian Golden Net Travel Serve Services (XGN)
Depreciation and amortization	$	830	$	475
Cost of Services (Package Tours)		19,197,510		14,993,662
Subtotal	$	19,198,340	$	14,994,137

Chongqing Universal Travel E-Commerce Co., Ltd (CTE)
Opening fee	$	69,813
Depreciation		96,868
Rental		24,261
Utilities		1,549
Website		3,001
Maintenance		559
Payroll		25,048
Business Tax		16,025
Subtotal	$	237,124

Shenzhen Universal Travel Agency Co. Ltd (STA)
Depreciation and amortization	$	79
Cost of Services (Package Tours)		2,706,615
Subtotal	$	2,706,694

Total	$	65,502,426		43,312,826

Gross Profit

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

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

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

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

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

Selling, General and Administrative Expenses

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

	For the twelve months ended December 31,

	2009		2008

Business related tax	$	494,335	$	246,250

Salary and commission paid		3,273,212		2,626,906,

Professional fees		472,900		250,751

Marketing		191,230		148,903

Rent		289,320		190,212

Depreciation and amortization		185,870		7,212

Stock-based compensation		1,154,408		207,588

Other general and administrative expenses		2.143,304		914,081

Total	$	8,204,579	$	4,591,903

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

Interest Expenses

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

Loss on change in fair value of derivative liabilities

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

Net Income

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

LIQUIDITY AND CAPITAL RESOURCES

Cash and Cash Equivalent

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

Capital expenditure

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

Working Capital Requirements

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

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

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

Inflation

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

Off Balance Sheet Arrangements

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

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

Not Applicable.

Item 8. Financial Statements and Supplementary Data.

UNIVERSAL TRAVEL GROUP

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

ACSB Acquavella, Chiarelli, Shuster, Berkower & Co., LLP
517 Route one	1 Penn Plaza
Iselin, New Jersey, 08830	36the Floor
732.855.9600	New York, NY 10119

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders of

Universal Travel Group

We have audited the accompanying consolidated balance sheets of Universal Travel Group as of December 31, 2009 and 2008, and the related consolidated statements of income, stockholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2009. We have also audited Universal Travel Group’s internal control over financial reporting as of December 31, 2009, based on criteria established in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Universal Travel Group’s management is responsible for these financial statements, for maintaining effective control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards required that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding on internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our audit.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses were identified:

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

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

These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2009 consolidated financial statements of the Company as of and for the year ended December 31, 2009.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Universal Travel Group as of December 31, 2009 and 2008, and the results of its operations and its cash flows for the three years ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, because of the effect of the aforementioned material weaknesses on the achievement of the objectives of the internal control criteria, Universal Travel Group did not maintain effective internal control over financial reporting as of December 31, 2009 based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Our opinion on the effectiveness of internal control over financial reporting does not affect our opinion on the consolidated financial statements.

/s/Acquavella, Chiarelli, Shuster, Berkower & Co., LLP

Certified Public Accountants

New York, N.Y.

February 22, 2010

TABLE OF CONTENTS

Consolidated Balance Sheets	1

Consolidated Statements of Income	2

Consolidated Statements of Cash Flows	3

Consolidated Statements of Stockholders’ Equity	4

Notes to Consolidated Financial Statements	5-32

UNIVERSAL TRAVEL GROUP

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2009 AND 2008

		12/31/2009		12/31/2008
	Note			Restatde
Assets
Cash and cash equivalents		$	36,677,422	$	15,720,182
Accounts receivable, net			17,321,174		8,991,849
Other receivables and deposits, net			257,907		62,547
Trade deposits	3		9,775,735		6,571,164
Advances	3		440,063		438,468
Escrow deposits	12		-		762,800
Prepaid expenses			216,727		312,409
Note receivable			1,711,392		-
Acquisition Deposits			4,077,921		-
Current assets held of discontinued operations			-		2,459,777
Total Current Assets			70,478,341		35,319,196

Property, plant & equipment, net			4,992,677		242,648
Intangible assets			339,240		307,335
Goodwill			9,896,270		9,896,270
Non-current assets held of discontinued operations			-		3,661,231
			15,228,187		14,107,484

Total Assets		$	85,706,528	$	49,426,680

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses		$	2,615,730	$	1,691,689
Customer deposits			2,000,117		1,039,942
Income tax payable			1,654,475		1,731,246
Current liabilities held of discontinued operations			-		562,931
Total Current Liabilities			6,270,322		5,025,808

Derivative liability	8		1,815,319		-
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UNIVERSAL TRAVEL GROUP - FORM 10-K - March 5, 2010

Attached files