UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
______________
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, 2008
¨
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: 001-33456
ORSUS
XELENT TECHNOLOGIES, INC.
(Exact
name of registrant as specified in its charter)
Delaware
(State
or other jurisdiction of
incorporation
or organization)
|
|
20-1198142
(I.R.S.
Employer Identification No.)
|
29
th
Floor,
Tower B, Chaowai MEN Office Building
26
Chaowai Street, Chaoyang Disc.
Beijing,
People’s Republic Of China 100020
(Address
of principal executive offices, including zip code)
86-10-85653777
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
Common
Stock, par value $0.001 per share
Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes
¨
No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of
1934. Yes
¨
No
x
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. Yes
x
No
¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K 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
¨
|
Smaller
reporting company
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
¨
No
x
As
of June 30, 2008, the aggregate market value of the registrant’s common stock
held by non-affiliates of the registrant was $37,492,560 based on the closing
price as reported on the American Stock Exchange.
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
Class
|
|
Outstanding
as of April 14, 2009
|
Common
Stock, $.001 par value per share
|
|
29,756,000
shares
|
DOCUMENTS
INCORPORATED BY REFERENCE: None.
PART
I
Except as
otherwise indicated by the context, references to “we,” “us,” “our,” or the
“Company” in this Annual Report are to the combined business of Orsus Xelent
Technologies, Inc. and its wholly-owned subsidiary,
Beijing Orsus Xelent
Technology & Trading Company Limited (“
Xelent
”).
Introduction
On March
31, 2005, we completed a stock exchange transaction (“
Exchange Transaction
”) with
the shareholders of United First International Limited, a company incorporated
under the laws of Hong Kong (“
UFIL
”). The
Exchange Transaction was consummated under Delaware law and pursuant to the
terms of that certain Securities Exchange Agreement dated effective as of March
31, 2005 (“
Exchange
Agreement
”).
Pursuant
to the Exchange Agreement, we issued shares of our common stock to the
shareholders of
UFIL in exchange for
100% of the outstanding capital stock of UFIL and UFIL became a wholly-owned
subsidiary of the Company. We carry on our business through UFIL’s
wholly owned subsidiary, Xelent.
Description
of Business
Since May of 2003 we have, through the
operations of Xelent, been engaged in the business of designing, manufacturing
and distributing economically priced cellular phones for retail and wholesale
distribution. In February 2004, Xelent registered "ORSUS" with the
State Administration for Industry and Commerce in the People’s Republic of China
(“
PRC
”) as its product
trademark. The Company is also known as “Orsus Cellular” within the
industry.
In
January 2007, the trademark “PROXLINK” was registered for the Company's
specialized application mobile series. Between April 2004 and the end
of the third quarter of 2008, we have sold over 2.6 million mobile
phones.
Our
cellular phones are equipped with many cutting-edge features such as 1.8 to
2.8-inch CSTN (Color Super Twisted Nematic) and TFT (Thin Film Transistor)
dual-color displays; capabilities for up to 160 minutes of video recording and
up to 3 million pixel photography; Moving Picture Experts Group Audio Layer III
(“
MP3
”), Moving Picture
Experts Group Audio Layer IV (“
MPEG4
”) and Universal disk
(“
U disk
”) support;
dual stereo speakers; e-mail and multimedia messaging; between 40 and 64
polyphonic ring tones; slim bar-phone and flip-phone technology with ultra-thin
lightweight design; and handwriting and PDA functions – all at low to moderate
price points.
The
Company has established an industrial design center for the purpose of
developing proprietary mobile phones that will be attractive to our PRC
customers. Most of the mobile phones we design are for the Company’s
exclusive sale and distribution; the remainder are developed in conjunction with
outside design firms. The long-term partners and manufacturers we
employ to produce our cell-phones and accessories are the same experienced OEM
plants used by global brands like Motorola, Nokia and Ericsson. Our current
operations include the purchase of raw materials and spare parts, outsourcing of
manufacturing and customization, oversight of production and quality control at
our OEM factories, and coordination of the distribution of our products to
retailers and customers. In an effort to reduce our reliance on third-party
manufacturers, we plan, eventually, to acquire a factory that will give us the
capacity to produce our own phones and accessories.
The
market for cellular phones in the PRC for has continued to expand and we have
taken advantage of that expansion with our 2.5G wireless products. As the new
Third Generation (“
3G
”)
standard matures, we anticipate producing 3G products as well. Our 3G
products will be developed based on our own research as well as the knowledge we
have gained from our cooperative efforts with strategic partners in the
industry.
Organizational
Structure
The
Company has a linear organizational structure comprised of nine separate
departments that have been developed to ensure proper project management and
control. The departments are:
|
·
|
Project
Management Department, which is responsible for coordinating the
management of cellular phone projects, exchanging concepts and ideas with
our research and development team, providing weekly project reports and
supervising project schedules;
|
|
·
|
Technology
Support and Quality Control Department, which is responsible for providing
technical support for our software and hardware designs, checking and
auditing our industrial and mechanical designs (“
ID/IM
”), and assisting
with tooling engineering and quality control during mass
production;
|
|
·
|
Business
Management Department, which is responsible for purchasing materials;
managing supply chains; coordinating Company business; and evaluating and
signing business agreements, contracts, and other documents for our
business partners;
|
|
·
|
Planning
and Finance Department, which is responsible for overall accounting
matters including oversight of accounting methods and processes, managing
expenses, auditing Company records, and compiling financial plans and
monthly/quarterly/yearly budgets and financial
statements;
|
|
·
|
Human
Resources Department, which is responsible for managing our
employment-related matters, including hiring and termination of
staff;
|
|
·
|
Financing
and Investment Department, which is responsible for overall accounting and
financial matters as well as investment research and
analysis;
|
|
·
|
Customer
Service Department, which is responsible for facilities maintenance;
ordering spare parts; authorized network management; after-sale data
analysis and service charge fees return; operating a hotline service
center and customer service training center; and providing technical
support and after-sale service quality assurance
systems;
|
|
·
|
Research
& Development (“
R&D
”) Department,
which is responsible for researching new mobile phone models and
developing new technologies; and
|
|
·
|
Marketing
Development Department, which is responsible for helping the Company to
find new business partners who will act as countryside distributors,
provincial dealers, and/or overseas wholesalers. The Marketing
Development Department also helps the Company’s long-term partners to
establish market campaigns and business models that incorporate the
Company’s products.
|
Market
Overview and Strategic Partners
In 2006,
about 35% of the population of the PRC subscribed to a mobile phone service.
According to statistics issued by the PRC’s Ministry of Information Industry, by
July 23, 2007, that figure had increased by almost 40 million to approximately
502 million mobile subscribers, representing about 38% of the PRC’s
population. Nokia, currently the industry’s most competitive mobile
manufacturer and supplier, has estimated that there will be about 630 million
mobile phone service subscribers in the PRC by 2010.
According
to In-Stat
,
165 million
multimedia phones will be sold in the PRC by 2011, representing a market
penetration rate of 81%. Around 70% of the current owners of music
phones and camera phones in the PRC express strong interest in more high-end
equipment. And, because PRC mobile users show a strong preference for combined
MP3 players/mobile phones, phone makers targeting PRC customers are likely to
focus on producing these types of phones in the future.
Despite
these projections, data from 2008 captured in the charts below show that
development of the cellular phones industry in the PRC has been slowing since
June 2008. This is probably the result of the global economic
downturn as well as restructuring among the Chinese telecom carriers during this
period.
(Data in
thousands:)
Size
|
|
Jan.08
|
|
|
Feb.08
|
|
|
Mar.08
|
|
|
Apr.08
|
|
|
May.08
|
|
|
Jun.08
|
|
|
Jul.08
|
|
|
Aug.08
|
|
|
Sep.08
|
|
|
Oct.08
|
|
|
Nov.08
|
|
|
Dec.08
|
|
|
Growth
|
|
|
YTD08
|
|
Total
|
|
|
14,850
|
|
|
|
15,226
|
|
|
|
15,117
|
|
|
|
13,293
|
|
|
|
15,523
|
|
|
|
13,223
|
|
|
|
13,144
|
|
|
|
13,514
|
|
|
|
13,509
|
|
|
|
13,905
|
|
|
|
11,015
|
|
|
|
11,188
|
|
|
|
1.60
|
%
|
|
|
163,508
|
|
GSM
|
|
|
14,146
|
|
|
|
14,616
|
|
|
|
14,494
|
|
|
|
12,744
|
|
|
|
15,011
|
|
|
|
12,778
|
|
|
|
12,767
|
|
|
|
13,183
|
|
|
|
13,257
|
|
|
|
13,634
|
|
|
|
10,605
|
|
|
|
10,470
|
|
|
|
-1.30
|
%
|
|
|
157,706
|
|
CDMA
|
|
|
705
|
|
|
|
611
|
|
|
|
622
|
|
|
|
549
|
|
|
|
512
|
|
|
|
445
|
|
|
|
377
|
|
|
|
331
|
|
|
|
252
|
|
|
|
271
|
|
|
|
409
|
|
|
|
718
|
|
|
|
75.40
|
%
|
|
|
5,802
|
|
Source:
SINO Market Research
On
February 26, 2006, the TD-SCDMA technology standard was officially announced as
the Third Generation (“
3G
”) standard in the
PRC. However, sales of 3G products have not developed as rapidly as
was generally anticipated (it was thought that 3G network construction and
issuance of 3G licenses would be approved by the end of 2006) and telecom
operators are having to keep trying to promote the 3G network’s commercial
utility. In the meantime, the Company has started developing our own
3G cellular phone products based on our existing technologies as well as
resources we have as a result of our cooperation with 3G solution and chips
providers. We are working towards obtaining 3G manufacturing licenses
from the PRC government and are planning to join the TD-SCDMA Industry
League.
Our
relationships with strategic partners including CEC Mobile Co., Ltd.
(“
CECM
”), Beijing Xingwang
Shidai Tech & Trading Co., Ltd. (“
XWSD
”), and CECT-Chinacom
Communications Co., Ltd. (“
CECT-Chinacom”
) have helped
us increase our share of the cellular phone market in the PRC. CECM
manufactures our cellular phone products and also resells our products to its
provincial and national sales distributors and dealers through its own sales
network, thereby expanding our avenues for distribution. XWSD, another one of
our major agents, sells our cellular phones to provincial distributors, city
distributors, and dealers.
In May
2007, we signed an agreement with Unicom Huasheng Telecommunications Technology
Co., Ltd. (“
Unicom
Huasheng
”), a wholly-owned subsidiary of China United Network
Communications Corporation Limited (“
China Unicom
”), to sell
50,000 units of Proxlink X180 to Unicom Huasheng. In July 2007, we
signed an agreement with Shanghai Yuede Computer Networking Engineering Co.,
Ltd. (“
SYCN
”), a
professional designer and developer of computer software and application
systems. SYCN works with the Shanghai Baoshan Municipal Administration
Inspection Bureau and, under the agreement, will develop and launch a municipal
networking management inspection system through which law executors will use
Proxlink X180 as their wireless operations terminal. The agreement
with SYCN provides the Company with an important new application software
development partner and may eventually lead the municipal networking management
systems of other cities in the PRC to use Proxlink X180 as well. An
agreement was also signed with Beijing Enxiang Networking Engineering Company
(“
BENE
”). BENE provides
whole-network service to two of the dominant PRC telecommunications operators,
China Mobile and China Unicom. Cooperating with BENE should win the
Company more support from these operators and also build its recognition among
the operators’ specialized users.
The
Company has maintained robust increases in sales since the launch of our first
mobile phones in April 2004. The designs of our mobile phones
continue to reflect our consideration and understanding of the habits and tastes
of our customers in the PRC. For instance, our products incorporate
features that are popular in the PRC such as overlapped dual screens, powerful
color messaging, and photography capabilities. The Company’s products
are, and have always been, low and moderately priced, but of high quality. On
November 23, 2004, the premier consulting firm, CCIDNET Information Technology
Co., Ltd. granted the “2004 Prize for the Most Potential Wireless Terminal”
to the Company’s mobile
phone model OS70 during its Annual Exhibition in the PRC. At the same
exhibition, our M62 model was awarded the “2004 Prize for the Most Fashionable
Wireless Terminal” in the high performance category. These awards are evidence
of public and industry appreciation and acceptance of the Company’s mobile
phones.
Building
on our success in 2004, the Company began to focus on our R&D efforts and
expand our sales channels. In 2005, the Company added various
multimedia features to our products in response to changes in consumer
preferences; the multimedia phones showed strong sales. We also
developed super-thin mobile phones which sold even more successfully than our
multimedia phones. We positioned ourselves well for the introduction of “smart
mobile” phones in 2007, partly because of a Letter of Intent for mobile
subscriptions that we executed with Unicom Huasheng, a wholly-owned subsidiary
of China Unicom. In 2008, we successfully launched products that are
adaptable to China Mobile Media Broadcasting (“
CMMB
”). In 2009, we will
continue to develop our product sales channels, cooperate with domestic mobile
operators, and focus our efforts on technology for business functions such as
embedded Global Positioning Systems (“
GPS
”), PUSH Mail, and
products related to information safety.
Description
of Products and Services
Since
2007, Xelent has developed and launched nearly 30 cellular phone
models. We outsource the manufacturing of our products to
unaffiliated third parties. Once our products are manufactured, they are
delivered to a network of unaffiliated national sales distributors (see
Description of Current Business -
Market Overview and Strategic Partners
) and dealers who, in turn,
distribute our products to provincial sales distributors and dealers who
distribute our products to retailers throughout the PRC.
The
Company established itself in the PRC mobile phone market with the introduction
of the first wristphone that combined wrist watch and mobile phone. Then, in
response to a rapid increase in demand for color screen mobile products in the
PRC, we produced single color dual screen mobiles (models F16 and F18), and a
dual screen multi-color screen mobile (model FG25). In response to
customer preferences, we also equipped models F16 and F18 with cameras, laying
the foundation for our R&D on camera and video functions and the
introduction of many models of 300,000 pixel camera mobile products, including
models FG830, FG850, OS83, OS85, OS70, OS86 and M851. We also met consumer
demand with our launch of the 1M camera mobiles, models OSM62 and OSM72, which
reflected a simple design style with multiple functions. We followed these early
successes with many more models of multimedia mobiles, such as K600, X188 and
D8120. In 2007 we launched our X180 mobile information terminals to
meet the market’s demand for information office products, providing swift and
convenient mobile terminal products for industrial application and specific
customers, such as China Unicom. In addition to the products listed
above, we have also developed many models of GSM/GPRS mobiles, including models
N3200 and H8801. In 2008, DX5030, DX7020 and DX6018 ranked as our
best selling models for 2008, contributing 18.95%, 10.88%, and 9.63%,
respectively, to our total sales revenue of $107,827,000 for the
year.
To meet
changing market demands, we will continue to introduce economically-priced, high
performance products that reflect our advantages in appearance, design, and
functional development and will continue to strengthen our competitiveness in
the domestic PRC mobile sector.
Research
and Development (R&D)
Our
R&D Department is responsible for researching new products and securing new
technologies. It has made significant contributions to the Company's
ability to adapt our overall strategies and operations to market demand, sustain
advanced product development, and, most importantly, enhance the technical
strength that lies at the core of the Company’s competitiveness in the market.
Most of our patented models and samples are developed exclusively by our R&D
Department. Some of our most innovative products include the first
telecommunications terminal to fully support the CDMA2000-1X protocol; the first
wrist watch style wireless mobile phone; the first mobile phone made in China
using three-color OLED organic EL secondary display with TFT main display; the
first mobile phone made in China supporting four frequencies
(850/900/1800/1900MHz); the first mobile phone made in China with 64 polyphonic
melodies; the first mobile phone supporting a USB interface and 16M flash U-disk
(NAND-FLASH); and the first mobile phone made in China with an internal 300K
camera, Ultra-red, EMS, MMS, JAVA and USB. At the Annual Conference
on Network Application Technology held by CCID in Beijing in November 2004, our
Model M62 received the Most Fashionable Cell Phone of 2004 award and our Model
OS70 won the Best Potential of 2004 award.
While 3G
technology is becoming more mainstream in the PRC, we anticipate developing our
own 3G cellular phones based on Company R&D efforts as well as cooperative
development efforts with our strategic industry partners. We plan to
develop products that will operate with the TD-SCDMA and WCDMA standards and
have established a technology development team that includes members of our
product planning division, project management division and industrial design
center. Our product planning division is responsible for constructing our
medium-term strategic plans and setting up schedules for our research and
development projects. Our project management division administers our R&D
efforts, oversees manufacturing and quality control of our products, and
monitors costs, including human resources costs. Our industrial design center is
responsible for evaluating design plans provided by the R&D Department or by
third party industrial design companies, confirming model configurations and
supervising module production and quality.
Additionally,
we have continued to negotiate with several parties to prepare for the launch of
3G services in the PRC next year. These parties include foreign 3G
technology providers such as Spreadtrum Communication (Shanghai) Inc. (“
SCI
”), and several 3G chipset
and solution providers. Our strategic partners, such as SCI, develop
2.5G and 3G integrated circuits and provide 2.5G GPRS and 3G TD-SCDMA chipset
and software development platforms and solutions. The Company
believes our negotiations with these 3G technology providers and our cooperation
with other companies on future R&D projects will help facilitate our entry
into the 3G wireless market.
We also
have agreements to cooperate with professional design houses such as Shanghai
Huntel Technology Limited and Tranzda Wireless, with whom we work mainly on the
design of MMI (“
U2
”),
software and hardware testing, China Type Approval (“
CTA
”) certification,
acquisition
and
phone main board
updating, and software
adaptability testing. We are also working with partners such as
Dalian Daxian Telecom Co., Ltd. on matters related to industrial and mechanical
design, including the layout of cellular phone main boards. Whenever
possible, we use and lease the instruments and equipment of other professional
design houses rather than purchasing it ourselves. In the area of software
compiling, testing, and updating, we utilize data cables and computers installed
with professional software in a testing environment. All the computers and data
cables are owned by Xelent.
In
general, Chinese cellphone manufacturers mainly conduct their research and
development based on existing chip functions, a fact which is reflected in the
forms of applications chosen and interface-level development. Both
application-level and interface-level development are categorized as development
of adaptability systems — only protocol stack and source procedure development
is recognized as software development. Therefore, there is no exclusive right or
limited use of any such systems for these manufacturers, including the
Company.
Competition
The
Company faces substantial competition from other wireless phone manufacturers
such as Nokia, Samsung, and Motorola, who, together, controlled more than half
of the PRC cellular market in 2008. In addition, we face competition
from the domestic cellular phone producers Tianyu, Lenovo, and Gionee, who
controlled 3.9%, 3.2% and 2.4%, respectively, of the cellular market in the PRC
in 2008.
In
addition to trying to increase inventory sales and turnover, the Company will
continue to pursue its two-year growth strategy, which we believe will result in
sound increases in profits and revenues. We also want to launch our
own 3G products as soon as possible in order to offer products that meet
consumer demands before our competitors. Because the 3G market is
virtually wide open and other companies have not yet developed many 3G products,
once we develop our own 3G phones, we anticipate being able to secure our share
of the market.
Government
Regulation
There are
limited government regulations that have material effects or create restrictions
on Xelent; neither are there judicial orders, writs, judgments, injunctions,
decrees, determinations or binding awards against Xelent. One
exception is that cellular manufacturers in the PRC are responsible for repair,
replacement and return of cellular phone to customers within the warranty period
in accordance with certain PRC rules and regulation.
The PRC’s
cellular phone industry is one of the most advanced in the world. It
has a huge customer base and an established network of manufacturers,
distributors, and service providers. The PRC government does not
promulgate policies that obstruct entry into the market or regulate it
heavily. We expect this relatively free market situation to continue
and do not expect government policies to adversely impact the development of our
industry.
Intellectual
Property and Proprietary Rights
Xelent
has been approved to use “
”as a registered trademark
and the China Trademark Agency has distributed a “Notification of Acceptance” of
the trademark with serial number ZC3878232SL. Xelent has also applied to use
“Proxlink” as a trademark and the Company expects that Proxlink will become a
registered trademark following the customary two year waiting period, as
verified by the China Trademark Agency.
In
accordance with the governing laws and regulations of the PRC, we utilize the
intellectual property of our strategic partners pursuant to our contracts and
agreements with these partners.
Employees
We have
approximately 56 employees. Of the 56 employees, six people serve in management
related capacities. The remaining employees are in nine departments: the Project
Management Department employs three people, the Technology Support and Quality
Control Department employs four people, the Business Management Department
employs two people, the Planning and Finance Department employs five people, the
Human Resources Department employs eight people, the Financing and Investment
Department employs two people, the Customer Service Department employs nineteen
people, the R&D Department employs three people, and the Marketing
Development Department employs four people.
We
believe the Company has a good relationship with our employees and there are no
collective bargaining arrangements in place.
You
should carefully consider the following risks and the other information set
forth elsewhere in this Current Report. If any of these risks occur,
our business, financial condition and results of operations could be adversely
affected. As a result, the trading price of our common stock could
decline, perhaps significantly.
RISKS
RELATED TO OUR BUSINESS
Loss
of significant or major customers could hurt our business by reducing our
revenues and profitability.
Our
success depends substantially upon retaining our major clients. We cannot
guarantee that we will be able to retain long-term relationships or secure
renewals of short-term relationships with our significant clients in the
future. For the twelve months ended December 31, 2008, we had one
major customer: Beijing Xingwang Shidai Tech & Trading Co., Ltd.,
which was responsible for over 86.72% of our revenues. We have developed and
enhanced our relationship and positioned ourselves for long-term cooperation
with them by taking the following steps:
|
·
|
assisting
the company in coordinating its sales channels and
carriers;
|
|
·
|
ensuring
that the company received high performance products at the specified
prices; and
|
|
·
|
responding
to feedback from the company’s customers regarding our products by
adjusting our product lines to better suit their customers’
needs.
|
Competition
from providers of similar products and services could materially adversely
affect our revenues and financial condition.
The
industry in which we compete is highly competitive, fragmented, and driven by
consumer preferences for quickly-evolving technologies. Our competitors include
both international brands like Nokia, Motorola, and Samsung, and domestic brands
like Lenovo, Bird, Amoi, Changhong and Gionee, among others. We
believe competitors in the cell phone industry compete on the following main
factors: effective marketing and sales, brand recognition, product quality,
product placement and availability, niche marketing and
segmentation. We expect competition to intensify in the future due to
the increased number of competitors and other factors discussed below. Other
companies, foreign and/or domestic, may also enter the PRC market with better
products or services, greater financial and human resources and/or greater brand
recognition than our Company. Competitors will also continue to improve and
expand their current product lines and introduce new products to
market. We can make no assurances that we will be able to compete
effectively or that we will have the resources needed for the technical
innovation, business development, advertising and marketing that are necessary
to compete effectively and build awareness of our brand. Staying competitive
will require substantial human and capital resources from the
Company. We may also have to continue to rely on strategic
partnerships for critical branding and relationship leverage; there is no
guarantee these partnerships will prove sufficient. We cannot assure that the
Company will have enough resources to make these investments or that we will be
able to achieve the technological advances necessary to remain
competitive. Increased competition may result in price reductions,
lower gross margins, and/or loss of market share. Failure to compete
successfully against current or future competitors could have a material adverse
effect on the Company’s business, operating results and financial
condition.
We
depend on key personnel for the success of our business. Our business may be
severely disrupted if we lose the services of our key executives or employees or
fail to add new senior and mid-level managers to our management
team.
Our
future success depends heavily on the continued service of our key executives.
Our future success is also dependent upon our ability to attract and retain
qualified senior and middle managers to our management team. If one or more of
our current or future key executives or employees is unwilling or unable to
continue in their present positions, it may be difficult to replace them, and
our business may be severely disrupted. In addition, if any of our key
executives or employees joins one of our competitors or forms a competing
company, we could lose customers and/or suppliers and incur additional expenses
to recruit and train replacement personnel. Each of our executive
officers has entered into an employment agreement with us.
We also
rely on a number of key technology staff to operate our Company. Given the
competitive nature of our industry, the risk of key technology staff leaving our
Company is fairly high and could disrupt our operations.
We
rely on a third party production center.
We use a
third party production center to manufacture our products. Should we be required
to use a different production center, our costs could be negatively
affected.
The
acquisition of a manufacturing facility is costly and such acquisition may not
enhance our financial condition.
The
process of identifying and consummating the acquisition of our own manufacturing
facility could require substantial amounts of cash, which may require issuing
new securities, thereby diluting the interests of existing
stockholders. Acquiring a manufacturing facility could also expose
the Company to potential liabilities, some of which may not be disclosed by the
seller. In addition, even if we are successful in acquiring a
manufacturing facility, there are no assurances that owning it will enhance our
future financial condition. And, to the extent that the business
acquired does not remain competitive, some or all of the goodwill related to
that acquisition could be charged against our future earnings, if
any.
Any
acquisitions we undertake could be difficult to integrate, disrupt our business,
dilute stockholder value, and harm our operating results.
We plan
to review opportunities to buy other businesses or technologies that would
compliment our current products, expand the breadth of our markets and sales
channels, enhance our technical capabilities, or otherwise offer growth
opportunities. If we make any future acquisitions, we may issue stock, thereby
diluting existing stockholders’ percentage of ownership in the Company; incur
substantial debt; or assume contingent liabilities.
Our
experience in acquiring other businesses and technologies is limited. Potential
acquisitions also involve numerous risks, including:
|
·
|
problems
integrating the purchased operations, technologies, products, or services
with our own;
|
|
·
|
unanticipated
costs associated with the
acquisition;
|
|
·
|
diversion
of management’s attention from our core
businesses;
|
|
·
|
adverse
effects on existing business relationships with suppliers and
customers;
|
|
·
|
risks
associated with entering markets in which we have no or limited prior
experience;
|
|
·
|
potential
loss of key employees and customers of purchased
organizations;
|
|
·
|
increased
costs and efforts required for compliance with Section 404 of the
Sarbanes-Oxley Act; and
|
|
·
|
risk
of impairment charges related to potential write-downs of assets acquired
in future acquisitions.
|
Our
acquisition strategy entails reviewing and potentially reorganizing acquired
business operations, corporate infrastructure and systems, and financial
controls. Unforeseen expenses, difficulties, and delays frequently encountered
in connection with rapid expansion through acquisitions could inhibit our growth
and negatively impact our profitability. We may be unable to identify suitable
acquisition candidates or to complete the acquisitions of candidates that we
identify. In addition, we may encounter difficulties in integrating the
operations of acquired businesses with our own operations or managing acquired
businesses profitably without substantial costs, delays, or other operational or
financial problems.
Rapid growth and a rapidly changing
operating environment may strain our limited resources
.
We will
need to increase investment in our technological infrastructure, facilities, and
other areas of operations, especially in the area of product development. If we
are unable to manage our growth and expansion effectively, the quality of our
products and services and, in turn, our customer support, could deteriorate and
cause our business may suffer. Our future success will depend on, among other
things, our ability to:
|
·
|
continue
to develop technologies that attract PRC
consumers;
|
|
·
|
continue
to train, motivate, and retain our existing employees and attract and
integrate new employees, including our senior managers, most of whom have
been with the Company for less than three
years;
|
|
·
|
develop
and improve our operational, financial, accounting and other internal
systems and controls, and
|
|
·
|
maintain
adequate controls and procedures to ensure that our periodic public
disclosures under applicable laws, including U.S. securities laws, are
complete and accurate.
|
Unless
we are able to take advantage of technological developments on a timely basis,
we may experience a decline in a demand for our services or may be unable to
implement our business strategy.
Our
industry is experiencing rapid change as new technologies are developed that
offer consumers an ever-expanding number of ways to meet their communications
needs. In order to grow and remain competitive, we will need to adapt to future
changes in technology, enhance our existing products, and introduce new products
that address our customers’ changing demands. If we are unable to continue
developing products that compare favorably to the products of our competitors in
terms of technology either on a timely basis and/or at acceptable costs, we
could lose customers to our competitors. Technological advances including the
introduction of new products, new designs, or new manufacturing techniques could
render our inventory obsolete or shift demand into areas in which we are not
currently engaged. If we fail to adapt to these types of changing conditions in
a timely and efficient manner, our revenues and profits would likely decline. To
remain competitive, we must continue to incur significant expenses for product
development, equipment, and facilities, and other capital investments. These
costs may increase, resulting in greater fixed costs and operating expenses. As
a result, we could be required to expend substantial funds for and commit
significant resources to the following: research and development required to
update existing and potential products; additional engineering and other
technical personnel; advanced design, production and test equipment;
manufacturing services that meet changing customer needs; and technological
changes in manufacturing processes. Our future operating results will depend to
a significant extent on our ability to continue to provide new products that
compare favorably to those of our competitors in terms of time to market, cost,
performance, design, and quality of manufacturing. Should our
production costs increase, failure to increase our net sales in a way sufficient
to offset these cost increases would reduce our profitability.
Our
research and development efforts may not lead to successful development of
commercially viable or acceptable products, which could cause a decline in
customer use of our products.
The
markets in which we compete are characterized by:
|
·
|
rapidly
changing technology;
|
|
·
|
evolving
industry standards and transmission
protocols;
|
|
·
|
frequent
improvements in products and services;
and
|
|
·
|
fierce
competition from well-funded and technologically advanced
companies.
|
To
succeed, we must continually improve our current products and develop and
introduce new or enhanced products that adequately address the requirements of
our customers and are competitive in terms of functionality, performance,
quality, and price. We are currently developing new 3G products, however, our
research and development efforts may not lead to any new or enhanced products or
generate sufficient market share to justify commercialization. 3G is
a new and evolving technology and we may not be able to recoup our research and
development costs and expenses or may not be able to serve our customers’ 3G
needs, leading customers to purchase competitors’ products instead of our
own.
Changes
in industry standards and technologies, customer preferences and government
regulation could limit our ability to sell our products.
The
mobile phone market is characterized by changing consumer demands for cellular
telephone functions and applications, rapid product obsolescence and price
erosion, intense competition, evolving industry standards, and wide fluctuations
in product supply and demand. These factors require us to continuously develop
new products and enhance our existing products to stay
competitive. In order to encourage widespread market adoption of 2G,
2.5G, 2.75G and 3G technologies, efforts have been made to develop industry
standards, and we have designed our products to comply with these standards.
Changes in industry standards, or the development of new industry standards, may
make our existing products obsolete or negate the cost advantages we believe we
have in our products.
Our
business, operating results, financial condition, and cash flows could be
adversely affected by declining demand for our existing products; the
introduction of products and technologies by our competitors that serve as
replacements, substitutes, or improvements over our existing products;
technological innovations or new standards that our existing products do not
address; or an inability to release enhanced versions of our existing products
on a timely basis. We have begun to offer products based on the 3G standard
promoted by the PRC government, and are focusing a significant portion of our
product design and sales and marketing efforts on products that comply with this
standard. We also are devoting significant resources to the
development of solutions that will support either the 2.5G or 2.75G wireless
standards. If the wireless standards for which we are developing products are
not widely adopted by the market, we may not be able to sell these 2.5G and
2.75G-oriented products and our revenue could decline. Because it is not
practicable to develop products that comply with all of the current standards
and standards that may be adopted in the future, our ability to compete
effectively will depend on our success at selecting the industry standards that
will be widely adopted by the market and designing our products to support those
standards. We may be required to devote significant expenses to redesigning our
products in order to address relevant standards. We may not have the financial
resources to fund future innovations. If our products do not meet relevant
industry standards that are widely adopted for a significant period of time, our
revenue would decline, adversely affecting our operating results, and future
prospects.
If the PRC’s wireless communication
sector does not maintain its current pace of growth, or the PRC government does
not issue the Company a 3G license in the near future, the profitability and
future prospects of our business and our liquidity could be materially and
adversely affected.
Our
future success depends on the continued growth of the PRC wireless communication
industry. A slowdown in the development of the wireless communication industry
in the PRC or reduction in our customers’ expenditures on mobile phone products
and services may reduce market demand for our products and services.
Alternatively, if the PRC government or other relevant regulatory authorities
fail to allow construction of new wireless communication networks, or decide to
terminate, delay or suspend construction or extension of new or existing
wireless communication networks, the profitability and future prospects for our
business could be materially and adversely affected.
The third
generation wireless communication, or 3G, network deployment will require
significant capital investment by PRC telecommunication operators, including
investments in wireless coverage products and services, RF parts and components
and wireless communication systems. Therefore, we believe that issuance of 3G
licenses will in general have a positive impact on the growth of our business.
Until we receive our 3G license from the PRC government, the expected return on
our investments in 3G technology is uncertain. Continued delay in the issuance
of 3G licenses will negatively impact our business growth and
liquidity.
Our ability to generate revenues
could suffer if the PRC market for cellular phones does not develop as
anticipated
.
The
market for cellular phones in the PRC has evolved rapidly over the last four
years with the introduction of new products, development of consumer
preferences, market entry by new competitors, and adaptation of strategies by
existing competitors. We expect each of these trends to continue, and we must
continue to adapt our strategy to successfully compete in this market. It is
extremely difficult to accurately predict consumer acceptance of and demand for
both existing and potential technologies and services; neither can we know what
the future size, composition, or growth of this market will be.
We may not be able to adequately
protect our intellectual property, and we may be exposed to infringement claims
by third parties
.
We rely
on the restrictions on disclosure contained in our business contracts to protect
our intellectual property rights.
Monitoring unauthorized
use of our information services is difficult and costly, and we cannot be
certain that the steps we take will effectively prevent misappropriation of our
technology and content.
In the future,
our management may
decide to apply for copyright, trademark or trade secret protection if
management determines that such protection would be beneficial and
cost-effective for the Company.
From time
to time, we may have to resort to litigation to enforce our intellectual
property rights, which could result in substantial costs and diversion of our
resources. In addition, third parties may initiate litigation against us for
alleged infringement of their proprietary rights. In the event of a successful
infringement claim and our failure or inability to develop non-infringing
technology or content or to obtain a license for the infringed or similar
technology or content on a timely basis, our business could suffer. Moreover, if
this situation were to arise, even if we were able to license the infringed or
similar technology or content, license fees we would have to pay to licensors
could be substantial or even economically unfeasible.
Our
products may be subject to counterfeiting and/or imitation, which could harm our
business and our competitive position.
We cannot
guarantee that counterfeiting or imitation of our products will not occur in the
future or, if it does occur, that we will be able to detect it and deal with it
effectively. Any counterfeiting or imitation could negatively impact our
corporate and brand image. In addition, counterfeit or imitation products could
result in a reduction in our market share, a loss in revenue, or an increase in
our administrative expenses due to costs associated with detection or
prosecution.
We have limited business insurance
coverage
.
The
insurance industry in the PRC is still at an early stage of
development. Insurance companies in the PRC offer limited business
insurance products, and do not, to our knowledge, offer business liability
insurance. As a result, we do not have any business liability insurance coverage
for our operations. Therefore, any business disruption, litigation or
natural disaster could result in substantial costs and diversion of Company
resources.
Product
defects or the failure of our products to meet specifications could cause us to
lose customers and revenue or to incur unexpected expenses.
If our
products do not meet our customers’ needs, our customer relationships may
suffer. Also, our products may contain defects or fail to meet product
specifications. Any failure or poor performance of our products could result
in:
|
·
|
delayed
market acceptance of our products;
|
|
·
|
delayed
product shipments;
|
|
·
|
unexpected
expenses and diversion of resources to replace defective products or
identify and correct the source of
errors;
|
|
·
|
damage
to our reputation and our customer
relationships;
|
|
·
|
delayed
recognition of sales or reduced sales;
and
|
|
·
|
product
liability claims or other claims for damages that may be caused by any
product defects or performance
failures.
|
If the
limited warranty provisions in our contracts are unenforceable in a particular
jurisdiction or if we are exposed to product liability claims that are not
covered by insurance, a claim could harm our business.
We
may have difficulty collecting our accounts receivable.
During
the normal course of business, we extend unsecured credit to our customers.
Typical credit terms require payment to be made within 90 days of the invoice
date. We do not require collateral from our customers.
We
regularly evaluate and monitor the creditworthiness of each customer on a
case-by-case basis. We include any account balances that are determined to be
uncollectible in our allowance for doubtful accounts. After all attempts to
collect a receivable have failed, the receivable is written off against the
allowance. Based on the information available to management, the Company
believes that its allowances for doubtful accounts as of December 31, 2008 and
December 31, 2007 were adequate. However, actual write-offs may exceed the
recorded allowances.
We
currently offer and intend to offer open account terms to certain of our
customers, which may subject us to credit risks, particularly in the event that
any receivables represent sales to a limited number of customers or are
concentrated in particular geographic markets. Collection of our
accounts receivable and our ability to accelerate our collection cycle through
the sale of accounts receivable is affected by several factors, including, but
not limited to:
|
·
|
our
credit granting policies,
|
|
·
|
contractual
provisions,
|
|
·
|
our
customers’ and our overall credit rating as determined by various credit
rating agencies,
|
|
·
|
industry
and economic conditions, and
|
|
·
|
our
recent operating results and our and our customers’ financial position and
cash flows.
|
Adverse
changes in any of these factors, certain of which may not be wholly in our
control, could create delays in collecting or an inability to collect our
accounts receivable which could impair our cash flows and our financial position
and cause a reduction in our results of operations.
Our
financial results may be affected by mandated changes in accounting and
financial reporting.
We
prepare our financial statements in conformity with accounting principles
generally accepted in the United States of America. These principles are subject
to interpretation by the Securities and Exchange Commission and various bodies
formed to interpret and create appropriate accounting policies. A change in
these policies may have a significant effect on our reported results and may
even retroactively affect previously reported transactions.
The
cyclical nature of the aluminum industry causes variability in our production
costs and cash flows.
Our costs
of production depend on the market for primary aluminum, which is a highly
cyclical commodity with prices that are affected by global supply and demand as
well as other conditions. Historically, aluminum prices have been volatile and
we expect such volatility to continue. These prices are driven, in part, by
global demand for aluminum arising from favorable global economic conditions and
strong demand in the PRC.
RISKS
RELATED TO DOING BUSINESS IN THE PRC
There are
substantial risks associated with doing business in the PRC; these risks are
discussed below:
A
downturn in the PRC economy may slow down our growth and
profitability.
Growth of
the PRC economy has been uneven across geographic regions and economic sectors.
There can be no assurance that growth of the PRC economy will be steady or that
an economic downturn will not have a negative effect on our business because of
a decrease in expenditures for wireless services. More specifically, increased
penetration of wireless services in the less economically developed central and
western provinces of the PRC will depend on those provinces achieving certain
income levels so that cellular phones and related services become affordable to
a more significant portion of the population living in these areas.
Government regulation of the
telecommunications industry may become more complex
.
Government
regulation of the telecommunications industry is highly complex. New
regulations could increase our costs of doing business and prevent us from
efficiently delivering our services. These regulations may stop or slow down the
expansion of our user base and limit access to our services.
Because
we depend on governmental agencies for a portion of our revenue, our inability
to win or renew government contracts could harm our operations and reduce our
profits.
Our
inability to win or renew PRC government contracts could harm our operations and
reduce our profits. PRC government contracts are typically awarded through a
regulated procurement process. Some PRC government contracts are
awarded to multiple competitors, causing increases in overall competition as
well as pricing pressure. The competition and pricing pressure, may, in turn,
require us to make sustained post-award efforts to reduce costs in order to
realize revenues under these contracts. If we are not successful in reducing the
costs we anticipate, our ability to profit on these contracts will be negatively
impacted. An additional potential risk is that contracts with the PRC government
can generally be terminated or modified at the government’s
convenience.
We
rely on sales to the Chinese government and a significant decline in overall
government expenditures or a delay in the payment of our invoices by the
government could have a negative impact on our future operating
results.
We
believe that some of the success and growth of our business will continue to
depend on our ability to win government contracts. Many of our government
customers are subject to budgetary constraints and our continued performance
under these contracts, or award of additional contracts from these agencies,
could be jeopardized by spending reductions or budget cutbacks at these
agencies. Our operating results may also be negatively impacted by other
developments that affect these government programs generally, including the
following:
|
·
|
adoption
of new laws or regulations relating to government contracting or changes
to existing laws or regulations;
|
|
·
|
delays
or changes in the government appropriations process;
and
|
|
·
|
delays
in the payment of our invoices by government payment
offices.
|
The
uncertain legal environment in the PRC could limit the legal protections
available to us.
The PRC
legal system is a civil law system based on written statutes where, unlike in
common law systems, legal cases have little value as precedents for future
disputes. There are substantial uncertainties regarding the interpretation and
application of PRC laws and regulations, including, but not limited to, the laws
and regulations governing our business, or the enforcement and performance of
our arrangements with customers in the event of the imposition of statutory
liens, death of the principal parties to contracts, bankruptcy or criminal
proceedings. In the late 1970s, the PRC government began to promulgate a
comprehensive system of laws and regulations governing economic matters. The
overall effect of legislation enacted over the past 20 years has significantly
enhanced the protections afforded to enterprises in the PRC that are funded by
foreign investors. However, these laws, regulations and legal
requirements are relatively recent are still evolving rapidly, meaning that
their interpretation and enforcement involves a significant amount of
uncertainty. New laws and regulations that affect existing and proposed future
businesses may also be applied retroactively. These uncertainties
could limit the legal protections available to foreign investors, such as the
right of foreign invested enterprises to hold licenses and permits such as
required business licenses.
Any
recurrence of severe acute respiratory syndrome, or SARS, or another widespread
public health problem, could adversely affect our business and results of
operations.
A renewed
outbreak of SARS or another widespread public health problem in the PRC, where
all of our revenue is derived, and in Beijing where our operations are
headquartered, could have a negative effect on our operations. Our operations
may be impacted by a number of health-related factors, including the
following:
|
·
|
quarantines
or closures of some of our offices that would severely disrupt our
operations,
|
|
·
|
the
sickness or death of our key officers and employees,
and
|
|
·
|
a
general slowdown in the PRC
economy.
|
Any of
the foregoing events or other unforeseen consequences of public health problems
could adversely affect our business and results of operations.
Changes in the PRC’s political and
economic policies could harm our business
.
The
economy of PRC has historically been a planned economy subject to governmental
plans and quotas and has, in certain aspects, been transitioning to a more
market-oriented economy. Although we believe that the economic reform and the
macroeconomic measures adopted by the PRC government have had a positive effect
on the economic development of the PRC, we cannot predict the future direction
of these economic reforms or the effects these measures may have on our
business, financial position or results of operations. In addition, the PRC
economy differs from the economies of most countries belonging to the
Organization for Economic Cooperation and Development, or OECD. These
differences include:
|
·
|
level
of government involvement in the
economy;
|
|
·
|
level
of capital reinvestment;
|
|
·
|
control
of foreign exchange;
|
|
·
|
methods
of allocating resources; and
|
|
·
|
balance
of payments position.
|
As a
result of these differences, our business may not develop in the same way or at
the same rate as might be expected if the PRC economy was more similar to that
of an OECD member country. As the PRC economy is transitioning from a planned
economy to a more market-oriented economy, the PRC government has implemented
various measures to encourage economic growth and guide the allocation of
resources by controlling payment of foreign currency-denominated obligations,
setting monetary policy and imposing policies that impact particular industries
or companies in different ways. While these measures may benefit the overall PRC
economy, they may also have a negative effect on our business, especially if
such measures create an unfriendly environment for businesses in the technology
sector of the economy.
Restrictions on currency exchange may
limit our ability to receive and use our revenues
effectively
.
Because
almost all of our future revenues may be in the form of Renminbi (“
RMB
”), any future
restrictions on currency exchanges may limit our ability to use revenue
generated in RMB to fund any future business activities outside the PRC or to
make dividend or other payments in U.S. dollars. Although the PRC government
introduced regulations in 1996 to allow greater convertibility of the RMB for
current account transactions, significant restrictions still remain, including
primarily the restriction that foreign invested enterprises may only buy, sell
or remit foreign currencies, after providing valid commercial documents, at
those banks authorized to conduct foreign exchange business. In addition,
conversion of RMB for capital account items, including direct investment and
loans, is subject to governmental approval in the PRC, and companies are
required to open and maintain separate foreign exchange accounts for capital
account items. We cannot be certain that the PRC regulatory authorities will not
impose more stringent restrictions on the convertibility of the RMB, especially
with respect to foreign exchange transactions.
Because
our revenues are generated in RMB and our results are reported in U.S. dollars,
devaluation of the RMB could negatively impact our results of
operations.
The value
of RMB is subject to changes in the PRC’s governmental policies and to
international economic and political developments. In January, 1994, the PRC
government implemented a unitary managed floating rate system. Under this
system, the People’s Bank of China, or PBOC, began publishing a daily base
exchange rate with reference primarily to the supply and demand of RMB against
the U.S. dollar and other foreign currencies in the market during the previous
day. Authorized banks and financial institutions are allowed to quote buy and
sell rates for RMB within a specified band around the central bank’s daily
exchange rate. On July 21, 2005, PBOC announced an adjustment of the exchange
rate of the U.S. dollar to RMB from 1:8.27 to 1:8.11 and modified the system by
which the exchange rates are determined. This modification has resulted in an
approximate 7.3% appreciation of the RMB against the U.S. dollar from July 21,
2005 to May 2, 2007. While the international reaction to the RMB revaluation has
generally been positive, there remains significant international pressure on the
PRC government to adopt an even more flexible currency policy, which could
result in further fluctuations of the exchange rate of RMB against the U.S.
dollar, including possible devaluations. As all of our net revenues are recorded
in RMB, any future devaluation of RMB against the U.S. dollar could negatively
impact our results of operations.
The value of our securities will be
affected by the foreign exchange rate between U.S. dollars and
RMB
.
The value
of our common stock will be affected by the foreign exchange rate between U.S.
dollars and RMB. For example, to the extent that we need to convert U.S. dollars
into RMB for our operational needs and should the RMB appreciate against the
U.S. dollar at that time, our financial position and the price of our common
stock may be adversely affected. Conversely, if we decide to convert our RMB
into U.S. dollars for the purpose of declaring dividends on our ordinary shares
or for other business purposes and the U.S. dollar appreciates against the RMB,
the U.S. dollar equivalent of our earnings from our subsidiaries in the PRC
would be reduced.
Inflation
in the PRC could negatively affect our profitability and growth.
While the
PRC economy has experienced rapid growth, such growth has been uneven among
various sectors of the economy and in different geographical areas of the
country. Rapid economic growth can lead to growth in the money supply and rising
inflation. During the past decade, the rate of inflation in the PRC has been as
high as approximately 20% and the PRC has experienced deflation as low as
approximately minus 2%. If prices for our products and services rise at a rate
that is insufficient to compensate for the rise in the costs of supplies such as
raw materials, it may have an adverse effect on our profitability. In order to
control inflation in the past, the PRC government has imposed controls on bank
credits, limits on loans for fixed assets and restrictions on state bank
lending. The implementation of such policies may impede economic growth. In
October 2004, the People’s Bank of China, the PRC’s central bank, raised
interest rates for the first time in nearly a decade and indicated in a
statement that the measure was prompted by inflationary concerns in the PRC
economy. In April 2006, the People’s Bank of China raised the interest rate
again. Repeated rises in interest rates by the central bank would likely slow
economic activity in the PRC which could, in turn, materially increase our costs
and also reduce demand for our products and services.
We
are subject to the United States Foreign Corrupt Practices Act.
We are
required to comply with the United States Foreign Corrupt Practices Act, which
generally prohibits United States companies from engaging in bribery or other
prohibited payments to foreign officials for the purpose of obtaining or
retaining business. In addition, we are required to maintain records that
accurately and fairly represent our transactions and have an adequate system of
internal accounting controls. Foreign companies, including some that may compete
with us, are not subject to these prohibitions, and therefore may have a
competitive advantage over us. Corruption, extortion, bribery, pay-offs, theft
and other fraudulent practices occur from time-to-time in the PRC, particularly
in our industry since it deals with contracts from the Chinese Government, and
our executive officers and employees have not been subject to the United States
Foreign Corrupt Practices Act prior to the completion of the Exchange Agreement
(defined herein). If our competitors engage in these practices they may receive
preferential treatment from personnel of some companies, giving our competitors
an advantage in securing business or from government officials who might give
them priority in obtaining new licenses, which would put us at a disadvantage.
We can make no assurance that our employees or other agents will not engage in
such conduct for which we might be held responsible. If our employees or other
agents are found to have engaged in such practices, we could suffer severe
penalties and other consequences that may have a material adverse effect on our
business, financial condition and results of operations.
RISKS
RELATED TO OUR COMMON STOCK
The market price for our common stock
may be volatile
.
The
market price for our common stock is likely to be highly volatile and subject to
wide fluctuations in response to factors including the following:
|
·
|
actual
or anticipated fluctuations in our quarterly operating
results,
|
|
·
|
announcements
of new products and services by us or our
competitors,
|
|
·
|
changes
in financial estimates by securities
analysts,
|
|
·
|
changes
in the economic performance or market valuations of other companies
providing similar products and
services,
|
|
·
|
announcements
by our competitors of significant acquisitions, strategic partnerships,
joint ventures or capital
commitments,
|
|
·
|
additions
or departures of key personnel,
|
|
·
|
potential
litigation, or
|
|
·
|
conditions
in the cellular phone market.
|
In
addition, the securities markets have from time to time experienced significant
price and volume fluctuations that are not related to the operating performance
of particular companies. These market fluctuations may also materially and
adversely affect the market price of our common stock.
Stockholders could experience
substantial dilution
.
We may
issue additional shares of our capital stock to raise additional cash for
working capital. If we issue additional shares of our capital stock, our
stockholders will experience dilution in their respective percentage ownership
in the Company.
We have no present intention to pay
dividends
.
We have
never paid dividends or made other cash distributions on our common stock, and
do not expect to declare or pay any dividends in the foreseeable future. We
intend to retain future earnings, if any, for working capital and to finance
current operations and expansion of our business.
A large portion of our common stock
is controlled by a small number of stockholders
.
50.41% or
15,000,000 shares of our common stock are held by three stockholders, including
30.25% held by our executive officers and directors as a group. As a result,
these stockholders are able to control the outcome of stockholder votes on
various matters, including the election of directors and extraordinary corporate
transactions including business combinations. In addition, the occurrence of
sales of a large number of shares of our common stock, or the perception that
these sales could occur, may affect our stock price and could impair our ability
to obtain capital through an offering of equity securities. Furthermore, the
current ratios of ownership of our common stock reduce the public float and
liquidity of our common stock which can in turn affect the market price of our
common stock.
Item
1B.
|
Unresolved
Staff Comments.
|
Not
applicable.
We lease
office space in Beijing, Shenzhen, Tianjin and Hong Kong. Our Beijing office
serves as our corporate headquarters and is responsible for sourcing and
coordination with cellular component suppliers, coordination with our research
and development partners and following up the hardware and software testing
aspects before mass production. Our Shenzhen Office serves as the base for
cellular component sourcing and coordination with suppliers and manufacturers.
Our Tianjin Office is mainly responsible for production management. Its
functions include coordination with our principal manufacturer to adjust the
production plan in accordance with our sales plan, raw material supply and
cellular phone delivery management and supervision of the production processing
of our principal manufacturer, as well as quality control. The office in Hong
Kong is a representative office for coordination with customers.
The
following is relevant information on our offices:
Address
|
|
Office
/
Production
|
|
Process
/
Lease
|
|
|
Monthly
Rental
(rmb)
|
|
|
Monthly
Rental
(usd)
|
|
|
Lease
period
|
|
No.
2, Unit 1, Building 2,Guanhaixi Plaza, Chuangye Road, Nanshan Dist.,
Shenzhen
|
|
Office
|
|
Lease
|
|
|
|
5,500.00
|
|
|
|
790
|
|
|
09/19/07 to 02/19/08
|
(3)
|
Room
1403A, Dongnan Rongchao Business Center, Street Corner between
Jingtian Road and Fuzhong Road, Futai Dist., Shenzhen
|
|
Office
|
|
Lease
|
|
|
|
25,520.00
|
|
|
|
3,666
|
|
|
06/01/08
to 05/31/09
|
|
12
th
Floor, Tower B, Chaowai MEN Office Building, 26 Chaowai Street, Chaoyang
Dist., Beijing
|
|
Office
|
|
Lease
|
|
|
|
50,000.00
|
|
|
|
7,182
|
|
|
01/08
to 12/08
|
(4)
|
29
th
Floor, Tower B, Chaowai MEN Office Building, 26 Chaowai Street, Chaoyang
Dist., Beijing
|
|
Office
|
|
Lease
|
|
|
|
30,0000.00
|
|
|
|
4,309
|
|
|
01/09
to 12/09
|
|
No.185,
Xinda Road, Hebei Dist., Tianjin
|
|
Office
|
|
—
|
(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
No.
1, Fuyou Street, Airport Huoyun Road, Shunyi Dist.,
Beijing
|
|
Office
|
|
—
|
(2)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Room
1502, Jubilee Centre, 18 Fenwick Street, 46 Gloucester Road, Wanchai, Hong
Kong
|
|
Office
|
|
Lease
|
|
|
19,500(HKD)
|
|
|
|
2,504
|
|
|
9/5/07
to 9/30/08
|
(5)
|
Room1401,
14/F, Hong Kong And Macau Building, 156-157 Connaught Road Central, Hong
Kong
|
|
Office
|
|
Lease
|
|
|
2,000
(HKD)
|
|
|
|
257
|
|
|
10/01/08 to 12/31/09
|
|
|
(1)
|
Our
Tianjin office is located in the CECM factory. The office is provided by
CECM free of charge to the Company.
|
|
(2)
|
These
two offices are provided by Beijing Xin Ganxian Logistic Company free of
charge to the Company.
|
|
(3)
|
The
Company moved from its office from this space into the office space at
Room 1403A, Dongnan Rongchao Business Center, Street Corner
between Jingtian Road and Fuzhong Road, Futai Dist.,
Shenzhen.
|
|
(4)
|
The
Company moved from its office from this space into the office space at
29
th
Floor, Tower B, Chaowai MEN
Office Building, 26 Chaowai Street, Chaoyang Dist.,
Beijing
|
|
(5)
|
The
Company moved from this space into the office space at Room1401, 14/F,
Hong Kong And Macau Building, 156-157 Connaught Road Central, Hong
Kong.
|
Item
3.
|
Legal
Proceedings
|
We are
party to certain litigation/arbitration related to amounts payable to suppliers
for goods with which the Company was not satisfied as to quality and timing of
delivery. However, the amounts in question are not substantial
enough that such litigation/arbitration are material to the Company or would
have a material adverse effect on our business. Furthermore, we
expect to be able to negotiate resolutions to these issues.
Item
4.
|
Submission
of Matters to a Vote of Security
Holders
|
Our 2008
Annual Meeting of Stockholders was held on December 30, 2008. At the Annual
Meeting, (i) each of our six nominees was elected to serve as a Company director
until the next Annual Meeting of Stockholders, and (ii) the appointment by the
Company’s Board of Directors of PKF Hong Kong Certified Public Accountants as
the Company’s independent registered public accountants for fiscal year 2008
(the 2008 Independent Auditors Ratification) was ratified by the stockholders.
The election results are as follows:
The
voting results for the election of Directors were as follows:
Nominated
Person
|
Votes
For
|
Wang
Xin
|
25,366,997
|
Liu
Yu
|
25,366,997
|
Naizhong
Che
|
25,366,997
|
Peng
Wang
|
25,366,997
|
Zhixiang
Zhang
|
25,366,997
|
Gao
Jian
|
25,366,997
|
No
stockholders withheld their vote.
No other
person received any votes.
The
voting results for the ratification of the 2008 Independent Auditors were as
follows:
|
Votes
received
|
For
|
25,368,298
|
Against
|
339,725
|
Abstain
|
316,130
|
Although
ratification of the Board’s appointment of the Company’s independent public
accountants by stockholders is not required by our bylaws or otherwise, the
Board of Directors submitted the selection of PKF Certified Public Accountants
(“
PKF
”) to our
stockholders for ratification as a matter of good corporate practice. Prior to
ratification of the appointment by stockholders, the Board’s Audit Committee had
selected and appointed PKF as the Company’s independent registered public
accountants for the fiscal year ended December 31, 2008.
The
Board’s Audit Committee chose PKF after Mazars CPA Limited, the Company’s
independent auditors since June 29, 2007, resigned on October 17,
2008. The Audit Committee approved the resignation of Mazars CPA
Limited, which was effective as of October 21, 2008. For additional
information, please review the Company’s Current Report on Form 8-K filed with
the Securities and Exchange Commission (“
SEC
”) on October 22, 2008 and
“Changes in and Disagreements with Accountants.”
PART
II
Item
5.
|
Market
For Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
|
Company
common stock has been listed on the American Stock Exchange (“
AMEX
”) under the
ticker symbol “ORS” since May 10, 2007. The following table sets
forth the quarterly average high and low sales prices per share for our common
stock during the fiscal years ended December 31, 2007 and December 31,
2008:
Fiscal
Year Ended
|
|
Common
Stock
|
|
|
|
High
|
|
|
Low
|
|
December
31, 2007
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
4.10
|
|
|
$
|
2.55
|
|
Second
Quarter
|
|
$
|
5.60
|
|
|
$
|
3.05
|
|
Third
Quarter
|
|
$
|
4.05
|
|
|
$
|
2.00
|
|
Fourth
Quarter
|
|
$
|
7.90
|
|
|
$
|
2.25
|
|
|
|
|
|
|
|
|
|
|
December
31, 2008
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
2.57
|
|
|
$
|
1.10
|
|
Second
Quarter
|
|
$
|
3.30
|
|
|
$
|
1.25
|
|
Third
Quarter
|
|
$
|
1.69
|
|
|
$
|
0.51
|
|
Fourth
Quarter
|
|
$
|
0.66
|
|
|
$
|
0.22
|
|
The
source of this data is Bloomberg Profession Services. The data does
not reflect inter-dealer prices and the quotations are without retail mark-ups,
mark-downs or commissions, may not represent actual transactions, and have not
been adjusted for stock dividends or splits.
Holders
.
As of
March 24, 2009, we had approximately 1,300 stockholders of our common stock of
record, and our common stock had a closing price of $0.34 per
share.
Outstanding Options, Conversions, and
Planned Issuance of Common Stock
.
As of
December 31, 2008, options to purchase 614,000 shares of common stock at an
exercise price of $2.26 (the close price on the grant date, April 2, 2008) were
issued under the Company’s 2007 Omnibus Long-Term Incentive Plan. As
of April 14, 2009, none of the grantees has exercised these stock
options. There are no other warrants or options
outstanding.
Preferred Stock
.
Our
corporate charter permits the Company to issue up to 100 million shares of
preferred stock from time to time, as determined by resolutions of our Board of
Directors. The issuance of preferred stock may have the effect of
delaying, deferring or preventing a change in control of the Company without
further action by stockholders and could adversely affect the rights and powers,
including voting rights, of holders of common stock,
even though the Company
is acting in accordance with our corporate charter and bylaws. In
certain circumstances, the issuance of preferred stock could depress the market
price of the Company’s common stock.
As of
April 14, 2009, there are no shares of preferred stock outstanding.
Dividends and Related
Policy
.
We do not
expect to declare or pay any cash dividends on our common stock in the
foreseeable future and the Company intends to retain future earnings, if any, to
finance the expansion of our business. The decision whether to pay
cash dividends on our common stock will be made at the discretion of our Board
of Directors and will depend on our financial condition, operating results,
capital requirements and other factors that the Board considers
significant.
Securities Authorized for Issuance
Under Equity Compensation Plans
.
As of the
fiscal year ended December 31, 2008,
Plan category
|
|
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
|
|
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
|
|
|
Number of securities remaining
available for future issuance under
equity compensation plans (excluding
securities reflected at left)
|
|
Equity
compensation plans approved by security holders
|
|
|
614,000
|
(1)
|
|
|
2.26
|
(1)
|
|
|
3,886,000
|
|
Equity
compensation plans not approved by security holders
|
|
None
|
|
|
None
|
|
|
None
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
3,886,000
|
|
(1)
|
As
of December 31, 2008, options to purchase 614,000 shares of common stock
at an exercise price of $2.26, the close price on the grant date, April 2,
2008, were issued under the 2007 Omnibus Long-Term Incentive
Plan. As of April 14, 2009, none of the grantees has executed
these stock options.
|
Transfer
Agent and Registrar.
Our
transfer agent is Corporate Stock Transfer, located at 3200 Cherry Creek Drive
South, Suite 430, Denver, Colorado 80209. Their telephone number is
(303) 282-4800.
Recent Sales of Unregistered
Securities
.
None.
Purchases
of Equity Securities by the Issuer and Affiliated Purchasers.
None.
Item
6.
|
Selected
Financial Data.
|
The
following selected financial data has been extracted from our financial
statements for the year ended December 31, 2008. This selected financial data
should be read in conjunction with the consolidated financial statements and the
notes to the consolidated financial statements starting on page F-1 and with
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”
Consolidated
Statements of Operations
|
|
Year
Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(in
thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
107,827
|
|
|
$
|
89,923
|
|
|
$
|
68,108
|
|
|
$
|
28,705
|
|
|
$
|
70,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
96,461
|
|
|
|
78,368
|
|
|
|
60,102
|
|
|
|
25,711
|
|
|
|
62,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income – Interest, net
|
|
|
2,785
|
|
|
|
765
|
|
|
|
75
|
|
|
|
544
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
11,296
|
|
|
|
9,683
|
|
|
|
6,718
|
|
|
|
3,492
|
|
|
|
8,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Common Shares Outstanding (Basic and diluted)
|
|
|
29,756
|
|
|
|
29,756
|
|
|
|
29,756
|
|
|
|
29,756
|
|
|
|
29,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income Per Common Share – Basic and Diluted
|
|
|
0.38
|
|
|
|
0.33
|
|
|
|
0.23
|
|
|
|
0.12
|
|
|
|
0.29
|
|
Consolidated
Balance Sheets
|
|
As
of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
$
|
93,765
|
|
|
$
|
66,916
|
|
|
$
|
45,567
|
|
|
$
|
30,230
|
|
|
$
|
28,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
|
94,006
|
|
|
|
67,234
|
|
|
|
45,887
|
|
|
|
31,011
|
|
|
|
29,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
45,605
|
|
|
|
33,332
|
|
|
|
23,604
|
|
|
|
16,072
|
|
|
|
17,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
45,605
|
|
|
|
33,337
|
|
|
|
23,604
|
|
|
|
16,072
|
|
|
|
17,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholders’ Equity
|
|
|
48,401
|
|
|
|
33,897
|
|
|
|
22,283
|
|
|
|
14,939
|
|
|
|
11,098
|
|
Item
7.
|
Management
Discussion and Analysis of Financial Conditions and Results of
Operations
|
Following
is management's discussion and analysis of certain significant factors which
have affected our financial position and operating results during the periods
included in the accompanying consolidated financial statements, as well as
information relating to the plans of our current management. This report
includes forward-looking statements. Generally, the words "believes,"
"anticipates," "may," "will," "should," "expect," "intend," "estimate,"
"continue," and similar expressions or the negative thereof or comparable
terminology are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties, including the matters set forth
in this report or other reports or documents we file with the Securities and
Exchange Commission from time to time, which could cause actual results or
outcomes to differ materially from those projected. Undue reliance should not be
placed on these forward-looking statements which speak only as of the date
hereof. We undertake no obligation to update these forward-looking
statements.
The
following discussion and analysis should be read in conjunction with our
consolidated financial statements and the related notes thereto and other
financial information contained elsewhere in this Form 10-K.
OVERVIEW
The
Company was organized under the laws of the State of Delaware in May 2004 under
the name “Universal Flirts Corp.” On June 1, 2004, the Company acquired all the
issued and outstanding shares of Universal Flirts, Inc., a New York corporation,
from its sole shareholder, Darrel Lerner, in consideration for the issuance of
8,500,000 shares of the Company’s common stock to Mr. Lerner pursuant to a stock
exchange agreement between Universal Flirts Inc. and the Company. Pursuant to
the stock exchange transaction, Universal Flirts Inc. became a wholly-owned
subsidiary of the Company.
Pursuant
to a Stock Transfer Agreement dated March 29, 2005, the Company transferred all
of the common stock of Universal Flirts, Inc. to Mr. Darrell Lerner in exchange
for the cancellation of 28,200,000 shares of the Company’s common stock.
Immediately following the cancellation, the Company had 14,756,000 shares of its
common stock outstanding.
On March
31, 2005, Universal Flirts Corp. completed a stock exchange transaction with the
stockholders of United First International Limited (“
UFIL
”), a company
incorporated under the laws of Hong Kong. The exchange was consummated under the
laws of the State of Delaware and pursuant to the terms of the Securities
Exchange Agreement dated as of March 31, 2005 (“
Exchange Agreement
”). In
connection with its acquisition of UFIL, the Company authorized a 4-1 forward
split of its common stock.
Pursuant
to the Exchange Agreement, Universal Flirts Corp. issued 15,000,000 shares of
its common stock, par value $0.001 per share, to the stockholders of UFIL,
representing approximately 50.41% of the Company’s issued and outstanding common
stock, in exchange for the 20,000,000 outstanding shares of UFIL and a cash
payment of $50,000 from UFIL. Immediately after giving effect to the exchange,
the Company had 29,756,000 shares of its common stock outstanding. Pursuant to
this exchange, UFIL became a wholly-owned subsidiary of the Company and most of
the Company’s business operations are now conducted through UFIL’s wholly-owned
subsidiary, Beijing Orsus Xelent Technology & Trading Company Limited
(“
Xelent
”).
On April
19, 2005, the Company, formerly known as Universal Flirts Corp., changed its
list name to Orsus Xelent Technologies, Inc.
In July,
2005, a wholly owned subsidiary of Orsus Xelent Trading (HK) Company Limited
(“
OXHK
”), was
incorporated under the laws of Hong Kong. This subsidiary is engaged in the
trading of cellular phones and accessories with overseas customers. In September
2005, OXHK commenced its Hong Kong operations to sell and distribute our
cellular phone products and technical support services to customers outside the
People’s Republic of China (“
PRC
”).
The
business operations of UFIL are conducted through its wholly-owned subsidiary,
Xelent, also known as “Orsus Cellular” within the cellular phone industry.
Xelent sells its handsets and total solutions, including economically priced and
fully-loaded cell phones for both Global System for Mobile communications
(“
GSM
”) and Code
Division Multiple Access (“
CDMA
”) platforms, to a
diverse base of customers and dealers, such as ordinary users, tailored
operators, and specialized users from all fields of business and government.
Most of our mobile phone models are either designed by us for both our exclusive
distribution and joint sales under established co-brands, or developed in
conjunction with outside design firms. In February 2004, Xelent registered
“ORSUS” with the PRC State Administration for Industry and Commerce as its
product trademark.
Many of
Xelent’s cellular phone products are equipped with industry cutting-edge
features such as 1.8 to 2.8-inch CSTN, TFT or QVGA dual-color display; capacity
to record videos lasting one minute up to four hours; 300K to 3 million pixel
photography; MP3, MPEG4 and U disk support; dual stereo speakers; e-mail
messaging; multimedia messaging; 40 to 64 ring tone storage; slim bar-phone and
flip-phone technology; and innovative ultra-thin lightweight
design.
Xelent
has provided its handsets to many different types of consumers in the market for
GSM mobiles devices. At present, the GSM mobile devices constitute a significant
percentage of the sales and profit of the Company. In addition, Xelent has
emphasized the development of specialized application mobile terminals in
accordance with market changes and popular features. The Company has established
itself in the specialized application field and made great efforts in its
marketing since entering the field in September 2006. Based on its evaluation of
the market and the engagement proposals received from its major customers, the
Company began to produce GSM model X180 in large volumes starting in April 2007,
thereby taking advantage of the opportunity to win establish a presence in the
specialized application mobile terminal market.
In April
2007, the Company’s common shares were approved for listing on the American
Stock Exchange and began trading on AMEX on May 10, 2007 under the ticker symbol
“ORS”. The Company's CUSIP Number is 68749U106.
Business
Review
The
global economic turmoil during 2008 impacted the cell phone
industry. The industry achieved healthy growth during the first half
of 2008, but experienced a downturn during the year’s second
half. Market indicators show that cell phone sales in the PRC dropped
25% during weeks that include PRC holidays, like National Day in October and
Labor Day in May. Total cellular phone sales in the PRC grew by only
1.6% during the fiscal year ended December 31, 2008, a significant decrease
from the 10.3% growth rate during fiscal year 2007.
As for
the Company, our sales volume reached a record high of 1.06 million cell
phone units for the fiscal year ended December 31, 2008. Despite the
market’s decline in the fourth quarter of 2008, we achieved annual sales
revenues of $107,827,000, representing an increase of 19.91% compared
with the $89,923,000 in revenues earned during fiscal year
2007. The Company believes this increase is mainly attributable to
the products strategy we set at the beginning of the year: to supply
feature-rich, economically-priced, mid-level and low-end products – a
different strategy than that of foreign brands, which tend to have higher
costs and higher output prices. Our 2008 sales volume has
doubled compared with our 2007 sales volume, however, because 85% of the
products we sold in 2008 were priced below RMB1,500 (approximately $200), our
gross margin has decreased dramatically compared with our gross margin for
2007 and our net income increased at a lower pace than it did the previous
year.
The
Company believes there are three main influences on the current state of the
cellular phone market in the PRC. First, the reorganization of
domestic telecommunication operators has created a lag in market demand. In
particular, the market demand for high-margin products during 2008 was much
lower than expected. Second, the major force driving current cell phone
sales in the PRC is rural customers, a majority of whom tend to favor less
expensive, lower-end products. Third,
the international financial crisis has created
an overall decline in consumer demand for cell phone-related
products in the fourth quarter,
a quarter which has historically provided the Company with a
proportionally larger volume of sales than other parts of the year.
The
Company had planned to acquire a production facility by the end of 2008,
however, negotiations for such an acquisition have been temporarily suspended in
light of the current state of the economy. At this time, the Company
will continue to keep the acquisition project on hold, at least until capital
market financing conditions improve.
The
Company is aware of the possibility that the market for cellular phones in the
PRC will experience further downturn in the early part of 2009, but it still
projects that the industry will be in a better position in 2009 because (a) the
reorganization of PRC telecom carriers is projected to lead to market
development, and (b) new 3G technology is also likely to encourage market
demand. With these projections in mind, the Company plans to employ
the following three operating strategies going forward:
|
1.
|
Safeguard
our traditional sales channels and explore the possibility of selling GSM
cell phones in traditional markets. The Company will use its
ability to create telephone models that respond precisely to market
opportunities to target customer
needs.
|
|
2.
|
Launch
our own 3G products while telecom carriers are promoting the commercial
use of 3G. According to some news bulletins, China Telecom is planning to
create 50 million 3G subscribers through its CDMA 2000 platform in 2009;
China Mobile is also targeting at 50 million 3G subscribers through its
TDS-CDMA platform over the coming three years; and China Unicom is
expecting to have 10 million 3G subscribers through its WCDMA platform by
2009. Based on the relationships we have already built with the telecom
carriers, we believe the Company will be able to achieve our market share
in this new era of telecom
industry.
|
|
3.
|
Expand
our industrial structure by consummating certain acquisitions using
capital market funds in order to enhance our business foundation and
long-term development.
|
In
summary, the Company predicts at least some growth in both sales revenues and
net income during the fiscal year ended December 31, 2009.
The
following table summarizes our operating results for the twelve months ended
December 31, 2008 and December 31, 2007, respectively:
|
|
Twelve
months ended
December
31, 2008
|
|
|
Twelve
months ended
December
31, 2007
|
|
|
Comparison
|
|
|
|
$000
|
|
|
%
of
Revenue
|
|
|
$000
|
|
|
%
of Revenue
|
|
|
$000
|
|
|
%
|
|
Revenue
|
|
|
107,827
|
|
|
|
-
|
|
|
|
89,923
|
|
|
|
-
|
|
|
|
17,904
|
|
|
|
19.91
|
%
|
Cost
of sales
|
|
|
93,298
|
|
|
|
86.53
|
%
|
|
|
74,174
|
|
|
|
82.49
|
%
|
|
|
19,124
|
|
|
|
25.78
|
%
|
Sales
& marketing expenses
|
|
|
486
|
|
|
|
0.45
|
%
|
|
|
553
|
|
|
|
0.61
|
%
|
|
|
(67
|
)
|
|
|
(12.12
|
)%
|
General
& admin. expenses
|
|
|
2,151
|
|
|
|
1.99
|
%
|
|
|
1,290
|
|
|
|
1.43
|
%
|
|
|
861
|
|
|
|
66.74
|
%
|
R&D
expenses
|
|
|
429
|
|
|
|
0.40
|
%
|
|
|
340
|
|
|
|
0.38
|
%
|
|
|
89
|
|
|
|
26.18
|
%
|
Depreciation
|
|
|
97
|
|
|
|
0.09
|
%
|
|
|
142
|
|
|
|
0.16
|
%
|
|
|
(45
|
)
|
|
|
(31.69
|
)%
|
Allowance
for obsolete inventories
|
|
|
-
|
|
|
|
-
|
|
|
|
875
|
|
|
|
0.97
|
%
|
|
|
(875
|
)
|
|
|
(100
|
)%
|
Allowance
for trading deposit receivable*
|
|
|
-
|
|
|
|
-
|
|
|
|
923
|
|
|
|
1.03
|
%
|
|
|
(923
|
)
|
|
|
(100.00
|
)%
|
Impairment
of Fixed Assets
|
|
|
-
|
|
|
|
-
|
|
|
|
71
|
|
|
|
0.08
|
%
|
|
|
(71
|
)
|
|
|
(100
|
)%
|
Finance
cost
|
|
|
982
|
|
|
|
0.91
|
%
|
|
|
989
|
|
|
|
1.10
|
%
|
|
|
(7
|
)
|
|
|
(0.71
|
)%
|
Other
net income
|
|
|
2,785
|
|
|
|
2.58
|
%
|
|
|
765
|
|
|
|
0.85
|
%
|
|
|
2,020
|
|
|
|
264.05
|
%
|
Pre-tax
profit
|
|
|
13,169
|
|
|
|
12.21
|
%
|
|
|
11,331
|
|
|
|
12.60
|
%
|
|
|
1,838
|
|
|
|
16.22
|
%
|
Income
tax
|
|
|
1,873
|
|
|
|
1.73
|
%
|
|
|
1,648
|
|
|
|
1.83
|
%
|
|
|
225
|
|
|
|
13.65
|
%
|
Profit
|
|
|
11,296
|
|
|
|
10.48
|
%
|
|
|
9,683
|
|
|
|
10.77
|
%
|
|
|
1,613
|
|
|
|
16.66
|
|
*For the
purposes of this section, Allowance for trading deposit receivable is listed
separately from General and administrative expenses.
The
following table summarizes our operating results for the three months ended
December 31, 2008 and December 31, 2007, respectively:
|
|
Three
months ended
December
31, 2008
|
|
|
Three
months ended
December
31, 2007
|
|
|
Comparison
|
|
|
|
$000
|
|
|
%
of
Revenue
|
|
|
$000
|
|
|
%
of Revenue
|
|
|
$000
|
|
|
%
|
|
Revenue
|
|
|
28,974
|
|
|
|
-
|
|
|
|
31,512
|
|
|
|
-
|
|
|
|
(2,538
|
)
|
|
|
(8.05
|
)%
|
Cost
of sales
|
|
|
24,996
|
|
|
|
86.27
|
%
|
|
|
26,588
|
|
|
|
84.37
|
%
|
|
|
(1,592
|
)
|
|
|
(5.99
|
)%
|
Sales
& marketing expenses
|
|
|
133
|
|
|
|
0.46
|
%
|
|
|
164
|
|
|
|
0.52
|
%
|
|
|
(31
|
)
|
|
|
(18.90
|
)%
|
General
& admin. Expenses
|
|
|
352
|
|
|
|
1.21
|
%
|
|
|
527
|
|
|
|
1.67
|
%
|
|
|
(175
|
)
|
|
|
(33.21
|
)%
|
R&D
expenses
|
|
|
38
|
|
|
|
0.13
|
%
|
|
|
21
|
|
|
|
0.07
|
%
|
|
|
17
|
|
|
|
80.95
|
%
|
Depreciation
|
|
|
25
|
|
|
|
0.09
|
%
|
|
|
29
|
|
|
|
0.09
|
%
|
|
|
(4
|
)
|
|
|
(13.79
|
)%
|
Allowance
for obsolete inventories
|
|
|
-
|
|
|
|
-
|
|
|
|
175
|
|
|
|
0.56
|
%
|
|
|
(175
|
)
|
|
|
(100.00
|
)%
|
Allowance
for trading deposit receivable*
|
|
|
-
|
|
|
|
-
|
|
|
|
564
|
|
|
|
1.79
|
%
|
|
|
(564
|
)
|
|
|
(100.00
|
)%
|
Impairment
of Fixed Assets
|
|
|
-
|
|
|
|
-
|
|
|
|
71
|
|
|
|
0.23
|
%
|
|
|
(71
|
)
|
|
|
(100.00
|
)%
|
Finance
cost
|
|
|
249
|
|
|
|
0.86
|
%
|
|
|
242
|
|
|
|
0.77
|
%
|
|
|
7
|
|
|
|
2.89
|
%
|
Other
net income
|
|
|
2,320
|
|
|
|
8.01
|
%
|
|
|
744
|
|
|
|
2.36
|
%
|
|
|
1,576
|
|
|
|
211.83
|
%
|
Pre-tax
profit
|
|
|
5,501
|
|
|
|
18.99
|
%
|
|
|
5,003
|
|
|
|
15.88
|
%
|
|
|
498
|
|
|
|
9.95
|
%
|
Income
tax
|
|
|
553
|
|
|
|
1.91
|
%
|
|
|
586
|
|
|
|
1.86
|
%
|
|
|
(33
|
)
|
|
|
(5.63
|
)%
|
Profit
|
|
|
4,948
|
|
|
|
17.08
|
%
|
|
|
4,417
|
|
|
|
14.02
|
%
|
|
|
531
|
|
|
|
12.02
|
%
|
*For the
purposes of this section, Allowance for trading deposit receivable is listed
separately from General and administrative expenses.
CRITICAL
ACCOUNTING POLICIES AND MANAGEMENT ESTIMATES
The
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that affect our reported assets, liabilities, revenues and expenses,
and related disclosure of contingent assets and liabilities. We evaluate our
estimates on an on-going basis and use them on historical experience and various
other assumptions that are believed to be reasonable under the circumstances as
the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates because of different assumptions or
conditions.
RESULTS
OF OPERATIONS
Revenues
Revenues
were $107,827,000 for the twelve months ended December 31, 2008, representing an
increase of 19.91% as compared to $89,923,000 in revenues for the corresponding
period last year. The increase is likely primarily due
to the products strategy we set at the beginning of the year: to
supply feature-rich, economically-priced mid-level and low-end products
instead of mimicking the foreign brand strategy which involves higher input
costs and yields higher-priced products.
For the
three months ended December 31, 2008, our revenues declined by 8.05% to
$28,974,000, down from $31,512,000 in the previous year. This decline
corresponds to the decline of the global economy in the second half of 2008,
which involved a worsening job market and reduced personal income and consumer
demand within the Chinese economy. Revenues were also affected
by lower-than-expected demand for operator-tailored products.
At
present, we have three product lines classified by their function, appearance,
price and target market. Our mid-level and low-end products have popular
features such as MP3, MPEG4, video recording and outer card storage; our
higher-end products have the same features as well as PDA, GPS, Mobile TV,
special industry applications and office software functions.
Products
Segment
In order
to offset the impact of reduced demand for customized cell-phones on our 2008
revenues, the Company took advantage of our long-standing ties to traditional
mass market distribution channels and was able to increase sales of our GSM
products. We also increased our trading activities in order to
broaden our sources of revenue. The number of different models we
offered in 2008 increased from the previous year; most of these models were new
for 2008.
The
Company’s product segments that have contributed more than 2% to the total
revenues for the twelve months ended December 31, 2008 are listed
below:
|
|
Twelve
months ended December 31, 2008
|
|
|
|
$’000
|
|
|
%
of revenue
|
|
DX5020
|
|
|
7,120
|
|
|
|
6.60
|
%
|
C106
|
|
|
3,016
|
|
|
|
2.80
|
%
|
G588
|
|
|
2,590
|
|
|
|
2.40
|
%
|
DX6018
|
|
|
10,386
|
|
|
|
9.63
|
%
|
DX5030
|
|
|
20,320
|
|
|
|
18.85
|
%
|
DX7020
|
|
|
11,733
|
|
|
|
10.88
|
%
|
DX8028
|
|
|
5,205
|
|
|
|
4.83
|
%
|
DX5028
|
|
|
5,156
|
|
|
|
4.78
|
%
|
DX8020
|
|
|
4,763
|
|
|
|
4.42
|
%
|
DX5026
|
|
|
4,542
|
|
|
|
4.21
|
%
|
DX5010
|
|
|
3,388
|
|
|
|
3.14
|
%
|
DX7028
|
|
|
2,824
|
|
|
|
2.62
|
%
|
LM6688
|
|
|
2,793
|
|
|
|
2.59
|
%
|
DX7026
|
|
|
2,762
|
|
|
|
2.56
|
%
|
PLAM
T680
|
|
|
2,210
|
|
|
|
2.05
|
%
|
LM528A
|
|
|
2,762
|
|
|
|
2.56
|
%
|
X555
|
|
|
3,192
|
|
|
|
2.96
|
%
|
T303
|
|
|
2,455
|
|
|
|
2.28
|
%
|
12
Cell Phone models in a group
(1)
|
|
|
11,935
|
|
|
|
11.07
|
%
|
Others
(2)
|
|
|
(1,325
|
)
|
|
|
(1.23
|
)%
|
Total
|
|
|
107,827
|
|
|
|
100.00
|
%
|
|
(1)
|
These
12 cell phone models in a group have contributed 11.07% of total revenues.
They were not listed separately because, taken individually, each of them
accounted for less than 2% of total
revenues.
|
|
(2)
|
“Others”
represents Chinese telecom carriers, whose very low level of demand led to
a reduction in the price of CDMA
products.
|
During
the twelve months ended December 31, 2008, total revenues from our CDMA products
were $12,726,000. During this period, we had the three CDMA products, DX5020,
C106 and G588. These CDMA models generated revenues during the period of
$7,120,000, $3,016,000 and $2,590,000, respectively. A brief description of
these products is set forth below:
|
·
|
DX5020
(CDMA, GPS, Touch Pad, Web Browsing), provided by Hongyuan Kangda Trading
Co., Ltd.(“
HYKD
”);
|
|
·
|
C106
(Ultra Low-end CDMA), provided by Daxian Technologies Inc.(“
DX
”);
and
|
|
·
|
G588
(Dual Simcards Simul-Standby, Windows Mobile, 1.3 Mega Pixel Camera,
Bluetooth, MP3, MP4), provided by China Electronic Appliance Company
(“
CEAC
”).
|
During
the twelve months ended December 31, 2008, total revenues from our GSM products
were $95,100,000. A brief description of our major GSM products is set forth
below:
|
·
|
LM6688
(Dual Simcards Simul-Standby, Dual Cameras, Extended Standby, High-quality
Music Player), supplied by Tianjin Communication Broadcast Group
(“TCB”);
|
|
·
|
DX6018
(Dual Simcards Mono-Standby, 300K Pixel Camera, Bluetooth, Dual Speakers,
MP3. MP4), supplied by Holley Communications Co., Ltd
(“HCC”);
|
|
·
|
DX7020
(Dual Simcards Simul-Standby, 2.8+TP, 300K Pixel Camera, Dual Speakers),
supplied by HCC;
|
|
·
|
DX8028
(Mono-Chip, Dual Simcards Simul-Standby, 1.8+TP, 300K Pixel Camera, MP3,
MP4, Colorful Pad Lamp, Dual Speakers), supplied by
HYKD;
|
|
·
|
DX5010
(EDGE, GPS, Touch Pad, Web Browsing, IPTV), supplied by
HYKD.
|
|
·
|
DX5030
(Dual Simcards Simul-Standby, Windows Mobile, 2 Mega Pixel Camera,
Bluetooth, MP3, MP4), supplied by
HYKD;
|
|
·
|
DX5028(Dual
Simcards Simul-Standby, Samsung SC32442 Chip, 2.8 QVGA TFT, EDGE , 2 Mega
Pixel Camera ), supplied by Huayi Jiacheng Technologies Co.,
Ltd.(“HYJT”);
|
|
·
|
DX8020
(Dual Simcards Simul-Standby, Mono-chip, 1.8+TP, 300K Pixel Camera, Dual
Speakers, MP3, MP4, Color Pad Lamp), supplied by
HYKD;
|
|
·
|
DX5026
(Dual Simcards Mono-Standby, Samsung SC32442 Chip, 2.8 QVGA TFT,
EDGE+CDMA, 2 Mega Pixel Camera), supplied by HYJT;
and
|
|
·
|
DX7028
(Dual Simcards Simul-Standby, 2.8+TP, 300K Pixel Camera, Dual Speakers),
supplied by CEAC.
|
For the
three months ended December 31, 2008, the Company’s revenues were primarily
attributable to the following products:
|
|
Three
months ended December 31, 2008
|
|
|
|
$’000
|
|
|
%
of revenue
|
|
C106
|
|
|
759
|
|
|
|
2.62
|
%
|
G588
|
|
|
616
|
|
|
|
2.13
|
%
|
DX7020
|
|
|
3,027
|
|
|
|
10.45
|
%
|
C916
|
|
|
165
|
|
|
|
0.57
|
%
|
G788A
|
|
|
1,085
|
|
|
|
3.74
|
%
|
G988A
|
|
|
295
|
|
|
|
1.02
|
%
|
LM520A
|
|
|
1,674
|
|
|
|
5.78
|
%
|
LM528A
|
|
|
3,014
|
|
|
|
10.40
|
%
|
T680
|
|
|
723
|
|
|
|
2.49
|
%
|
X555
|
|
|
3,482
|
|
|
|
12.02
|
%
|
T303
|
|
|
2,679
|
|
|
|
9.25
|
%
|
DX5030
|
|
|
11,455
|
|
|
|
39.53
|
%
|
Total
|
|
|
28,974
|
|
|
|
100.00
|
%
|
For the
three months ended December 31, 2008, total Company revenues were $28,974,000,
representing a decrease of 8.05% compared with the $31,512,000 in revenues
earned during the same period in 2007. As discussed, a weak fourth
quarter is unusual, but the Company believes that this result can be attributed
to the poor state of the global economy in addition to the fact that in 2008,
85% of the products sold by the Company were models with prices below RMB1,500
(approximately $200).
Customer
Segments
Revenues
by customer segment for the twelve months ended December 31, 2008 are as
follows:
|
|
Twelve
months ended December 31, 2008
|
|
|
|
$000
|
|
|
%
of Revenue
|
|
Beijing
Xingwang Shidai Tech & Trading Co., Ltd.
|
|
|
93,503
|
|
|
|
86.72
|
%
|
Tianjin
Communications Broadcast Company
|
|
|
11,024
|
|
|
|
10.22
|
%
|
Zhongjie
Communications Co., Ltd.
|
|
|
3,167
|
|
|
|
2.94
|
%
|
Beijing
Yangtze Fantai Communications Technology Co., Ltd.
|
|
|
133
|
|
|
|
0.12
|
%
|
Total
|
|
|
107,827
|
|
|
|
100.00
|
%
|
For the
twelve months ended December 31, 2008, our revenues were derived mainly from
sales to Beijing Xingwang Shidai Tech & Trading Co., Ltd. (“
XWSD
”), Tianjin
Communications Broadcast Company (“
TCB
”), Zhongjie
Communications Co., Ltd. (“
Zhongjie
”), and Beijing
Yangtze Fantai Communications Technology Co., Ltd. (“
Fantai
”) in the amounts of
$93,503,000, $11,024,000, $3,167,000, and $133,000, respectively. XWSD has been
our most important customer for a long period of time. It is one of the largest
distributors and dealers in mainland China and has sales networks in major
cities in the PRC. Zhongjie is a supply chain service company that is owned by
China Telecom and is responsible for China Telecom’s procurement of equipment in
the South of China.
Other
net income
For the
twelve months ended December 31, 2008, other net income accounted for
$2,785,000, or 2.58%, of the total revenue, representing an increase of
$2,020,000, or 264.05% compared with $765,000, or 0.85% of total revenues, for
the same period of 2007. The fiscal year 2008 figure mainly reflected
reversals of doubtful accounts allowance in the amount of $313,800, foreign
exchange gains in the amount of $22,400, bank interest income in the amount of
$47,800, and write-off of accounts payable overdue to our suppliers in the
amount of $2,401,000 (because the related business contracts had
expired).
Operating
expenses
For the
twelve months ended December 31, 2008 our operating expenses were $96,461,000,
which included sales and marketing expenses, general and administrative
expenses, R & D expenses, and depreciation. The following table
shows operating expenses by category for the twelve months ended December 31,
2008 and the corresponding period for 2007:
|
|
Twelve
months ended
December
31, 2008
|
|
|
Twelve
months ended
December
31, 2007
|
|
|
Comparison
|
|
|
|
$000
|
|
|
%
of Revenue
|
|
|
$000
|
|
|
%
of Revenue
|
|
|
$000
|
|
|
%
|
|
Cost
of sales
|
|
|
93,298
|
|
|
|
86.53
|
%
|
|
|
74,174
|
|
|
|
82.49
|
%
|
|
|
19,124
|
|
|
|
25.72
|
%
|
Sales
& marketing expenses
|
|
|
486
|
|
|
|
0.45
|
%
|
|
|
553
|
|
|
|
0.61
|
%
|
|
|
(67
|
)
|
|
|
(12.12
|
)%
|
General
& Admin. expenses
|
|
|
2,151
|
|
|
|
1.99
|
%
|
|
|
1,290
|
|
|
|
1.43
|
%
|
|
|
861
|
|
|
|
66.74
|
%
|
R&D
expenses
|
|
|
429
|
|
|
|
0.40
|
%
|
|
|
340
|
|
|
|
0.38
|
%
|
|
|
89
|
|
|
|
26.18
|
%
|
Depreciation
|
|
|
97
|
|
|
|
0.90
|
%
|
|
|
142
|
|
|
|
0.16
|
%
|
|
|
(45
|
)
|
|
|
(31.69
|
)%
|
Allowance
for obsolete inventories
|
|
|
-
|
|
|
|
-
|
|
|
|
875
|
|
|
|
0.97
|
%
|
|
(875
|
)
|
|
|
(100.00
|
)%
|
Allowance
for trading deposit receivable*
|
|
|
-
|
|
|
|
-
|
|
|
|
923
|
|
|
|
1.03
|
%
|
|
|
(923
|
)
|
|
|
(100.00
|
)%
|
Impairment of
fixed assets
|
|
|
-
|
|
|
|
-
|
|
|
|
71
|
|
|
|
0.08
|
%
|
|
|
(71
|
)
|
|
|
(100.00
|
)%
|
Total
|
|
|
96,461
|
|
|
|
89.46
|
%
|
|
|
78,368
|
|
|
|
87.15
|
%
|
|
|
18,093
|
|
|
|
23.08
|
%
|
*For the
purposes of this section, Allowance for trading deposit receivable is listed
separately from General and administrative expenses.
For the three months ended
December 31, 2008 and the corresponding period for 2007, the operating expenses
are set forth in the table below:
|
|
Three
months ended
December
31, 2008
|
|
|
Three
months ended
December
31, 2007
|
|
|
Comparison
|
|
|
|
$000
|
|
|
%
of Revenue
|
|
|
$000
|
|
|
%
of Revenue
|
|
|
$000
|
|
|
%
|
|
Cost
of sales
|
|
|
24,996
|
|
|
|
86.27
|
%
|
|
|
26,588
|
|
|
|
84.37
|
%
|
|
|
(1,592
|
)
|
|
|
(5.99
|
)%
|
Sales
& marketing expenses
|
|
|
133
|
|
|
|
0.46
|
%
|
|
|
164
|
|
|
|
0.52
|
%
|
|
|
(31
|
)
|
|
|
(18.90
|
)%
|
General
& Admin. expenses
|
|
|
352
|
|
|
|
1.21
|
%
|
|
|
527
|
|
|
|
1.67
|
%
|
|
|
(175
|
)
|
|
|
(33.21
|
)%
|
R&D
expenses
|
|
|
38
|
|
|
|
0.13
|
%
|
|
|
21
|
|
|
|
0.07
|
%
|
|
|
17
|
|
|
|
80.95
|
%
|
Depreciation
|
|
|
25
|
|
|
|
0.09
|
%
|
|
|
29
|
|
|
|
0.09
|
%
|
|
|
(4
|
)
|
|
|
(13.79
|
)%
|
Allowance
for obsolete inventories
|
|
|
-
|
|
|
|
-
|
|
|
|
175
|
|
|
|
0.56
|
%
|
|
|
(175
|
)
|
|
|
(100.00
|
)%
|
Allowance
for trading deposit receivable*
|
|
|
-
|
|
|
|
-
|
|
|
|
564
|
|
|
|
1.79
|
%
|
|
|
(564
|
)
|
|
|
(100.00
|
)%
|
Impairment of
fixed assets
|
|
|
-
|
|
|
|
-
|
|
|
|
71
|
|
|
|
0.23
|
%
|
|
|
(71
|
)
|
|
|
(100.00
|
)%
|
Total
|
|
|
25,544
|
|
|
|
88.16
|
%
|
|
|
28,139
|
|
|
|
89.30
|
%
|
|
|
(2,595
|
)
|
|
|
(9.22
|
)%
|
* For the
purposes of this section, Allowance for trading deposit receivable is listed
separately from General and administrative expenses.
Cost
of sales
For the
twelve months ended December 31, 2008, our cost of sales was $93,298,000, or
86.53% of revenues. The ratio of cost of sales to revenues increased by 4.04%,
as compared to 82.49% for the twelve months ended December 31,
2007. The principal reason for the increase was that both production
and sales of high-margin operator-customized products were reduced as a result
of telecom operators’ split and subsequent restructuring during
2008.
Sales
and marketing expenses
The
Company’s major sales and marketing expenses are the salaries of sales personnel
and the costs of marketing and transportation.
For the
twelve months ended December 31, 2008, Company sales and marketing expenses were
$486,000, or 0.45% of revenues – a decrease of 12.12% compared to analogous
expenses of $553,000, or 0.61% of the revenues, for the corresponding period in
2007. This decrease was caused by a reduction in personnel while changing our
business model which, in turn, led to a decrease in monies needed for office
expenses, transportation costs, salaries and social insurances.
In
addition, the cost of after-sale maintenance services was shifted to our
materials suppliers, and the cost of all after-sale services (other than
employee salaries), were borne by our cooperative partners. This resulted in a
significant reduction of our sales and marketing expenses.
Research
and development (R&D) expenses
Our
R&D expenses were $429,000, or 0.40% of total revenue, for the twelve months
ended December 31, 2008, which represented a 26.18% increase over the $340,000
(0.38% of total revenue) spent on R&D during 2007. The
significant increase in R&D expenses was due to the Company’s increased
investment in researching and developing 3G products during
2008. With the commercialization of 3G products, the Company is
expecting to launch its own 3G products in the market as it opens.
General
and administrative expenses
The
Company’s general and administrative expenses consisted primarily of
compensation for personnel, depreciation, travel expenses, rental costs,
materials expenses related to ordinary administration, and fees for professional
services.
For the
twelve months ended December 31, 2008, the Company’s general and administrative
expenses were $2,151,000 or 1.99% of the total revenue, representing an increase
of $861,000 or 66.74% when compared with $1,290,000 or 1.43% of the total
revenues for the corresponding period in 2007. The sharp increase was primarily
a result of the Company granting employees stock options, which led to related
compensation costs.
Allowance
for obsolete inventories
For the
twelve months ended December 31, 2008, the Company made no allowance for
obsolete inventories because the assembly, production, and materials were
undertaken by the Company’s suppliers and the after-sale servicing was performed
by the Company’s customers, so the Company did not retain any leftover or
outdated handsets or products.
Gross Profit and Gross Profit
Margin
For the
twelve months ended December 31, 2008, our gross profit was $14,529,000,
reflecting a decrease of $1,220, 000, or 7.75%, compared to a $15,749,000 gross
profit for the same period of 2007. In addition, our gross profit margin for the
reporting period was 13.47%, representing a decrease of 4.04% as compared to
17.51% for the same period of 2007.
The
Company believes that the change in its gross profit margin can be attributed
to:
|
1.
|
Intensified competition in the
domestic market and a decline in the average gross margin of products sold
during the period.
|
|
When
competing with foreign brands for PRC customers, domestic brands usually
focus on sales of low-priced products as a strategy to increase their
market presence and secure their traditional sales channels to create
conditions for future development. In 2007, products that
were priced below RMB1,500 (about $200) accounted for 69% of our total
sales. In 2008, 85% of our products were priced below RMB
1,500, leading us to have a gross profit margin of only 10.30% in the
fourth quarter.
|
|
2.
|
The pending structural
adjustment of Chinese telecomm
operators.
|
|
For
the twelve months ended December 31, 2008, we did not receive as many
high-margin custom orders from telecom operators as was originally
expected. Instead, we only received from that sector a small
order for ultra low-end CDMA cell phones with a very thin gross margin
from a subsidiary of China Telecom. Overall, operator-tailored
products accounted for only 4.7% of our total sales in 2008; in 2007,
operator-tailored products accounted for 40.7% of our
sales.
|
It should
be noted that though our gross margin was slowing down in 2008, it was still
above 12%. This fact reflects our relatively stable customer group
and sales channels as well as our successful product strategy.
Net profit
For the
twelve months ended December 31, 2008, our net profit was $11,296,000 and our
net profit margin was 10.47%, which represents an increase of $1,613,000, or
16.66%, compared to the $9,683,000 in net profit and corresponding net profit
margin of 10.77% earned during the same period of 2007. The Company
believes that this increase is attributable to our new business strategy,
marketing efforts, and cost controls.
Please
note that in addition to operating profits, we had certain one-off cancellations
of debts from our suppliers in the amount of $2,401,000 because we were able to
write off some controversial accounts payable to our suppliers in the fourth
quarter of 2008. The debts were incurred at the preliminary stage of
the Company’s development due to some confusing accounts with our
suppliers. Because the debts were outstanding for long enough to fall
outside the statute of limitations, they are no longer included as outstanding
against the Company. Excluding the earning from canceling such debts past due to
our earliest suppliers, we had net profit of $8,895,000 and net profit margin of
8.24% for the twelve months ended December 31, 2008, which means net profit
decreased $788,000 and net profit margin decreased 2.54% from the comparable
figures in the fiscal year 2007.
For the
three months ended December 31, 2008, our net profit was $4,948,000 and out net
profit margin was 17.08%, representing an increase of $531,000 or 12.02%,
compared to the $4,417,000 in net profit and net profit margin of 11.66% for the
corresponding period of 2007. The increase of comprehensive net profit for this
quarter has been greatly contributed by the reversal of certain debts up to
$2,401,000, as we were able to cancel these debts with our old suppliers.
However, excluding this factor, our net profit decreased $187,000 to $2,547,000
and net profit margin decreased 5.23% to 8.79% from the corresponding figures
for the same period in 2007 while growth has been offset by the economic
downturn since June 2008.
Thanks to
the stable growth of our sales revenues, improvement in coordination with our
suppliers, and our corporate management system, in 2008 our net profit margin
has been growing at a rate of least 10%. Though the 16.6% rate of
increase in our net profit margin in 2008 was slightly lower than the 19.91%
increase in our sales revenues during 2008, our greater than 16% rate of
increase in net profit demonstrates that our operations are stable and
growing.
In 2009,
we plan to strengthen our efforts to sell products through traditional channels
and will promote our business expansion within the new 3G
network. The Company will also enhance our internal operations and
management structure so we can continue to grow in the future.
LIQUIDITY
AND SOURCE OF CAPITAL
We
generally finance our operations with internally-generated cash flow and
short-term financing from domestic banks.
As of
December 31, 2008, we had current assets of $93,765,000. Current assets are
mainly comprised of accounts receivable of $82,076,000, trade deposits paid of
$8,441,000; cash and cash equivalents of $102,000; pledged deposits of
$1,287,000; and other current assets of $1,859.000.
As of
December 31, 2008, our current liabilities were $45,605,000, which included
accounts payable of $16,353,000; trade deposits received of $1,934,000,
short-term loans of $9,541,000, current portion of mortgage loan of $12,000,
accrued expenses and other accrued liabilities of $12,319,000; taxes payable of
$4,989,000; and amounts due to directors of $457,000.
We offer
two different trading terms to our customers: cash-on-delivery or credit terms
of 45-120 days. As of December 31, 2008, our accounts receivable had
increased by $24,333,000 to $82,076,000, as compared with $57,743,000 on
December 31, 2007. The increase in accounts receivable was due mainly
to Company sales increases as well as and distributors’ business expansion
leading to a reduction in their liquidity. We will continue to pay close
attention to the liquidity of our distributors. As previously disclosed, in
order to reduce the risk of default, we have limited the terms of credit offered
to our major distributor in the Master Distributor Agreement and have asked a
third-party surety company to guarantee the accounts receivable due from this
distributor. For additional information, please see the Company’s
Current Report on its Form 8-K dated August 20, 2008.
As of
December 31, 2008, we had certain accounts receivable that had been outstanding
for more than 120 days because adverse macro economic development conditions had
caused comparatively longer collection terms to our sales channels as a whole.
We decided it was in our best interest not to strictly enforce the terms of
collection in order to maintain our current cooperation relationships, but we
will modify the delivery schedule for future goods to these
customers. In this way we shall reduce the overdue accounts (more
than 120 days) so they only account for 20% of the total accounts receivable by
the end of the second quarter in 2009.
As of
December 31, 2008, our trade deposits paid were $8,441,000, which represented an
increase of $7,602,000 as compared to $839,000 in trade deposits paid as of
December 31, 2007. The increase was due to a larger portion of trade deposits
paid over the course of the year and to early payments that went to suppliers to
seek lower prices on materials or products from them. These
prepayments were increased in order to arrange for timely delivery of goods and
to ensure our market share.
As of
December 31, 2008, our other current assets were $1,859,000, a decrease of
$2,337,000 as compared to $4,196,000 in “other current assets” we had as of
December 31, 2007. The “other current assets” are mainly composed of partial
recovery of prepaid deposits that were made in furtherance of the Company’s
potential acquisition for a manufacturing facility in the amount of $1,554,000
and returned after we withdrew from a Letter of Intent to acquire the
facility.
As of
December 31, 2008, we had pledged deposits of $1,287,000 for the loan from
Beijing Rural Commercial Bank. Changes in currency exchange rates had
caused the value of the pledged deposits to increase by $81,000 over the course
of the fiscal year.
As of
December 31, 2008, our accounts payable were $16,353,000, which represented an
increase of $5,499,000, or 50.66%, as compared to $10,854,000 in accounts
payable as of December 31, 2007. The main reason for this increase
was a higher sales volume in 2008 than in 2007.
As of
December 31, 2008, accrued expenses and liabilities were $12,319,000, which
represented an increase of $4,271,000 or 53.07%, as compared to the $8,048,000
in accrued expenses and liabilities that the Company had as of December 31,
2007. The increase was due to an outstanding tax of $10,134,000
caused by differences in the timing standards for determining the value-added
tax (“
VAT
”) between the
USGAAP and PRCGAAP accounting methods.
During
fiscal year 2008 we made no allowance for warranty problems because, during this
period, after-sale services for newly-launched products were undertaken by OEM
factories, rather than the Company. Therefore, allowances were not made
accordingly for these after-sale services.
As of
December 31, 2008, our taxes payable were $4,989,000, which represented an
increase of $1,942,000 or 63.73%, as compared to our $3,047,000 in taxes payable
as of December 31, 2007. The increase was mainly due to Xelent having
an income tax rate of 12% and needing to pay income taxes due in 2008 as well as
taxes that were deferred from previous years.
As of
December 31, 2008, cash and bank balances were mainly denominated in Renminbi
(“
RMB
”). Our revenue
and expenses, assets and liabilities are, for the most part, denominated in RMB
and U.S. Dollars (“
USD
”). Our Company operations
are mainly denominated in RMB. During the accounting period, RMB currency is
quoted officially against USD currency according to a floating exchange rate.
However, appreciation of the RMB against the USD did not create currency
exchange risk for the Company because we had few USD in stock.
CASH
FLOWS
As of
December 31, 2008, we had cash and cash equivalents of $102,000. This represents
a decrease of $2,826,000, or 96.52%, compared with the $2,928,000 in cash and
cash equivalents we had as of December 31, 2007. The decrease can be explained
by our preliminary investments in new projects we are developing to remain
competitive in the market.
As of
December 31, 2008, our short term loans aggregated to $9,541,000, which included
$2,627,000 from Huaxia Bank, $6,857,000 from Beijing Rural Bank, and $57,000
from non-financial institution Dingxin Chuangzhi Asset Management Co., Ltd.
There was a change
of RMB1
,
600,000
($228,000
)
in the
aggregate amount of short term loans during fiscal year 2008 which, after
converting to USD equivalents, meant the aggregate short term loans increased by
$324,000
from
$9,160,000 as of
December 31, 2007. This increase was mainly due to the depreciation of USD
against RMB.
In
addition, we obtained a mortgage loan of $122,000 to purchase a company car in
2007. As of December 31, 2008, there was $12,000 outstanding and payable on this
loan.
Our
gearing ratio, calculated as total debts over total assets, was 48.51%, as of
December 31, 2008. It has decreased slightly compared to 49.51% as of December
31, 2007.
CONTINGENT
LIABILITIES
On June
20, 2007, we entered into a contract to serve as guarantor of a loan in the
amount of RMB120,000,000 from Beijing Rural Bank to CECT-Chinacom Communications
Co., Ltd. (“
CECT-Chinacom
”) to provide
CECT-Chinacom with capital for equipment purchases between June 20, 2007 and
June 16, 2010. Under the guarantee contract, we shall perform all obligations of
CECT-Chinacom under the Loan Contract if CECT-Chinacom fails to perform its
obligations as set forth in the Loan Contract, including, but not limited to,
ceasing production, going out of business, dissolving the business, having its
business license withdrawn, and/or filing for bankruptcy.
OFF
BALANCE SHEET ARRANGEMENTS
As of
December 31, 2008, we had no off balance sheet arrangements.
CONTRACTUAL
COMMITMENTS
We are
obligated to make future payments under various contracts, including purchase
and operating leases. The Company does not have any long-term debt or capital
lease obligations. The following table summarized the Company’s contractual
obligations as of December 31, 2008, reported by maturity of
obligation.
|
|
Payments due by period
|
|
Contractual Obligations
|
|
Total
|
|
|
Less than
1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
More than
5 years
|
|
|
|
$
|
000
|
|
|
$
|
000
|
|
|
$
|
000
|
|
|
$
|
000
|
|
|
$
|
000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Lease Obligations
|
|
|
53
|
|
|
|
53
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Purchase
Obligations
|
|
|
14,110
|
|
|
|
14,110
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
14,163
|
|
|
|
14,163
|
|
|
|
-
|
|
|
|
—
|
|
|
|
—
|
|
Item
7A.
|
Quantitative
and Qualitative Disclosures About Market
Risk.
|
Market
risk is the sensitivity of income to changes in interest rates, foreign
exchanges, commodity prices, equity prices and other market-driven rates or
prices. The Company, in its normal course of business, is exposed to market risk
through changes in interest rates with respect to bank loans. As of December 31,
2008, Company bank loans were $9,208,000. The interest rate for the twelve
months ended December 31, 2008 was between 8.964% and 10.343% per
annum.
Currency
Risk
The
Company considers RMB its functional currency since a substantial portion of the
Company’s business activities are based in RMB. However, the Company has chosen
the United States dollar as its reporting currency. Our sales and purchases are
conducted within the PRC in RMB. Conversion of RMB into foreign currencies is
regulated by the People’s Bank of China through a unified floating exchange rate
system. Although the PRC government has stated its intention to support the
value of the RMB, there can be no assurance that its rate of exchange will not
again become volatile or that the RMB will not devalue significantly against the
U.S. dollar. Exchange rate fluctuations may adversely affect the value, in U.S.
dollar terms, of our net assets and income derived from our operations in the
PRC. In addition, the RMB is not freely convertible into foreign currency and
all foreign exchange transactions must take place through authorized
institutions.
Transactions
in currencies other than the functional currency during the period are
translated into the functional currency at the applicable rates of exchange at
the time of the transactions. Monetary assets and liabilities denominated in
currencies other than functional currency are translated into functional
currency at the applicable rates of exchange in effect at the balance sheet
date. Exchange gains and losses are recorded in the combined statements of
operations.
For
translation of financial statements into the reporting currency, assets and
liabilities are translated at the exchange rate at the balance sheet date,
equity accounts are translated at historical exchange rates, and revenues,
expenses, gains and losses are translated at the weighted average rates of
exchange prevailing during the period. When there are material adjustments under
this process, they are recorded in accumulated other comprehensive income under
the stockholders’ equity section of the balance sheet.
Country
Risk
Our
business, assets and operations are located and conducted in the PRC. While the
PRC’s economy has experienced significant growth in the past twenty years,
growth has been uneven, both geographically and among various sectors of the
economy. The PRC government has implemented various measures to encourage
economic growth and guide the allocation of resources. Some of these measures
benefit the overall economy of the PRC, but may also have a negative effect on
us. For example, our operating results and financial condition may be adversely
affected by government control over capital investments or changes in tax
regulations applicable to us. If there are any changes in any policies by the
PRC government and our business is negatively affected as a result, then our
financial results, including our ability to generate revenues and profits, will
also be negatively affected.
Item
8.
|
Financial
Statements and Supplementary Data.
|
Reference
is made to pages F-1 through F-21 comprising a portion of this annual
report on Form 10-K.
Item
9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure.
|
None.
Item
9A(T).
|
Controls
and Procedures.
|
Disclosure
Controls and Procedures
We
maintain disclosure controls and procedures designed to ensure that information
required to be disclosed in our Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified by the Securities and
Exchange Commission (“
SEC
”) and that, when
appropriate, such information is accumulated and communicated to our management,
including our Chief Executive Officer and our Chief Financial Officer, in a
manner sufficient to allow timely decisions regarding required
disclosures. Our management, including our Chief Executive Officer
and our Chief Financial Officer, does not expect that our disclosure controls or
procedures will prevent all error and all fraud. A control system, no
matter how well-conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are
met. Further, the benefits of controls must be considered relative to
their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues or instances of fraud, if any, within the Company have been
detected. These inherent limitations include the reality that
judgment exercised in decision-making can be faulty, and that breakdowns can
occur because of simple error or honest mistake. Additionally,
controls can be circumvented by the individual acts of some persons, collusion
of two or more people, or by management override of the control
system. The design of any system of controls is also based in part
upon certain assumptions about the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated goals under
all potential future conditions. Because of the inherent limitations
in a cost-effective control system, misstatements due to error or fraud may
occur and not be detected.
Under the
supervision and participation of our management, including our Chief Executive
Officer and Chief Financial Officer, we carried out an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures as of December 31, 2008, the end of the annual period covered by this
report. The evaluation of our disclosure controls and procedures
included a review of the objectives of our disclosure controls and procedures;
their design and implementation; and the effect of the controls and procedures
on the information generated for use in this report. In the course of
our evaluation, we sought to identify errors, control problems or acts of fraud
and to confirm that the appropriate corrective actions, including process
improvements, were being undertaken.
Based on
the foregoing, our Chief Executive Officer and our Chief Financial Officer
concluded that, as of the end of the period covered by this report, our
disclosure controls and procedures were operating effectively and at a
reasonable level of assurance.
Internal
Control Over Financial Reporting
(a) Management’s
Annual Report on Internal Control Over Financial Reporting.
The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in the
Securities Exchange Act, Rules 13a-15(f) and 15d-15(f). Under the
supervision and with the participation of the Company’s management, including
its Chief Executive Officer and Chief Financial Officer, the Company has
conducted an evaluation of the effectiveness of its internal control over
financial reporting as of December 31, 2008, based on the framework in Internal
Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on management’s
evaluation under the framework in Internal Control – Integrated Framework,
management concluded that the Company’s internal control over financial
reporting was effective as of December 31, 2008.
This
annual report does not include an attestation report of the company's registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the company's registered
public accounting firm pursuant to temporary rules of the SEC that permit the
company to provide only management's report in this annual report.
(b) Changes
in Internal Control Over Financial Reporting.
During
our fiscal year 2008, there were no changes in our internal controls over
financial reporting that have materially affected, or are reasonably likely to
materially affect, our internal controls over financial reporting.
Item
9B.
|
Other
Information.
|
Not
applicable.
PART
III
Item
10.
|
Directors,
Executive Officers and Corporate
Governance.
|
Our
current directors and executive officers were as follows:
Name
|
|
Age
|
|
Positions Held
|
|
|
|
|
|
Guoji
Liu
|
|
39
|
|
Chief
Executive Officer and Director
|
Zhao
Hongwei
|
|
42
|
|
Chief
Financial Officer
|
Liu
Yu
|
|
42
|
|
Director
|
Naizhong
Che
|
|
65
|
|
Director
|
Peng
Wang
|
|
36
|
|
Director
|
Zhixiang
Zhang
|
|
40
|
|
Director
|
Guoji Liu
earned his undergraduate degree at China Science and Technology Management
University in 1993 and has over 15 years’ working experience in the cell phone
industry specializing in the marketing and management. Since September 2007,
Guoji Liu has served as a deputy General Manager of the Company and has helped
the Company capture a considerable market share of mid-level and low-end
products. Before joining the Company, Guoji Liu worked as a supervisor at
Pantech Beijing office (Mar. 2005 - Aug. 2007), a general manager at the
marketing department of Tianjin Sanyo Telecommunication Corp. (Nov. 2004 - Mar.
2005), the assistant of CEO for Beijing Huasong PYPO Group Co. Ltd. (Nov. 2003 -
Nov. 2004), a sales director for Xiamen Chabridge Telecom Equipment Co. Ltd.
(Oct. 2002 - Oct. 2003), an account manager for Beijing Nokia Telecommunication
Ltd. (1997 - 2002), and a sales director for Beijing Aurora telecommunication
Corp. Ltd. (1993 - 1997).
Zhao
Hongwei has served as our Chief Financial Officer since October 26, 2005. Mr.
Zhao has over 15 years of experience in accounting and financial management,
mainly with listed companies in Hong Kong and Foreign Invested Enterprise in the
PRC. His most recent experience comes from having served as the
regional financial controller of XinAo Gas Holdings Limited, a listed company in
Hong Kong.
Liu Yu
has served as a member of our Board of Directors since March 31, 2005 and a
member of the Board of Directors of Xelent since April 2003. From May
1998 to present he has also served as Chairman of the Board of Beijing
Huanyitong Technology & Trading Co., Ltd and from May 1995 to April 1998 he
served as General Manager of Beijing Lianwanjia Telecommunication Trading
Center.
Naizhong
Che has served as a member of our Board of Directors since February 7, 2007. He
earned his B.S. from Beijing University of Posts and Telecommunications. Now
retired, he has broad experience in the communications industry including
R&D, production, imports and exports. For twelve years he worked in various
capacities for the Ministry of Information Industry of China Posts and
Telecommunications Industry Standardization Institute.
Peng Wang
has served as a member of our Board of Directors since February 7, 2007. He
earned his bachelor’s degree at Central University of Finance and Economics and
his master’s at Guanghua School of Management, Peking University. His expertise
includes formulating, planning and implementing marketing strategies for
technology companies. He is currently General Manager for Beijing Youlilianxu
Technology Co., Ltd. where he is responsible for products in the PRC, including
ViewSonic projection, Samsung MP4 and LG projection.
Zhixiang
Zhang has served as a member of our Board of Directors since February 7, 2007.
He earned his bachelor’s and master’s degrees at Central University of Finance
and Economics. He has extensive experience in corporate financial management,
audits, and financial strategy and, most recently, was the Financial Controller
for CECT-Chinacom Communications Co., Ltd.
Director
and Officer Changes
On March
5, 2008, Nathaniel K. Hsieh resigned from his position as a member of the Board
of Directors of the Company. Mr. Hsieh had served as a Company
director from February 7, 2007 to March 4, 2008.
On March
5, 2008, Jian Gao was elected to the Board of Directors of the Company by
unanimous written consent, effective immediately, of the Board of Directors, and
was elected by the Board to serve on its Audit Committee and Compensation
Committee.
On
October 27, 2008, Howard S. Barth, who had been a member of the Company’s Board
of Directors since February 7, 2007 and Chairman of the Board’s Audit Committee
since March 5, 2008, resigned from his position as a member of the Company’s
Board of Directors.
On
October 27, 2008, Zhixiang Zhang was appointed to be Chairman of the Board’s
Audit Committee.
On March
27, 2009, Wang Xin resigned from his positions as Chief Executive Officer and as
a member of the Board of Directors of the Company. Mr. Wang had
served as Chief Executive Officer and a member of our Board of Directors since
March 31, 2005.
On March
27, 2009, Jian Gao resigned from his position as a member of the Board of
Directors of the Company. Mr. Jian had served as a Company director
since March 5, 2008.
Family
Relationships
There are
currently no family relationships between the directors or executive officers of
the Company.
Involvement
in Certain Legal Proceedings.
None.
Board
of Directors Meetings and Committees
The Board
of Directors held eight meetings during the fiscal year ended December 31,
2008. Each of the directors attended, either in person or
telephonically, at least 75% of the aggregate Board of Directors meetings and
meetings of any committees on which he served during his tenure as a director or
committee member.
On
February 7, 2007, the Company’s Board of Directors approved and authorized the
establishment of three new committees to assist the Board of Directors in the
execution of its responsibilities: an Audit Committee, a Compensation Committee
and a Nominations/Corporate Governance Committee. In accordance with AMEX
listing standards, all the committees are comprised solely of non-employee,
independent Directors. Charters for each committee are available on the
Company’s website at www.orsus-xelent.com. The charter of each
committee is also available in print by stockholder request. The
table below shows current membership for each of the Board’s standing
committees:
Audit Committee
|
|
Nominating/Corporate
Governance Committee
|
|
Compensation Committee
|
Zhixiang
Zhang (Chair)
|
|
Naizhong
Che (Chair)
|
|
Naizhong
Che (Chair)
|
Peng
Wang
|
|
Zhixiang
Zhang
|
|
Peng
Wang
|
Audit
Committee
The Audit
Committee is currently comprised of Zhixiang Zhang (Chair) and Peng Wang, both
of whom are “independent,” as defined in applicable SEC rules and the AMEX
Company Guide. The Audit Committee met five times during the fiscal
year ended December 31, 2008. The Board of Directors has determined that
Zhixiang Zhang qualifies as an “audit committee financial expert,” as defined in
applicable SEC rules implementing Section 407 of the Sarbanes-Oxley Act of 2002.
The Board of Directors made a qualitative assessment of Mr. Zhang’s level of
knowledge and experience based on a number of factors, including his formal
education and experience.
The Audit
Committee is responsible for overseeing the Company’s corporate accounting,
financial reporting practices, audits of financial statements and the quality
and integrity of the Company’s financial statements and reports. In addition,
the Audit Committee oversees the qualifications, independence and performance of
the Company’s independent auditors. In furtherance of these responsibilities,
the Audit Committee’s duties include the following: evaluating the performance
of and assessing the qualifications of the independent auditors; determining and
approving the engagement of the independent auditors to perform audit, reviewing
and attesting to services and performing any proposed permissible non-audit
services; evaluating employment by the Company of individuals formerly employed
by the independent auditors and engaged on the Company’s account and any
conflicts or disagreements between the independent auditors and management
regarding financial reporting, accounting practices or policies; discussing with
management and the independent auditors the results of the annual audit;
reviewing the financial statements proposed to be included in the Company’s
annual report on Form 10-K; discussing with management and the independent
auditors the results of the auditors’ review of the Company’s quarterly
financial statements; conferring with management and the independent auditors
regarding the scope, adequacy and effectiveness of internal auditing and
financial reporting controls and procedures; and establishing procedures for the
receipt, retention and treatment of complaints regarding accounting, internal
accounting control and auditing matters and the confidential and anonymous
submission by employees of concerns regarding questionable accounting or
auditing matters. The Audit Committee operates under the written Audit Committee
Charter adopted by the Board of Directors in February of 2007, a copy of which
may be obtained by writing the Secretary of the Company at 29th Floor, Tower B,
Chaowai MEN Office Building, 26 Chaowai Street, Chaoyang Disc., Beijing,
People’s Republic of China 100020. The Report of the Audit Committee is included
elsewhere in this Form 10K.
Nominating/Corporate
Governance Committee
The
Nominating and Corporate Governance Committee (“
Nominating Committee
”) is
responsible for preparing a list of candidates to fill the expiring terms of
directors serving on our Board of Directors. The Nominating Committee submits
the list of candidates to the Board of Directors who determines which candidates
will be nominated to serve on the Board of Directors. The names of nominees are
then submitted for election at our Annual Meeting of Stockholders. The
Nominating Committee also submits to the entire Board of Directors a list of
nominees to fill any interim vacancies on the Board of Directors resulting from
the departure of a member of the Board of Directors for any reason prior to the
expiration of his term. In recommending nominees to the Board of Directors, the
Nominating Committee keeps in mind the functions of this body. The Nominating
Committee considers various criteria, including the ability of the individual to
meet the American Stock Exchange “independence” requirements, general business
experience, general financial experience, knowledge of the Company’s industry
(including past industry experience), education, and demonstrated character and
judgment. The Nominating Committee will consider director nominees recommended
by a stockholder if the stockholder mails timely notice to the Secretary of the
Company at its principal offices, which notice includes (i) the name, age and
business address of such nominee, (ii) the principal occupation of such nominee,
(iii) a brief statement as to such nominee’s qualifications, (iv) a statement
that such nominee consents to his or her nomination and will serve as a director
if elected, (v) whether such nominee meets the definition of an “independent”
director under the rules of the American Stock Exchange listing standards and
(vi) the name, address, class and number of shares of capital stock of the
Company held by the nominating stockholder. Any person nominated by a
stockholder for election to the Board of Directors will be evaluated based on
the same criteria as all other nominees. The Nominating Committee also oversees
our adherence to our corporate governance standards. The members of the
Nominating Committee are Naizhong Che (Chair) and Zhixiang Zhang, both of whom
are “independent” as defined by the Company Guide of the American Stock
Exchange. For the fiscal year ended December 31, 2008, the Nominating Committee
met 3 times. The Nominating Committee operates under the written
Nominating Committee Charter adopted by the Board of Directors in February of
2007, a copy of which may be obtained by writing the Secretary of the Company at
29th Floor, Tower B, Chaowai MEN Office Building, 26 Chaowai Street, Chaoyang
Disc., Beijing, People’s Republic of China 100020.
During
the fiscal year ended December 31, 2008, there were no changes to the procedures
by which holders of our common stock may recommend nominees to the Board of
Directors.
Compensation
Committee
The Board
of Directors established the Compensation Committee in February 2007. The
Compensation Committee is currently comprised of the following Directors of the
Company: Naizhong Che (Chair) and Peng Wang, both of whom are “independent” as
defined by the Company Guide of the American Stock Exchange. For the fiscal year
ended December 31, 2008, the Compensation Committee met 1 time. The Compensation
Committee reviews and, as it deems appropriate, recommends to the Board of
Directors’ policies, practices and procedures relating to the compensation of
the officers and other managerial employees and the establishment and
administration of employee benefit plans. It advises and consults with the
officers of the Company as may be requested regarding managerial personnel
policies. The Compensation Committee also has such additional powers as may be
conferred upon it from time to time by the Board of Directors. The Compensation
Committee operates under the written Compensation Committee Charter adopted by
the Board of Directors in February of 2007, a copy of which may be obtained by
writing the Secretary of the Company at 29th Floor, Tower B, Chaowai MEN Office
Building, 26 Chaowai Street, Chaoyang Disc., Beijing, People’s Republic of China
100020.
Audit
Committee Report
The Audit
Committee was established on February 7, 2007 and is composed of non-management
Directors. It is currently composed of two independent Directors,
Zhixiang Zhang (Chair) and Peng Wang, and operates under the written Audit
Committee charter adopted by the Board of Directors on February 7,
2007.
Under its
charter, the Audit Committee provides assistance and guidance to the Board in
fulfilling its oversight responsibilities to the Company’s stockholders with
respect to the Company’s corporate accounting and reporting practices as well as
the quality and integrity of the Company’s financial statements and reports. The
Company’s principal executive officer and principal financial officer have the
primary responsibility for the financial statements and the reporting process,
including the systems of internal controls. The Company’s independent auditors
are responsible for auditing the Company’s financial statements and expressing
an opinion on the conformity of the audited financial statements with generally
accepted accounting principles. The Audit Committee’s responsibility is to
monitor and oversee these processes.
To this
end, the Audit Committee has reviewed and discussed the audited financial
statements of the Company for the fiscal year ended December 31, 2008 with
management and PKF Certified Public Accounts, the Company’s independent auditor.
The Audit Committee discussed with PKF Certified Public Accounts certain matters
related to the conduct of the audit as required by Statement on Auditing
Standards 61, as amended by Statement on Auditing Standards 90. In addition, the
Audit Committee has received from PKF Certified Public Accounts the written
disclosures and the letter regarding the auditor’s independence required by
Independence Standards Board Standard No. 1 and has discussed with PKF Certified
Public Accounts its independence.
In
reliance on the reviews and discussions described above, the Audit Committee
recommended to the Board of Directors that the Company’s audited financial
statements for the fiscal year ended December 31, 2008 be included in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2008, and
the Board of Directors accepted the Audit Committee’s
recommendation.
The Audit
Committee selected PKF Certified Public Accounts as the Company’s independent
auditors for the fiscal year ended December 31, 2008. The selection
of auditors is determined by the Audit Committee. Although ratification by
stockholders is not required by our Bylaws or otherwise, at our Annual Meeting
of Stockholders on December 30, 2008, the Board of Directors submitted the
selection of PKF Certified Public Accountants to our stockholders for
ratification as a matter of good corporate practice.
AUDIT
COMMITTEE
Zhixiang
Zhang (Chair)
Peng
Wang
Section
16(a) Beneficial Ownership Reporting Compliance
Section 16(a)
of the Securities Exchange Act of 1934, as amended, requires the Company’s
directors, executive officers and persons who own more than 10% of a registered
class of the Company’s equity securities, to file with the SEC initial reports
of ownership and reports of changes in ownership of common stock and other
equity securities of the Company. Directors, officers and greater than 10%
stockholders are required to furnish the Company with copies of all
Section 16(a) forms they file.
To the
Company’s knowledge, based solely on a review of the copies of such reports
furnished to the Company, with respect to the fiscal year ended
December 31, 2008, the officers, directors and beneficial owners of more
than 10% of our common stock have filed their initial statements of ownership on
Form 3 on a timely basis, and the officers, directors and beneficial owners of
more than 10% of our common stock have also filed the required Forms 4 or 5 on a
timely basis, except for (i) the timely filing of the Form 4 for Liu Yu, a
Director of the Company, for the award of stock options on April 2, 2008, which
was due to unforeseen delays and was subsequently filed with the SEC on April
30, 2008, and (ii) the timely filing of the Form 3 for Zhao Hongwei for his
appointment as Chief Financial Officer of the Company on November 26, 2005,
which was subsequently filed with the SEC on April 11, 2008.
Code
of Ethics
On
February 7, 2007, the Company adopted a Code of Business Conduct and Ethics that
applies to all its employees including its executive officers, which was filed
as Exhibit 14 to the Current Report on Form 8-K filed with the Securities and
Exchange Commission on February 7, 2007. A copy of the Company’s Code
of Business Conduct and Ethics may be obtained without charge by writing the
Secretary of the Company at Orsus Xelent Technologies, Inc., 29
th
Floor,
Tower B, Chaowai MEN Office Building, 26 Chaowai Street, Chaoyang Disc.,
Beijing, People’s Republic of China 100020.
Item
11.
|
Executive
Compensation.
|
General
Philosophy
We
currently compensate our senior management and key employees using a single
method for computing base salary. However, a mixed compensation program of base
salary, bonus and equity compensation is under consideration that will set
general levels of compensation for all employees and help to create an
environment with discernible goals, rewards and expectations. Because we believe
the performance of every employee is important to our success, we are mindful of
the effect of executive compensation and incentive programs on all of our
employees.
At the
most senior levels, compensation will reflect company-wide performance by tying
awards primarily to earnings growth and stock appreciation. At lower levels,
compensation will be tied to the achievement of specific operational goals
within areas under the control of the relevant employees as well as company-wide
performance.
The 2007
Omnibus Long-Term Incentive Plan (the “
Plan
”) will assist the
Company in attracting, retaining, and rewarding high-quality executives,
employees, directors and other persons who provide services to the Company,
enabling such persons to acquire or increase a proprietary interest in the
Company, strengthening the mutuality of interests between such persons and the
Company, and providing annual and long-term incentives for such persons expend
maximum efforts in the creation of stockholder value. The Plan will be
administered by the Compensation Committee, such other committee as determined
by the Board of Directors, or a subcommittee consisting solely of non-employee,
outside directors. The Plan does not limit the availability of awards
to any particular class or classes of Eligible Employees. Awards
granted under the Plan are not transferable, except in the event of the
participant's death. Under the Plan, 4,500,000 shares are currently
reserved and available for delivery in connection with awards under the
Plan.
Base
Salaries
We want
to provide our senior management with a level of assured cash compensation in
the form of base salary that facilitates an appropriate lifestyle given their
professional status and accomplishments. For our chief executive
officer, we concluded that a base salary of between $65,000 and $75,000 was
appropriate in this regard for the fiscal year ended December 31, 2008.
Similarly, we concluded that a base salary of between $40,000 and $50,000 was
appropriate for our chief financial officer for the fiscal year ended December
31, 2008. These ranges were not objectively determined, but instead reflect
levels that we concluded were appropriate based upon our general experience. We
performed a similar analysis with respect to other senior management. We provide
a competitive level of compensation for our senior vice presidents. We believe
that this gives us the opportunity to attract and retain talented managerial
employees both at the senior executive level and below.
Summary
Compensation Table
Name &
Principal
Position
|
|
Year
|
|
|
Salary (1)
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards (2)
($)
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
Wang
Xin, CEO
|
|
|
2008
|
|
|
|
71,529
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
177,000
|
|
|
|
N/A
|
|
|
|
248,529
|
|
and
director (3)
|
|
|
2007
|
|
|
|
65,378
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
65,378
|
|
Zhao
Hongwei,
|
|
|
2008
|
|
|
|
56,017
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
94,400
|
|
|
|
N/A
|
|
|
|
150,417
|
|
CFO
|
|
|
2007
|
|
|
|
51,200
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
51,200
|
|
Wang
Xiaolong,
|
|
|
2008
|
|
|
|
32,748
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
113,280
|
|
|
|
N/A
|
|
|
|
146,028
|
|
Vice-President
|
|
|
2007
|
|
|
|
29,932
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
29,932
|
|
|
(1)
|
“Salary”
listed above represents the amount of compensation that each person is
owed for the fiscal year ended December 31, 2008. In response
to the international financial market recession that began during the
second half of 2008, our officers have agreed to extend the payment for a
portion of their salaries until a time mutually agreed upon by the Company
and the officer. As of December 31, 2008, they only received a portion of
their cash compensation.
|
|
§
|
Mr.
Wang Xin received $4,077.39 during the period, deferring $67,451.61 of
compensation.
|
|
§
|
Mr.
Zhao Hongwei received $27,444.31 during the period, deferring $28.572.69
of compensation.
|
|
§
|
Mr.
Wang Xiaolong received $17,586.70 during the period, deferring $15,161.30
of compensation.
|
|
(2)
|
“Option
Awards” refer to the dollar amount recognized for financial statement
reporting purposes in accordance with FAS 123R for options awarded during
the reporting period. The charts on pages 51 and 52 illustrate the options
that were awarded by the Company on April 2,
2008.
|
|
(3)
|
Mr.
Wang Xin resigned from his positions as Chief Executive Officer and as a
member of the Board of Directors of the Company on March 27,
2009.
|
Other
than those listed in the table above, there was no officer of the Company whose
combined salary and bonus for the fiscal year ended December 31, 2008 exceeded
$100,000. The amounts listed in the table above were paid by Xelent, the wholly
owned subsidiary of our wholly owned subsidiary UFIL. While we do have
employment agreements with our executive officers, the salary for our executive
officers is at the discretion of our Board of Directors. We expect to pay
substantially similar compensation to our executives in the future and
anticipate continuing to pay them through Xelent.
The
Company adopted our 2007 Omnibus Long-Term Incentive Plan (the “Plan”), as
approved by our stockholders at the Annual Meeting on December 18, 2007. For
additional information on the Plan, please see the Current Report on Form 8-K
filed with the Securities and Exchange Commission on January 11, 2008. On April
2, 2008, the Board of the Company agreed to grant certain options to management
officers who made major contributions to the formation and development of the
Company as one-time awards. The number of shares of stock and the
Company officials who received awards under the Plan are as
follows:
Designated Grantees
|
|
Shares of Stock Options
|
|
|
Exercise Price
|
|
Exercisable Date
|
|
Expiration Date
|
Wang
Xiaolong
|
|
|
96,000
|
|
|
$
|
2.26
|
|
July
2, 2008
|
|
April
2, 2018
|
Wu
Wei
|
|
|
28,000
|
|
|
$
|
2.26
|
|
July
2, 2008
|
|
April
2, 2018
|
Che
Hongyu
|
|
|
50,000
|
|
|
$
|
2.26
|
|
July
2, 2008
|
|
April
2, 2018
|
Wan
Feng
|
|
|
40,000
|
|
|
$
|
2.26
|
|
July
2, 2008
|
|
April
2, 2018
|
Yang
Shulin
|
|
|
20,000
|
|
|
$
|
2.26
|
|
July
2, 2008
|
|
April
2, 2018
|
Zhao
Hongwei
|
|
|
80,000
|
|
|
$
|
2.26
|
|
July
2, 2008
|
|
April
2, 2018
|
Liu
Yu
|
|
|
150,000
|
|
|
$
|
2.26
|
|
July
2, 2008
|
|
April
2, 2018
|
Wang
Xin
|
|
|
150,000
|
|
|
$
|
2.26
|
|
July
2, 2008
|
|
April
2,
2018
|
Outstanding
Equity Awards at December 31, 2008
|
|
Option awards
|
Name
|
|
Number of
securities
underlying
unexercised
options
(#) exercisable
|
|
|
Number of
securities
underlying
unexercised
options
(#) unexercisable
|
|
|
Equity incentive plan
awards: Number of
securities underlying
unexercised unearned
options
(#)
|
|
|
Option
exercise
price
($)
|
|
Option
expiration
date
|
Wang Xin, CEO
(1)
|
|
|
150,000
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
2.26
|
|
April
2, 2018
|
Zhao
Hongwei, CFO
|
|
|
80,000
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
2.26
|
|
April
2, 2018
|
Wang
Xiaolong, Vice-President
|
|
|
96,000
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
2.26
|
|
April
2,
2018
|
|
(1) Mr.
Wang Xin resigned from his positions as Chief Executive Officer and as a
member of the Board of Directors of the Company on March 27,
2009.
|
As of as
of December 31, 2008, the Company did not have nonqualified deferred
compensation and did not have any post-employment payments to
report.
As
stipulated by PRC regulations, the Company maintains a defined contribution
retirement plan for all of its employees who are residents of the
PRC. All retired employees of the Company are entitled to an annual
pension equal to their basic annual salary upon retirement. The
Company contributed to a state sponsored retirement plan approximately 20% of
the basic salary of its employees and has no further obligations for the actual
pension payments or post-retirement benefits beyond the annual
contributions. The state sponsored retirement plan is responsible for
the entire pension obligation payable to all employees. The pension
expenses were $59 and $63 for the years ended December 31, 2008 and 2007
respectively.
Director
Compensation for the fiscal year ended December 31, 2008
Name
|
|
Fees Earned or
Paid In Cash
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
Liu
Yu
|
|
$
|
0
|
|
|
|
N/A
|
|
|
|
177,000
|
(1)
|
|
|
N/A
|
|
|
|
177,000
|
|
Naizhong
Che
|
|
$
|
29,000
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
29,000
|
|
Peng
Wang
|
|
$
|
24,000
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
24,000
|
|
Zhixiang
Zhang
|
|
$
|
25,000
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
25,000
|
|
Jian
Gao (2)
|
|
$
|
20,000
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
20,000
|
|
Howard
S. Barth (3)
|
|
$
|
24,000
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
24,000
|
|
Nathanial
K. Hsieh (4)
|
|
$
|
4,000
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
4,000
|
|
|
(1)
|
As
of December 31, 2008, Liu Yu had 150,000 option awards outstanding.
Therefore, $177,000 have been recognized for financial statement reporting
purposes in accordance with FAS 123R for such
awards.
|
|
(2)
|
Jian
Gao resigned from his position as a member of the Company’s Board of
Directors on March 27, 2009.
|
|
(3)
|
Howard
S. Barth resigned from his position as a member of the Company’s Board of
Directors on October 27, 2008.
|
|
(4)
|
Nathanial
K. Hsieh resigned from his position as a member of the Company’s Board of
Directors on March 4, 2008.
|
On March
27, 2008, the Board adopted a proposal to compensate Directors for their service
to the Company. The compensation for all Directors was set at $2,000 per month
for service from February 7, 2007 to March 4, 2008, with each Director being
paid in accordance with their term on the Board of Directors. For service from
March 5, 2008 to December 31, 2008, the compensation for committee chairpersons
was increased to $2,500, but compensation for other Directors or committee
members remained at $2,000 per month. Any income tax owed by Directors in China
on such compensation is deducted from the salary and paid to the tax authority
by the Company, with any Directors outside of China arranging for the payment of
any applicable income taxes. Previously, the Company did not pay compensation to
its Directors. All Directors are reimbursed for out-of-pocket
expenses in connection with attendance at Board of Director’s and/or committee
meetings. The Company is in the process of evaluating whether to establish other
compensation plans (e.g. options) in the future.
Compensation
Committee Interlocks and Insider Participation in Compensation
Decisions
During
the last fiscal year, none of the members of the Company’s Compensation
Committee was an officer or employee of the Company, was a former officer of the
Company, or had any relationship required to be disclosed under Item 404 of
Regulation S-K.
During
the last fiscal year, none of the Company’s executive officers served on the
board of directors or compensation committee of any other entity whose executive
officers served either the Company’s Board of Directors or Compensation
Committee.
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
|
The
following table sets forth information regarding the beneficial ownership of our
common stock as of April 14, 2009, for each person known by the Company to be
the beneficial owner of more than 5% of our outstanding shares of common
stock. Unless otherwise indicated, we believe that all persons named
in the table have sole voting and investment power with respect to all shares of
Company common stock beneficially owned by them.
|
|
|
|
Amount and Nature of Beneficial Ownership
(2)
|
|
Title of
Class
|
|
Name and Address of Beneficial Owner
(1)
|
|
Number
of Shares
(3)
|
|
|
Percent of
Voting Stock
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
Wang
Xin (5)
|
|
|
3,150,000
|
|
|
|
10.37
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
Liu
Yu, Director
|
|
|
6,150,000
|
|
|
|
20.25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
Wang
Zhibin
|
|
|
6,000,000
|
|
|
|
19.76
|
%
|
|
(1)
|
Unless
otherwise noted, the address is that of the
Company.
|
|
(2)
|
On
April 14, 2009, there were 29,756,000 shares of our common stock
outstanding. Each person named above has sole investment and
voting power with respect to all shares of the common stock shown as
beneficially owned by the person, except as otherwise indicated
below.
|
|
(3)
|
Under
applicable rules promulgated by the U. S. Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended
(the “
Exchange
Act
”), a person is deemed the “beneficial owner” of a security with
regard to which the person, directly or indirectly, has or shares (a) the
voting power, which includes the power to vote or direct the voting of the
security, or (b) the investment power, which includes the power to dispose
or direct the disposition of the security, in each case irrespective of
the person’s economic interest in the security. Under these SEC
rules, a person is deemed to beneficially own securities which the person
has the right to acquire within 60 days through (x) the exercise of any
option or warrant or (y) the conversion of another
security.
|
|
(4)
|
In
determining the percent of our common stock owned by a person (a) the
numerator is the number of shares of our common stock beneficially owned
by the person, including shares the beneficial ownership of which may be
acquired within 60 days upon the exercise of options or warrants or
conversion of convertible securities, and (b) the denominator is the total
of (i) the 29,756,000 shares of our common stock outstanding on
April 14, 2009 and
(ii) any shares of our common stock which the person has the right to
acquire within 60 days upon the exercise of options or warrants or
conversion of convertible securities. Neither the numerator nor
the denominator includes shares which may be issued upon the exercise of
any other options or warrants or the conversion of any other convertible
securities.
|
|
(5)
|
Mr.
Wang Xin resigned from his positions as Chief Executive Officer and as a
member of the Board of Directors of the Company on March 27,
2009.
|
The
following table sets forth information regarding the beneficial ownership of
Company common stock of each of our officers and directors and all our officers
and directors as a group as of April 14, 2009. Unless otherwise
indicated, we believe that all persons named in the table have sole voting and
investment power with respect to all shares of Company common stock beneficially
owned by them.
|
|
|
|
Amount and Nature of Beneficial Ownership
(2)
|
|
Title of
Class
|
|
Name and Address of Beneficial Owner
(1)
|
|
Number
of Shares
(3)
|
|
|
Percent of
Voting Stock
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
Guoji
Liu, Chief Executive Officer and Director
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
Liu
Yu, Director
|
|
|
6,150,000
|
|
|
|
20.56
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
Zhao
Hongwei, Chief Financial Officer
|
|
|
80,000
|
|
|
|
0.27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
Naizhong
Che, Director
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
Peng
Wang, Director
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
Zhixiang
Zhang, Director
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
Directors
and executive officers as a group (6 persons)
|
|
|
6,230,000
|
|
|
|
20.78
|
%
|
|
(1)
|
Unless
otherwise noted, the address is that of the
Company.
|
|
(2)
|
On
April 14, there were 29,756,000 shares of our common stock
outstanding. Each person named above has sole investment and
voting power with respect to all shares of the common stock shown as
beneficially owned by the person, except as otherwise indicated
below.
|
|
(3)
|
Under
applicable rules promulgated by the U. S. Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended
(the “
Exchange
Act
”), a person is deemed the “beneficial owner” of a security with
regard to which the person, directly or indirectly, has or shares (a) the
voting power, which includes the power to vote or direct the voting of the
security, or (b) the investment power, which includes the power to dispose
or direct the disposition of the security, in each case irrespective of
the person’s economic interest in the security. Under these SEC
rules, a person is deemed to beneficially own securities which the person
has the right to acquire within 60 days through (x) the exercise of any
option or warrant or (y) the conversion of another
security.
|
|
(4)
|
In
determining the percent of our common stock owned by a person (a) the
numerator is the number of shares of our common stock beneficially owned
by the person, including shares the beneficial ownership of which may be
acquired within 60 days upon the exercise of options or warrants or
conversion of convertible securities, and (b) the denominator is the total
of (i) the 29,756,000 shares of our common stock outstanding on
April 14, 2009 and
(ii) any shares of our common stock which the person has the right to
acquire within 60 days upon the exercise of options or warrants or
conversion of convertible securities. Neither the numerator nor
the denominator includes shares which may be issued upon the exercise of
any other options or warrants or the conversion of any other convertible
securities.
|
Securities Authorized for Issuance
Under Equity Compensation Plans
.
As of the
fiscal year ended December 31, 2008,
Plan category
|
|
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
|
|
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
|
|
|
Number of securities remaining
available for future issuance under
equity compensation plans (excluding
securities reflected at left)
|
|
Equity
compensation plans approved by security holders
|
|
|
614,000
|
(1)
|
|
|
2.26
|
(1)
|
|
|
3,886,000
|
|
Equity
compensation plans not approved by security holders
|
|
None
|
|
|
None
|
|
|
None
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
3,886,000
|
|
(1)
|
As
of December 31, 2008, options to purchase 614,000 shares of common stock
at an exercise price of $2.26, the close price on the grant date, April 2,
2008, were issued under the 2007 Omnibus Long-Term Incentive
Plan. As of April 14, 2009, none of the grantees has executed
these stock options.
|
Item
13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
Related
Party Transaction Policy
Other
than the Company's Code of Business Conduct and Ethics, the Board does not have
a specific written policy regarding the review of related party transactions.
The Board does, however, follow certain procedures relating to the approval of
transactions involving related parties. Related parties generally include
executive officers and directors, stockholders owning more than 5% of the
Company’s common stock or immediate family members of any such persons. A
related party transaction will be approved only if it is disclosed to the Board
and is approved by a majority of the disinterested members of the Board. Prior
to approving any related party transaction, the members of the Board reviewing
such transaction must (i) be satisfied that they received all material facts
relating to the transaction, (ii) have considered all relevant facts and
circumstances available to them and (iii) have determined that the transaction
is in (or not inconsistent with) the best interests of the Company’s
stockholders. No director that is an interested party in a transaction may
participate in the discussion or approval of such transaction. Other than as
disclosed below, during fiscal year ended December 31, 2008, based on written
representations from the executive officers and directors of the Company, there
were no related party transactions.
Messrs.
Wang Xin and Liu Yu have outstanding loans to the Company in the amount of
$457,000, which loans are unsecured, interest-free and must be repaid by the
Company upon demand by the noteholder.
Mr. Wang
Zhibin, a former director of the Company,
has an outstanding loan
to the Company in the amount of $131,000, which is unsecured, interest-free must
be repaid by the Company upon demand by the noteholder.
The
Company has bank loans of $9,484,000 guaranteed by Mr. Liu Yu. (See the table on
Page F-19)
Director
Independence
Messrs.
Naizhong Che, Peng Wang and Zhixiang Zhang are all non-employee Directors, and
all of whom our Board of Directors has determined are independent pursuant to
the AMEX Rules and the rules of the Securities and Exchange Commission. All of
the members of our Board of Directors’ Audit Committee, Nominating/Corporate
Governance Committee and Compensation Committee are independent pursuant to the
AMEX Rules and the rules of the Securities and Exchange Commission.
Item
14.
|
Principal
Accounting Fees and Services.
|
Our
independent accountant is PKF Certified Public Accountants. As reported in our
Form 8K filed on October 22, 2008, the Company appointed PKF Certified Public
Accountants as its independent accountant effective as of October 21, 2008. Our
previous independent accountant was Marzars CPA Limited who has reviewed and
commented our Form 10K for the fiscal year ended December 31, 2007 and our Form
10Qs for the quarters ended March 31, 2008 and June 30, 2008.
Audit
Fees
During
the fiscal year ended December 31, 2008, the fees for our principal accountant
were $115,000 which included $30,000 for three quarterly reviews, and $85,000
for the preparation of this annual report on Form 10-K. During the fiscal year
ended December 31, 2007, the fees for our principal accountant were $90,000,
which was composed of $22,500 for two quarters review and $67,500 for the
preparation of the annual report on Form 10-K.
Audit
Related Fees
During
the fiscal years ended December 31, 2008 and December 31, 2007, our principal
accountants did not render assurance and related services reasonably related to
the performance of the audit or review of financial statements.
Tax
Fees
During
the fiscal years ended December 31, 2008 and December 31, 2007, our principal
accountant did not render services to us for tax compliance, tax advice and tax
planning.
All
Other Fees
During
the fiscal years ended December 31, 2008 and December 31, 2007, there were no
fees billed for products and services provided by the principal accountants
other than those set forth above.
The Audit
Committee has reviewed the above fees for non-audit services and believes such
fees are compatible with the preservation of the independent registered public
accountants’ independence.
Policy
on Audit Committee Pre-Approval of Audit and Non-Audit Services of Independent
Accountant
The
policy of the Audit Committee, and the Board of Directors acting as a whole
prior to the establishment of the Audit Committee, is to pre-approve all audit
and non-audit services provided by the independent accountants. These services
may include audit services, audit-related services, tax fees, and other
services. Pre-approval is generally provided for up to one year and any
pre-approval is detailed as to the particular service or category of services
and is subject to a specific budget. The Audit Committee, and the Board of
Directors acting as a whole prior to the establishment of the Audit Committee,
has delegated pre-approval authority to certain committee members when
expedition of services is necessary. The independent accountants and management
are required to periodically report to the full Audit Committee, and the Board
of Directors acting as a whole prior to the establishment of the Audit
Committee, regarding the extent of services provided by the independent
accountants in accordance with this pre-approval delegation, and the fees for
the services performed to date. None of the fees paid to the independent
accountants during fiscal years ended December 31, 2008 and 2007, under the
categories Audit-Related and All Other fees described above, were approved by
the Audit Committee, or the Board of Directors acting as a whole prior to the
establishment of the Audit Committee, after services were rendered pursuant to
the de minimis exception established by the SEC.
PART IV
Item
15.
|
Exhibits
and Financial Statement Schedules
|
|
(a)
|
Financial
Statements.
|
Our
financial statements as set forth in the Index to Financial Statements attached
hereto commencing on page F-1 are hereby incorporated by
reference.
The
following exhibits, which are numbered in accordance with Item 601 of
Regulation S-K, are filed herewith or, as noted, incorporated by reference
herein:
Exhibit Number
|
|
Exhibit Description
|
|
|
|
3.1
|
|
Certificate
of Incorporation of Orsus Xelent Technologies, Inc. (incorporated by
reference from Exhibit 3.1 to the Registration Statement on Form SB-2
filed with the Securities and Exchange Commission on July 28, 2004 as
amended by that Plan of Merger and Agreement of Merger attached as Exhibit
2.1 to the Current Report on Form 8-K filed with the SEC on April 20,
2005)
|
|
|
|
3.2
|
|
Amended
and Restated Bylaws of the Registrant (incorporated by reference from
Exhibit 3.2 to the Current Report on Form 8-K filed with the Securities
and Exchange Commission on February 7, 2007, as amended by the Current
Report on Form 8-K filed with the SEC on March 5, 2007)
|
|
|
|
4.1
|
|
Specimen
Certificate of Common Stock (incorporated by reference to Exhibit 4.1 to
Amendment 2 to the Registration Statement on Form SB-2/A filed with the
Securities and Exchange Commission on October 19, 2004)
|
|
|
|
10.1
|
|
Contract
of Suretyship, dated June 20, 2007, between Yayuncun Branch of Beijing
Rural Commercial Bank and Beijing Orsus Xelent Technology & Trading
Company Limited (incorporated by reference from Exhibit 10.1 to the
Current Report on Form 8-K filed with the Securities and Exchange
Commission on September 12, 2007)
|
|
|
|
10.2
|
|
X180
Mobile Terminal Purchase Contract, dated May 31, 2007, among Unicom
Huasheng Telecommunication Technology Co., Ltd., Dalian Daxian
Distribution Company and Beijing Orsus Xelent Technology & Trading
Company Limited (incorporated by reference from Exhibit 10.1 to the
Current Report on Form 8-K filed with the Securities and Exchange
Commission on June 6, 2007)
|
|
|
|
10.3
|
|
2007
Omnibus Long-Term Incentive Plan (incorporated by reference from Exhibit
10.1 to the Current Report on Form 8-K filed with the Securities and
Exchange Commission on January 11, 2008)
|
|
|
|
10.4
|
|
Master
Distributor Agreement, dated as of August 7, 2008, by and between Beijing
Orsus Xelent Technology & Trading Company Limited and Beijing Xingwang
Shidai Commerce Co., Ltd. (incorporated by reference from Exhibit 10.1 to
the Current Report on Form 8-K filed with the Securities and Exchange
Commission on August 20,
2008)
|
Exhibit Number
|
|
Exhibit Description
|
|
|
|
14.1
|
|
Code
of Business Conduct and Ethics (incorporated by reference from Exhibit 14
to the Current Report on Form 8-K filed with the Securities and Exchange
Commission on February 7, 2007)
|
|
|
|
16.1
|
|
Letter
from Mazars CPA Limited to the Securities and Exchange Commission dated
October 21, 2008 (incorporated by reference from Exhibit 16.1 to the
Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 22, 2008)
|
|
|
|
21.1
|
|
List
of Subsidiaries *
|
|
|
|
23.1
|
|
Consent
of Mazars CPA Limited *
|
|
|
|
24.1
|
|
Power
of Attorney (included on signature page)
|
|
|
|
31.1
|
|
Certification
of Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act
of 2002 *
|
|
|
|
31.2
|
|
Certification
of Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act
of 2002 *
|
|
|
|
32.1
|
|
Certification
of Principal Executive Officer and Principal Financial Officer under
Section 906 of the Sarbanes-Oxley Act of 2002
*
|
* Filed
herewith
Orsus
Xelent Technologies, Inc.
Consolidated
Financial Statements
Year
ended December 31, 2008
Index
to Consolidated Financial Statements
|
Pages
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-1
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
|
Consolidated
Statements of Income and Comprehensive Income
|
F-3
|
|
|
Consolidated
Balance Sheets
|
F-4
|
|
|
Consolidated
Statements of Changes in Stockholders’ Equity
|
F-5
|
|
|
Consolidated
Statements of Cash Flows
|
F-6
|
|
|
Notes
to Consolidated Financial Statements
|
F-7
– F-21
|
Report
of Independent Registered Public Accounting Firm
To the
Directors and Stockholders of
Orsus
Xelent Technologies, Inc.
We have
audited the accompanying consolidated balance sheet of Orsus Xelent
Technologies, Inc. (the “Company”) and its subsidiaries as of December 31, 2008,
and the related consolidated statements of income and comprehensive income,
stockholders’ equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of the Company and its
subsidiaries as of December 31, 2008, and the consolidated results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of
America.
PKF
Certified
Public Accountants
Hong
Kong, China
April 15,
2009
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and Stockholders of
Orsus
Xelent Technologies, Inc.
We have
audited the accompanying consolidated balance sheets of Orsus Xelent
Technologies, Inc. and its subsidiaries (the “Company”) as of December 31, 2007,
and the related consolidated statements of operations and other comprehensive
income, changes in stockholders' equity and cash flows for each of the years
then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing auditing procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no
such opinion. Our audits also 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, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 2007, and the results of its operations and its cash flows for each of the
years then ended in conformity with accounting principles generally accepted in
the United States of America.
Mazars
CPA Limited
Certified
Public Accountants
Hong
Kong
Date:
March 31, 2008
Orsus
Xelent Technologies, Inc.
Consolidated
Statements of Income and Comprehensive Income
Years
ended December 31, 2008 and 2007
(Dollars
in thousand except share data and per share amounts)
|
|
Year
ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
Operating
revenue - Net sales
|
|
|
107,827
|
|
|
|
89,923
|
|
Cost
of operating revenue
|
|
|
(93,298
|
)
|
|
|
(74,174
|
)
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
14,529
|
|
|
|
15,749
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Sales
and marketing
|
|
|
486
|
|
|
|
553
|
|
General
and administrative
|
|
|
2,151
|
|
|
|
2,213
|
|
Research
and development
|
|
|
429
|
|
|
|
340
|
|
Depreciation
|
|
|
97
|
|
|
|
142
|
|
Allowance
for obsolete inventories
|
|
|
-
|
|
|
|
875
|
|
Loss
on disposal of property, plant and equipment
|
|
|
-
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,163
|
|
|
|
4,194
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
11,366
|
|
|
|
11,555
|
|
Other
income (expenses)
|
|
|
|
|
|
|
|
|
Interest
expenses
|
|
|
(982
|
)
|
|
|
(989
|
)
|
Other
income, net - Note 5
|
|
|
2,785
|
|
|
|
765
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
13,169
|
|
|
|
11,331
|
|
Income
taxes - Note 6
|
|
|
(1,873
|
)
|
|
|
(1,648
|
)
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
11,296
|
|
|
|
9,683
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
2,483
|
|
|
|
1,931
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
|
13,779
|
|
|
|
11,614
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share – Note 7
|
|
|
|
|
|
|
|
|
Basic
and diluted (US$)
|
|
|
0.38
|
|
|
|
0.33
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common
|
|
|
|
|
|
|
|
|
stock
outstanding
|
|
|
29,756,000
|
|
|
|
29,756,000
|
|
See
accompanying Notes to Consolidated Financial Statements
Orsus
Xelent Technologies, Inc.
Consolidated
Balance Sheets
As
of December 31, 2008 and 2007
(Dollars
in thousand except share data and per share amounts)
|
|
As
of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
ASSETS
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
102
|
|
|
|
2,928
|
|
Trade
accounts receivables – Note 8
|
|
|
82,076
|
|
|
|
57,743
|
|
Inventories,
net
|
|
|
-
|
|
|
|
4
|
|
Trade
deposits paid, net
|
|
|
8,441
|
|
|
|
839
|
|
Other
current assets - Note 9
|
|
|
1,859
|
|
|
|
4,196
|
|
Pledged
deposit
|
|
|
1,287
|
|
|
|
1,206
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
93,765
|
|
|
|
66,916
|
|
Property,
plant and equipment, net - Note 10
|
|
|
241
|
|
|
|
318
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
|
94,006
|
|
|
|
67,234
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Short-term
bank loans - Note 11
|
|
|
9,484
|
|
|
|
9,160
|
|
Short-term
loan from a non-financial institution - Note 12
|
|
|
57
|
|
|
|
-
|
|
Current
portion of mortgage loan - Note 13
|
|
|
12
|
|
|
|
68
|
|
Trade
accounts payables
|
|
|
16,353
|
|
|
|
10,854
|
|
Accrued
expenses and other accrued liabilities
|
|
|
12,319
|
|
|
|
8,048
|
|
Trade
deposits received
|
|
|
1,934
|
|
|
|
1,709
|
|
Due
to directors - Note 16(b)
|
|
|
457
|
|
|
|
323
|
|
Provision
for warranty
|
|
|
-
|
|
|
|
123
|
|
Tax
payable
|
|
|
4,989
|
|
|
|
3,047
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
45,605
|
|
|
|
33,332
|
|
|
|
|
|
|
|
|
|
|
Non-current
liability
|
|
|
|
|
|
|
|
|
Mortgage
loan - Note 13
|
|
|
-
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
COMMITMENT
AND CONTINGENCIES - Note 18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock - US$0.001 par value: Authorized 100,000,000 shares;
|
|
|
|
|
|
|
|
|
none
issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common
stock - US$0.001 per share : Authorized 100,000,000
shares;
|
|
|
|
|
|
|
|
|
issued
and outstanding 29,756,000 shares as of December 31, 2008
|
|
|
|
|
|
|
|
|
and
2007
|
|
|
30
|
|
|
|
30
|
|
Additional
paid-in capital
|
|
|
3,209
|
|
|
|
2,484
|
|
Dedicated
reserves - Note 14
|
|
|
1,042
|
|
|
|
1,042
|
|
Accumulated
other comprehensive income
|
|
|
5,389
|
|
|
|
2,906
|
|
Retained
earnings
|
|
|
38,731
|
|
|
|
27,435
|
|
|
|
|
|
|
|
|
|
|
TOTAL
STOCKHOLDERS’ EQUITY
|
|
|
48,401
|
|
|
|
33,897
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
94,006
|
|
|
|
67,234
|
|
See
accompanying Notes to Consolidated Financial Statements
Orsus
Xelent Technologies, Inc.
Consolidated
Statements of Changes in Stockholders’ Equity
Years
ended December 31, 2008 and 2007
(Dollars
in thousand except share data and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
Additional
|
|
|
|
|
|
other
|
|
|
|
|
|
|
|
|
|
No.
of
|
|
|
|
|
|
paid-in
|
|
|
Dedicated
|
|
|
comprehensive
|
|
|
Retained
|
|
|
|
|
|
|
shares
|
|
|
Amount
|
|
|
capital
|
|
|
reserves
|
|
|
income
|
|
|
earnings
|
|
|
Total
|
|
|
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2007
|
|
|
29,756,000
|
|
|
|
30
|
|
|
|
2,484
|
|
|
|
1,042
|
|
|
|
975
|
|
|
|
17,752
|
|
|
|
22,283
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,683
|
|
|
|
9,683
|
|
Foreign
currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,931
|
|
|
|
-
|
|
|
|
1,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2008
|
|
|
29,756,000
|
|
|
|
30
|
|
|
|
2,484
|
|
|
|
1,042
|
|
|
|
2,906
|
|
|
|
27,435
|
|
|
|
33,897
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,296
|
|
|
|
11,296
|
|
Compensation
costs for stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
options
granted
|
|
|
-
|
|
|
|
-
|
|
|
|
725
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
725
|
|
Foreign
currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,483
|
|
|
|
-
|
|
|
|
2,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,
2008
|
|
|
29,756,000
|
|
|
|
30
|
|
|
|
3,209
|
|
|
|
1,042
|
|
|
|
5,389
|
|
|
|
38,731
|
|
|
|
48,401
|
|
See
accompanying Notes to Consolidated Financial Statements
Orsus
Xelent Technologies, Inc.
Consolidated
Statements of Cash Flows
Years
ended December 31, 2008 and 2007
(Dollars
in thousand except share data and per share amounts)
|
|
Year
ended December 31
|
|
|
|
2008
|
|
|
2007
|
|
|
|
US$’000
|
|
|
US$’000
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
Net
income
|
|
|
11,296
|
|
|
|
9,683
|
|
Adjustments
to reconcile net income to net cash used by
|
|
|
|
|
|
|
|
|
operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
97
|
|
|
|
142
|
|
Loss
on disposal of property, plant and equipment
|
|
|
-
|
|
|
|
71
|
|
Allowance
for doubtful accounts
|
|
|
-
|
|
|
|
587
|
|
Allowance
for obsolete inventories
|
|
|
-
|
|
|
|
875
|
|
Write-back
of trade accounts payable
|
|
|
2,401
|
|
|
|
-
|
|
Compensation
costs for stock options granted
|
|
|
725
|
|
|
|
-
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Trade
accounts receivables
|
|
|
(20,142
|
)
|
|
|
(23,925
|
)
|
Inventories
|
|
|
4
|
|
|
|
436
|
|
Trade
deposits paid
|
|
|
(7,400
|
)
|
|
|
7,952
|
|
Other
current assets
|
|
|
2,549
|
|
|
|
(4,104
|
)
|
Trade
accounts payables
|
|
|
2,338
|
|
|
|
(865
|
)
|
Accrued
expenses and other accrued liabilities
|
|
|
3,582
|
|
|
|
3,167
|
|
Trade
deposits received
|
|
|
168
|
|
|
|
1,441
|
|
Provision
for warranty
|
|
|
(129
|
)
|
|
|
66
|
|
Tax
payable
|
|
|
1,713
|
|
|
|
1,664
|
|
|
|
|
|
|
|
|
|
|
Net
cash flows used by operating activities
|
|
|
(2,798
|
)
|
|
|
(2,810
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase
of property, plant and equipment
|
|
|
-
|
|
|
|
(199
|
)
|
Repayment
of loans to third parties
|
|
|
-
|
|
|
|
308
|
|
|
|
|
|
|
|
|
|
|
Net
cash flows provided by investing activities
|
|
|
-
|
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
Advances
from directors
|
|
|
120
|
|
|
|
99
|
|
New
loans from banks and a non-financial institution
|
|
|
9,393
|
|
|
|
5,317
|
|
Repayment
of loans from banks
|
|
|
(9,689
|
)
|
|
|
(2,783
|
)
|
|
|
|
|
|
|
|
|
|
Net
cash flows provided (used) by financing activities
|
|
|
(176
|
)
|
|
|
2,633
|
|
|
|
|
|
|
|
|
|
|
Net
change in cash and cash equivalents
|
|
|
(2,974
|
)
|
|
|
(68
|
)
|
Effect
on exchange rate changes
|
|
|
148
|
|
|
|
575
|
|
Cash
and cash equivalents, beginning of year
|
|
|
2,928
|
|
|
|
2,421
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of year
|
|
|
102
|
|
|
|
2,928
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure for cash flow information
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
|
977
|
|
|
|
732
|
|
Income
taxes paid
|
|
|
140
|
|
|
|
47
|
|
See
accompanying Notes to Consolidated Financial Statements
Orsus
Xelent Technologies, Inc.
Notes
to Consolidated Financial Statements
Years
ended December 31, 2008 and 2007
(Dollars
in thousand except share data and per share amounts)
Orsus
Xelent Technologies Inc. (“ORS” or the “Company”), formerly known as Universal
Flirts Corp., was organized under the laws of the State of Delaware on May 25,
2004.
Prior to
the reorganization with United First International Limited (“UFI”), a company
incorporated in the Hong Kong Special Administrative Region (“HK”) of the
People’s Republic of China (the “PRC”), on March 31, 2005, ORS was a development
stage company had no operations or revenues. ORS exited the development stage
after the recapitalization.
Upon the
completion of the reorganization, ORS assumed the business operations of UFI as
primarily undertaken by its subsidiary, Beijing Orsus Xelent Technologies &
Trading Co., Limited (“BOXT”) (English translation for identification purpose
only), an enterprise incorporated in Beijing, the PRC that is engaged in the
business of design, retail and wholesale distribution of cellular
phones.
On July
14, 2005, Orsus Xelent Holdings (BVI) Limited (“OXHBVI”) was incorporated in the
British Virgin Islands (“BVI”) with issued capital of US$2. OXHBVI is 100% owned
by ORS and the principal activity of OXHBVI is investment holding. On July 22,
2005, Orsus Xelent Trading (HK) Company Limited (“OXTHK”) was incorporated in HK
with issued capital of Hong Kong dollar 100 (equivalent to
US$13). OXTHK is engaged in trading of cellular phone and accessories
and is 100% owned by OXHBVI.
2.
|
Description
of business
|
The
Company is principally engaged in the business of designing, manufacturing and
distributing economically priced cellular phones for retails and wholesale
distribution. In February 2004, the Company registered “ORSUS” with
the State Administration for Industry and Commerce in the PRC as its trademark,
which also known as “Orsus Cellular” within the industry. In January
2007, the trademark “PROXLINK” was registered for the Company’s specialized
application mobile series.
3.
|
Summary
of significant accounting policies
|
Accounting
principles
The
consolidated financial statements and accompanying notes are prepared in
accordance with accounting principles generally accepted in the United States of
America (“U.S. GAAP”).
Basis of
consolidation
The
consolidated financial statements include the accounts of the Company and its
subsidiaries. All significant inter-company accounts and transactions
have been eliminated in consolidation.
Orsus
Xelent Technologies, Inc.
Notes
to Consolidated Financial Statements
Years
ended December 31, 2008 and 2007
(Dollars
in thousand except share data and per share amounts)
3.
|
Summary
of significant accounting policies
(continued)
|
Revenue
recognition
Net sales
represent the invoiced value of goods sold, net of value-added tax (“VAT”) and
returns. The Company generally recognizes product revenue when
persuasive evidence of an arrangement exists, delivery has occurred, the fee is
fixed or determinable, and collectibility is probable. The Company
has a policy of including handling costs incurred for finished goods, which are
not significant, in sales and marketing expenses.
Research and
development
All cost
of research and development activities are expensed as incurred.
Warranties
The
Company offers warranties for products it manufactures. Terms
generally are for one year from the date of sales. Provision for
warranty expense is established for costs that are expected to be incurred after
the sales and delivery of products under warranty. The Company did
not provide for anticipated warranty expense as of December 31, 2008 as all
warranties had expired while the provision as of December 31, 2007 was
US$67. The Company paid no warranty claims during the year ended
December 31, 2008 and paid US$1 during the year ended December 31,
2007. The warranty provision is determined based on known product
failures, historical experience of the level of repairs and replacements, and
other currently available evidence.
Income
taxes
Provision
for income and other related taxes have been provided in accordance with the tax
rates and laws in effect in various countries of operations.
Income
tax expense is computed based on pre-tax income included in the consolidated
statement of operations. Income taxes are provided, using the
liability method, which requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between the carrying amounts and tax bases of assets and liabilities and their
reported amounts. The tax consequences of those differences are
classified as current or non-current based upon the classification of the
related assets or liabilities in the consolidated financial
statements.
Operating
leases
Lease
where substantially all the rewards and risks of ownership of assets remain with
the leasing company are accounted for as operating leases. Rental
payables under operating leases are recognized as expenses on the straight-line
basis over the lease term.
Comprehensive
income
SFAS No.
130, “Reporting Comprehensive Income”, requires the presentation of
comprehensive income, in addition to the existing statement of
operations. Comprehensive income is defined as the change in equity
during the year from transactions and other events, excluding the changes
resulting from investment by owners and distributions to owners.
Orsus
Xelent Technologies, Inc.
Notes
to Consolidated Financial Statements
Years
ended December 31, 2008 and 2007
(Dollars
in thousand except share data and per share amounts)
3.
|
Summary
of significant accounting policies
(continued)
|
Trade accounts
receivables
Trade
accounts receivables are recorded at original invoice amount, less an estimated
allowance for uncollectible accounts. Trade credit is generally
extended on a short-term basis, thus trade receivables do not bear
interest. Trade accounts receivables are periodically evaluated for
collectibility based on past credit history with customers and their current
financial condition. Changes in the estimated collectibility of trade
accounts receivables are recorded in the results of operations for the year in
which the estimate is revised. No allowance for uncollectible amounts
was provided for as of December 31, 2008 and 2007.
Inventories
Inventories
are stated at the lower of weighted average cost or market. Potential
losses from obsolete and slow-moving inventories are provided for when
identified.
Property, plant and
equipment
Property,
plant and equipment are stated at cost less accumulated depreciation and
amortization.
The cost
of an asset comprises its purchase price and any directly attributable costs of
bringing that asset to its present working condition and location for its
intended use. Expenditures incurred after the assets have been put
into operation, such as repairs and maintenance, overhaul and minor renewals and
betterments, are normally charged to operating expenditure has resulted in an
increase in the future economic benefits expected to be obtained from the use of
the assets, the expenditure is capitalized.
When
assets are sold or retired, their costs and accumulated depreciation are
eliminated from the consolidated financial statements and any gain or loss
resulting from their disposal is recognized in the year of disposition as an
element of other income, net.
Depreciation
is provided to write off the cost of property, plant and equipment over their
useful lives from the date on which they become fully operational and after
taking into account their estimated residual values, using the following
methods:
Mould
|
Sum-of-the-units
methods
|
Leasehold
improvement
|
Straight-line
method over the lease term
|
Machinery
and equipment
|
Straight-line
method at 20% p.a.
|
Office
equipment
|
Straight-line
method at 20% p.a.
|
Motor
vehicles
|
Straight-line
method at 20% p.a.
|
Impairment of long-lived
assets
The
long-lived assets held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
assets may not be recoverable. It is reasonably possible that these
assets could become impaired as a result of technology or other industry
changes. Determination of recoverability of assets to be held and
used is by comparing the carrying amount of an asset to future net undiscounted
cash flows to be generated by the assets. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
Orsus
Xelent Technologies, Inc.
Notes
to Consolidated Financial Statements
Years
ended December 31, 2008 and 2007
(Dollars
in thousand except share data and per share amounts)
3.
|
Summary
of significant accounting policies
(continued)
|
Foreign currency
translation
The
functional currency of the Company is Renminbi (“RMB”) as a substantial portion
of the Company’s business activities are denominated in RMB. Monetary
assets and liabilities denominated in currencies other than the functional
currency are translated into the functional currency at rates of exchange
prevailing at the balance sheet date. Transactions denominated in
currencies other than the functional currency are translated into the functional
currency at the exchanges rates prevailing at the dates of the
transaction. Exchange gains or losses arising from foreign currency
transactions are included in the determination of net income for the respective
periods.
For
financial reporting purposes, the financial statements of the Company which are
prepared using the functional currency have been translated into United States
dollars (“US$”). Assets and liabilities are translated at the
exchange rates at the balance sheet dates and revenue and expenses are
translated at the average exchange rates and stockholders’ equity is translated
at historical exchange rates. Any translation adjustments resulting
are not included in determining net income but are included in accumulated other
comprehensive income, a component of stockholders’ equity. The
exchange rates in effect as of December 31, 2008 and 2007 were RMB1 for
US$0.1459 and US$0.1313 respectively. There was no significant
fluctuation in exchange rate for the conversion of RMB to US$ after the balance
sheet date.
Note:
all financial figures mentioned in the note are in dollar amounts.
Cash and cash
equivalents
Cash and
cash equivalents include all cash, deposits in banks and other highly liquid
investments with initial maturities of three months or less to be cash
equivalents. As of December 31, 2008 and 2007, almost all the cash
and cash equivalents were denominated in RMB and were placed with banks in the
PRC. They are not freely convertible into foreign currencies and the
remittance of these funds out of the PRC is subject to exchange control
restrictions imposed by the PRC government. The remaining
insignificant balance of cash and cash equivalents were denominated in Hong Kong
dollars and US$.
Use of
estimates
The
preparation of the consolidated financial statements in conformity with U.S.
GAAP requires the Company’s management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting
periods. These accounts and estimates include, but are not limited
to, the valuation of trade accounts receivables, provision for warranty, the
estimation on useful lives and residual values of property, plant and equipment,
taxes and contingencies. Actual results could differ from these
estimates.
Segment
information
Operating
segments are defined as components of a company about which separate financial
information is available that is evaluated regularly by the operating decision
maker in deciding how to allocate resources and in assessing
performance. The Company operates in a single business segment of
trading of cellular phones.
Orsus
Xelent Technologies, Inc.
Notes
to Consolidated Financial Statements
Years
ended December 31, 2008 and 2007
(Dollars
in thousand except share data and per share amounts)
3.
|
Summary
of significant accounting policies
(continued)
|
Segment information
(continued)
The
Company adopted SFAS No. 131, “Disclosure about Segments of an Enterprise and
Related Information” and it operates in more than one geographical
areas. Segment information is disclosed in note 4 to the consolidated
financial statements.
Advertising and
transportation expenses
Advertising
and transportation costs are charged to expense as incurred.
The
Company had no advertising expenses for the years ended December 31, 2008 and
2007.
Transportation
expenses amounted to $237 and $107 for the years ended December 31, 2008 and
2007 respectively are included in selling expenses.
Fair value of financial
instruments
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
157”). SFAS 157 defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles (GAAP), and expands
disclosures about fair value measurements. SFAS 157 does not require any new
fair value measurements; however, the standard will impact how other fair value
based GAAP is applied. Subsequently, the FASB issued FSP FAS 157-2
which delayed the effective date of SFAS 157 for all nonfinancial assets and
nonfinancial liabilities, except those that are recognized or disclosed at fair
value in the financial statements on a recurring basis (at least annually) to
fiscal years beginning after November 15, 2008. The Company adopted SFAS 157 on
January 1, 2008. The adoption of SFAS 157 did not materially impact the
Company’s financial position, results of operations or cash flows.
The
carrying amounts of the Company’s financial assets and liabilities approximate
their fair values due to short maturities.
Stock-based
compensation
Statement
of Financial Accounting Standards No. 123 (Revised 2004) “Share-Based
Payment” (“SFAS 123(R)”) requires the Company to measure the cost of employee
services received in exchange for an award of equity instruments based on the
grant-date fair value of the award. The Company records the cost as expense over
the offering period and vesting term in connection with compensation expense for
stock-based employee compensation plans.
During
2008, the Company has accounted for compensation expense for stock-based
employee compensation plans in accordance with SFAS 123(R) as interpreted by SEC
Staff Accounting Bulletin No. 107. The Company adopted the modified
prospective transition method provided for under SFAS 123(R), and consequently
has not retroactively adjusted results from prior periods. Under the modified
prospective transition method, compensation expense is recognized in the
financial statements on a prospective basis for share-based payments granted on
or subsequent to January 1, 2006, based upon the grant-date fair value estimated
in accordance with the provisions of SFAS 123(R). The grant-date fair value of
awards expected to vest is expensed on a straight-line basis over the vesting
period of the related awards.
The
Company had a stock-based employee compensation plan as of December 31, 2008,
details of which are set out in note 17 to the consolidated financial
statements.
Orsus
Xelent Technologies, Inc.
Notes
to Consolidated Financial Statements
Years
ended December 31, 2008 and 2007
(Dollars
in thousand except share data and per share amounts)
3.
|
Summary
of significant accounting policies
(continued)
|
Recently issued accounting
pronouncements
In May
2008, FASB issued SFAS 162, “The Hierarchy of Generally Accepted Accounting
Principles”. This statement identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements of non-governmental entities that are
presented conformity with U.S. GAAP. SFAS 162 is effective on
November 15, 2008. The adoption of the statement did not result in
change in the Company’s current practices.
In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities - an amendment to FASB Statement No. 133". SFAS 161 is
intended to improve financial standards for derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity's financial position, financial
performance, and cash flows. Entities are required to provide enhanced
disclosures about: (a) how and why an entity uses derivative instruments; (b)
how derivative instruments and related hedged items are accounted for under
Statement 133 and its related interpretations; and (c) how derivative
instruments and related hedged items affect an entity's financial position,
financial performance, and cash flows. It is effective for financial statements
issued for fiscal years beginning after November 15, 2008, with early adoption
encouraged. The management anticipates the adoption of this statement
will have no material effect on the Company's consolidated financial
statements.
In
December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB No. 51”. SFAS 160
establishes accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary. The
guidance will become effective for the fiscal year beginning after December 15,
2008. The management anticipates the adoption of this statement will
have no material effect on the Company's consolidated financial
statements.
In
December 2007, the FASB issued SFAS No. 141 (Revised), “Business Combinations”.
SFAS 141 (Revised) establishes principles and requirements for how the acquirer
of a business recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree. The statement also provides guidance for recognizing
and measuring the goodwill acquired in the business combination and determines
what information to disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business combination. The
guidance will become effective for the fiscal year beginning after December 15,
2008. The management anticipates the adoption of this statement will have no
material effect on the Company's consolidated financial statements.
Orsus
Xelent Technologies, Inc.
Notes
to Consolidated Financial Statements
Years
ended December 31, 2008 and 2007
(Dollars
in thousand except share data and per share amounts)
3.
|
Summary
of significant accounting policies
(continued)
|
Recently issued accounting
pronouncements
(continued)
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities - Including an Amendment of FASB
Statement No. 115”. SFAS 159 permits entities to choose to
measure many financial instruments and certain other items at fair
value. Entities that elect the fair value option will report
unrealized gains and losses in earnings at each subsequent reporting
date. The fair value option may be elected on an
instrument-by-instrument basis, with few exceptions. SFAS 159 also
establishes presentation and disclosure requirements to facilitate comparisons
between companies that choose different measurement attributes for similar
assets and liabilities. The requirements of SFAS 159 are effective
for the Company’s fiscal year beginning January 1, 2008. The adoption
of this statement has no material effect on the Company's consolidated financial
statements.
The
Company is engaged principally in the design and trading of cellular phones
primarily to four dealers in the PRC. The Company buys certain major
materials from five major suppliers. In addition, the Company
subcontracts material purchasing and assembly works of cellular phones mainly to
five subcontracting factories. The Company’s policy is that the sole
agent arrangement gives the dealers more incentive to promote the Company’s
products and reduce the Company’s exposure to the distribution
market. On the other hand, the diversification of suppliers will
reduce the risk of increasing production cost.
(a) Customers
accounted for over 10% of the Company’s operating revenue are as
follows:
|
Year
ended December 31,
|
|
2008
|
2007
|
|
%
|
%
|
|
|
|
Customer
A
|
87
|
92
|
Customer
B
|
10
|
3
|
No trade
deposit was received from the above customers as of December 31, 2008 and 2007
respectively. Trade accounts receivables from the above customers
were US$79,039 and US$54,893 as of December 31, 2008 and 2007
respectively.
(b) Suppliers
accounted for over 10% of the Company’s purchases are as follows:
|
Year
ended December 31,
|
|
2008
|
2007
|
|
%
|
%
|
|
|
|
Supplier
A
|
36
|
-
|
Supplier
B
|
19
|
5
|
Supplier
C
|
15
|
14
|
Supplier
D
|
10
|
35
|
Supplier
E
|
-
|
15
|
Gross
trade deposits paid to the above suppliers were US$140 and US$410 as of December
31, 2008 and 2007 respectively. Trade payables owed to the above
suppliers were US$8,243 and US$2,990 as of December 31, 2008 and 2007
respectively.
Orsus
Xelent Technologies, Inc.
Notes
to Consolidated Financial Statements
Years
ended December 31, 2008 and 2007
(Dollars
in thousand except share data and per share amounts)
4. Concentrations
(continued)
|
|
The
Company’s revenue for the years ended December 31, 2008 and 2007 were
derived from the PRC. Geographical information of the carrying
amount of long-lived assets is as
follows:
|
|
|
As
of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
PRC
|
|
|
237
|
|
|
|
312
|
|
Hong
Kong
|
|
|
4
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
Total
long-lived assets
|
|
|
241
|
|
|
|
318
|
|
The
Company’s other income of 2008 included a write-back of trade accounts payables
due to suppliers in the amount of US$2,401.
The
Company and its subsidiaries are subject to income taxes on an entity basis on
income arising in or derived from the tax jurisdictions in which it operates.
Provision for income and other related taxes have been provided in accordance
with the tax rates and laws in effect in the various countries of
operations.
No
provision for withholding or United States federal or state income taxes or tax
benefits on the undistributed earnings and/or losses of the Company's
subsidiaries has been provided as the earnings of these subsidiaries, in the
opinion of the management, will be reinvested indefinitely.
OXHBVI
was incorporated in the BVI and, under the current laws of the BVI, is not
subject to income taxes.
UFI and
OXTHK, both were incorporated in Hong Kong, had no assessable income for the
years presented. Accordingly, Hong Kong Profits Tax has not been
provided for the current and prior reporting years. Hong Kong Profits
Tax in the consolidated statements of income for the year represented
under-provision for prior years’ estimated assessable income of
OXTHK.
The
Company’s income is principally generated in the PRC by BOXT. Since BOXT is
registered as a wholly-owned foreign investment enterprise (“WOFIE”), it is
subject to tax laws applicable to WOFIE in the PRC and is fully exempt from the
PRC enterprise income tax (“EIT”) of 24% for two years commencing from fiscal
year 2005, followed by a 50% reduction for the next three years.
On March
16, 2007, a New Enterprise Income Tax Law (“NEITL”) was issued in the PRC. Prior
to the issuance of the NEITL, domestic enterprises (“DE”) and foreign invested
enterprises (“FIE”) in the PRC were taxed under different EIT laws. The NEITL
unifies the enterprise tax laws applicable to both DE and FIE commencing in
fiscal year beginning from January 1, 2008 and DE and FIE are subject to EIT at
25% thereafter.
Orsus
Xelent Technologies, Inc.
Notes
to Consolidated Financial Statements
Years
ended December 31, 2008 and 2007
(Dollars
in thousand except share data and per share amounts)
6.
|
Income taxes
(continued)
|
By virtue
of the NEITL, BOXT was subject to the unified EIT rate of 25% commencing from
January 1, 2008. However, the 50% tax reduction, which has already
been obtained by BOXT under the old tax laws, can still be maintained and the
remaining tax holiday, which was commenced before 2008, can still be enjoyed by
BOXT until the year to expiry in 2009.
Since
January 1, 2007, the Company is subject to the provisions of FIN 48, and has
analyzed its filing positions in all of the federal, state and foreign
jurisdictions where it is required to file income tax returns, as well as for
all open years for those jurisdictions. As of December 31, 2008 and 2007, the
Company identified the following jurisdictions as “major” tax jurisdictions, as
defined, in which it was required to file income tax returns: United States,
Hong Kong and the PRC. Based on the evaluations noted above, the Company has
concluded that there are no significant uncertain tax positions requiring
recognition in its consolidated financial statements. Based on a review of tax
positions for all open years, no reserves for uncertain income tax positions
have been recorded pursuant to FIN 48 during the years ended December 31, 2008
and 2007, and the Company does not anticipate that it is reasonably possible
that any material increase or decrease in its unrecognized tax benefits will
occur within twelve months.
As of
December 31, 2008 and 2007, the Company had no unrecognized tax benefits or
accruals for the potential payment or interest and penalties. The Company’s
policy is to record interest and penalties in this connection as a component of
the provision for income tax expense. For the year ended December 31, 2008, no
interest or penalties were recorded.
|
(a)
|
Income
tax expenses comprised the
following:
|
|
|
Year
ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
US$’000
|
|
|
US$’000
|
|
Current
tax
|
|
|
|
|
|
|
Hong
Kong
|
|
|
98
|
|
|
|
-
|
|
PRC
|
|
|
1,775
|
|
|
|
1,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,873
|
|
|
|
1,648
|
|
|
(b)
|
Reconciliation
from the expected statutory tax rate in the PRC of 25% (2007 : 24%) is
as
follows:
|
|
|
Year
ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
%
|
|
|
%
|
|
|
|
|
|
|
|
|
Statutory
rate - the PRC
|
|
|
25.0
|
|
|
|
24.0
|
|
Under-provision
for prior year
|
|
|
0.7
|
|
|
|
-
|
|
Tax
holiday
|
|
|
(13.5
|
)
|
|
|
(14.9
|
)
|
Tax
non-deductible items
|
|
|
2.0
|
|
|
|
5.5
|
|
|
|
|
|
|
|
|
|
|
Effective
tax rate
|
|
|
14.2
|
|
|
|
14.6
|
|
During
the years ended December 31, 2008 and 2007, the aggregate amounts of benefit
from tax holiday were US$1,775 and US$1,404 respectively and the respective
effective on earnings per share effect was US$0.06 and US$0.05
respectively.
Note: The per share amounts
mentioned in this note are in dollar amount.
Orsus
Xelent Technologies, Inc.
Notes
to Consolidated Financial Statements
Years
ended December 31, 2008 and 2007
(Dollars
in thousand except share data and per share amounts)
Basic
earning per share is computed based on the net income for the years presented
and on the weighted average number of shares of common stock outstanding during
each year.
The
calculation of diluted earnings per share is based on net income for the years
presented and on the weighted average number of shares of common stock
outstanding during each year and adjusted for the effects of all dilutive
potential shares of common stock outstanding during the year.
614,000
shares of stock options, which were granted by the Company during the year ended
December 31, 2008 and outstanding as of that date, had not been included in the
computation of diluted earnings per share for the year ended December 31, 2008
because to do so would have anti-dilutive effect. Accordingly, the
basic and diluted earnings per share for both years are the same.
8.
|
Trade
accounts receivables
|
Included
in trade accounts receivables as of December 31, 2008 was a balance of US$77,740
due from Beijing Xingwang Shidai Commerce Co., Ltd. (“Xingwang”). On
August 7, 2008, Xingwang entered into an irrevocable Credit Guarantee Contract
(the “Guarantee Contract”) with Zhong Hui Guarantee Corporation (“Zhonghui”), a
third-party guarantee company licensed by the PRC government, and BOXT whereby
Zhonghui agrees to guarantee up to RMB300 million for the principal debt,
interest, fine, damages arising out of breach of contract, and costs incurred
for realizing those legal rights including but not limited to legal proceeding
fees, attorney fees and travel expenses arising out of the distributor agreement
signed between BOXT and Xingwang. The Guarantee Contract was effective as of
July 20, 2008 and provides a guarantee of all of the accounts receivable that
are or may become outstanding from Xingwang to BOXT from January 1, 2008 through
December 31, 2008. Such trade accounts receivables are guaranteed for
a period of two years from the date they are due.
Other
current assets included an amount of other receivable with a balance of US$1,729
which was related to the deposit paid for the potential acquisition of Hebei
Leimeng Times Telecommunication Equipment Co., Ltd. The potential
acquisition was terminated during the year ended December 31, 2008.
Orsus
Xelent Technologies, Inc.
Notes
to Consolidated Financial Statements
Years
ended December 31, 2008 and 2007
(Dollars
in thousand except share data and per share amounts)
10.
|
Property,
plant and equipment, net
|
|
|
As
of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
Mould
|
|
|
4
|
|
|
|
4
|
|
Leasehold
improvements
|
|
|
131
|
|
|
|
123
|
|
Plant
and machinery
|
|
|
20
|
|
|
|
19
|
|
Office
equipment
|
|
|
303
|
|
|
|
284
|
|
Motor
vehicles
|
|
|
303
|
|
|
|
284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
761
|
|
|
|
714
|
|
Accumulated
depreciation
|
|
|
(520
|
)
|
|
|
(396
|
)
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
241
|
|
|
|
318
|
|
Property,
plant and equipment with an aggregate net book value of US$170 and US$177 as of
December 31, 2008 and 2007 respectively were collateralized for the mortgage
loan granted to a subsidiary of the Company as set out in note 13 to the
consolidated financial statements.
11.
|
Short-term
bank loans
|
All bank
loans are secured by personal guarantee provided by the director, Mr. Liu
Yu. Bank loans amounted to US$6,857 and US$6,699 as of December 31,
2008 and 2007 respectively were further secured by a pledged deposit of US$1,287
and US$1,206 respectively and the guarantee provided by a guaranty
company. Remaining bank loans of US$2,627 and US$2,461 as of December
31, 2008 and 2007 respectively were further secured by co-guarantees provided by
two third party companies and a major customer of the Company. All
bank loans are repayable within one year and bear interest ranging from 8.964%
to 10.080% per annum.
12.
|
Short-term
loan from a non-financial
institution
|
The
short-term loan was provided by a third party company. It is
unsecured, interest-free and repayable on September 19, 2008.
The loan
was overdue as of December 31, 2008 and the Company had repaid the loan
subsequent to the balance sheet date.
Orsus
Xelent Technologies, Inc.
Notes
to Consolidated Financial Statements
Years
ended December 31, 2008 and 2007
(Dollars
in thousand except share data and per share amounts)
The
mortgage loan was collateralized by a motor vehicle of a subsidiary of the
Company as set out in note 10 to the consolidated financial statements and a
personal guarantee provided by the director, Mr. Wang Xin. The loan carries a
fixed interest rate of 7.56% per annum and is repayable on February 9,
2009.
|
|
As
of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
US$’000
|
|
|
US$’000
|
|
|
|
|
|
|
|
|
Current
portion
|
|
|
12
|
|
|
|
68
|
|
Non-current
portion
|
|
|
-
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
73
|
|
The
Company’s income is substantially contributed by BOXT, a company incorporated in
the PRC. Income of BOXT is distributable to its equity owners after
transfer to dedicated reserves as required under its articles of association and
relevant PRC rules and regulations.
Prior to
the re-organization to a WOFIE in November 2005, dedicated reserves of BOXT
included a statutory surplus reserve and a statutory public welfare
fund. In accordance with the relevant PRC Companies Law and rules and
regulations, BOXT was required to transfer amounts equivalent to at least 10%
and 5% of its annual after-tax income to the statutory surplus reserve and
statutory public welfare fund, respectively.
The
statutory surplus reserve can only be utilized to offset prior years’ losses or
for capitalization as paid-in capital, whereas the statutory public welfare fund
shall be utilized for collective staff welfare benefits such as building staff
quarters or housing. No distribution of the remaining reserves shall
be made other than on liquation of BOXT.
Since
BOXT re-registered as a WOFIE, in accordance with its Articles of Association
and the relevant PRC regulations, it is required to transfer to a general
reserve fund an amount not less than 10% of the annual after-tax income until
the balance of the reserve reaches 50% of BOXT’s registered capital and to a
staff welfare and bonus fund an amount to be determined by the
directors. No such transfer was made during the years
presented.
The
general reserve fund can be used to make good losses in previous
years. The staff welfare and bonus fund, which is to be used for the
welfare of the staff and workers of the subsidiary, is of a capital
nature.
Orsus
Xelent Technologies, Inc.
Notes
to Consolidated Financial Statements
Years
ended December 31, 2008 and 2007
(Dollars
in thousand except share data and per share amounts)
As
stipulated by the PRC regulations, the Company maintains a defined contribution
retirement plan for all of its employees who are residents of the
PRC. All retired PRC employees of the Company are entitled to an
annual pension equivalent to their basic annual salary upon
retirement. The Company contributed to a state sponsored retirement
plan approximately 20% of the basic salary of its PRC employees and has no
further obligations for the actual pension payments or post-retirement benefits
beyond the annual contributions. The state sponsored retirement plan
is responsible for the entire pension obligation payable to all
employees. The pension expenses were US$59 and US$63 for the years
ended December 31, 2008 and 2007 respectively.
16.
|
Related
party transactions
|
|
(a)
|
Name
and relationship of related
parties
|
Related party
|
|
Relationship
|
|
|
|
Mr.
Wang Xin
|
|
Director
and stockholder of the Company
|
Mr.
Liu Yu
|
|
Director
and stockholder of the
Company
|
|
(b)
|
Summary
of related party balances
|
|
|
As
of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
US$’000
|
|
|
US$’000
|
|
Due
to directors
|
|
|
|
|
|
|
Mr.
Wang Xin and Mr. Liu Yu
|
|
|
457
|
|
|
|
323
|
|
|
|
|
|
|
|
|
|
|
Bank
loans guaranteed by Mr. Liu Yu
|
|
|
9,484
|
|
|
|
6,699
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loan guaranteed by Mr. Wang Xin
|
|
|
12
|
|
|
|
73
|
|
The
amounts due to directors are unsecured, interest-free and repayable on
demand.
On March
27, 2008, a stock option plan of “2007 Omnibus Long-Term Incentive Plan” (the
“Plan”) was approved by the board of directors. The purpose of the Plan is to
promote the long-term performance goals and general prosperity of the Company.
The Plan, which provides for the grant of stock options, stock appreciation
rights, restricted stock, restricted stock units, unrestricted stock and cash
awards, is designed to help the Company and its subsidiaries and affiliates
attract and retain senior officers for positions of substantial responsibility
and to provide for non-employee directors and key employees with an additional
motivation and incentive to improve the business results and contribute to the
success of the Company.
On April
2, 2008, stock options to subscribe total of 614,000 shares of the Company’s
common stock were granted to certain directors, senior officers and other key
employees of the Company at an exercise price of US$2.26 per share. The options
granted are exercisable from July 2, 2008.
Orsus
Xelent Technologies, Inc.
Notes
to Consolidated Financial Statements
Years
ended December 31, 2008 and 2007
(Dollars
in thousand except share data and per share amounts)
17.
|
Stock
option plan (continued)
|
In
accordance with the terms of the share-based payment arrangement, the
aforementioned options were vested on the date of grant. A summary of
the share option plan activity during the year ended December 31, 2008 is
presented below:
|
|
Number
of
share
options
|
|
|
|
|
|
As
of January 1, 2008
|
|
|
-
|
|
Granted
|
|
|
614,000
|
|
Exercised
|
|
|
-
|
|
Cancelled/lapsed
|
|
|
-
|
|
|
|
|
|
|
As
of December 31, 2008
|
|
|
614,000
|
|
According
to the valuation report dated August 1, 2008 issued by an independent
professional valuer, the fair value of the options granted in April 2008 was
US$725, which was estimated on the date of grant using Binomial Lattice option
pricing model. Where relevant, the expected life used in the model has been
adjusted based on management’s best estimate for the effects of transferability,
exercise restrictions and behavioral consideration. Compensation
expense was charged to income as the benefit was fully vested on the date of
grant. Key assumptions included in the estimation are as
follows:
Expected
dividend yield
|
-
|
Expected
stock price volatility
|
85.07%
|
Risk
free interest risk
|
3.61%
|
Expected
life of share options
|
10
Years
|
18.
|
Commitments
and contingencies
|
|
(a)
|
Operating
lease commitments
|
As of
December 31, 2008 and 2007, the Company had non-cancelable operating leases for
its office premises, under which the expected rental payment due within the next
year was US$53 and US$82 respectively.
Tax
penalty
In
accordance with the PRC’s tax regulations, BOXT’s sales are subject to value
added tax (“VAT”) at 17% upon the issuance of VAT invoices to its
customers. BOXT follows the practice of reporting its revenue for VAT
purposes when invoices are issued. As of December 31, 2008 and 2007, there were
sales amounted to US$175,834 and US$117,824 respectively of which VAT invoices
have not yet been issued.
Furthermore,
BOXT reports its revenue for PRC EIT purposes when VAT invoices are issued
instead of when goods are delivered. The unbilled revenue will be
reported to the tax authority and become taxable when the VAT invoices are
issued.
Orsus
Xelent Technologies, Inc.
Notes
to Consolidated Financial Statements
Years
ended December 31, 2008 and 2007
(Dollars
in thousand except share data and per share amounts)
18.
|
Commitments
and contingencies (continued)
|
|
(b)
|
Contingencies
(continued)
|
Tax penalty
(continued)
The above
practices are not in strict compliance with the relevant PRC laws and
regulations in respect of VAT and EIT. Despite the fact that BOXT has made full
provision on VAT and EIT including any estimated surcharge in the consolidated
financial statements, BOXT may be subject to a penalty for the deferred
reporting of the above tax obligations. The exact amount of penalty cannot be
estimated with any reasonable degree of certainty. The board of directors
considers it is more likely than not that the penalty will not be
imposed.
Financial guarantee
contract
On June
20, 2007, BOXT entered into a guarantee contract for three years through June
16, 2010 to serve as a guarantor of a bank loan amounting to approximately
US$17,508 (equivalent to RMB120,000) granted to an independent third party,
CECT-Chinacom Communications Co., Ltd. (“CECT”) by Beijing Rural Bank to provide
CECT with capital for equipment purchases. Under the guarantee contract, BOXT
shall perform all obligations of CECT under the loan contract if CECT fails to
perform its obligations as set forth therein, including but not limited to,
ceasing production, going out of business, dissolving the business, having its
business license withdrawn and filing for bankruptcy.
According
to a valuation report dated March 20, 2009 issued by an independent professional
valuer, the fair value of the undiscounted maximum potential amount of future
payments as of December 31, 2008, which was estimated by the independent
professional valuer, that BOXT could be required to make under the guarantee
contract was amounted to approximately US$469 (2007: US$102), equivalent to
approximately RMB3,216 (2007: RMB745).
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
|
ORSUS
XELENT TECHNOLOGIES, INC.
|
|
|
|
By:
|
/S/ Guoji Liu
|
|
|
Guoji
Liu
|
|
|
Chief
Executive Officer
|
|
|
DATED: April
15, 2009
|
|
____________________
POWER
OF ATTORNEY
The
registrant and each person whose signature appears below hereby appoint Guoji
Liu as attorney-in-fact with full power of substitution, severally, to execute
in the name and on behalf of the registrant and each such person, individually
and in each capacity stated below, one or more amendments to the annual report
which amendments may make such changes in the report as the attorney-in-fact
acting deems appropriate and to file any such amendment to the report with the
U. S. Securities and Exchange Commission.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ Guoji
Liu
|
|
Chief
Executive Officer
|
|
April
9, 2009
|
Guoji
Liu
|
|
(Principal
Executive Officer) and
|
|
|
|
|
Director
|
|
|
|
|
|
|
|
/s/ Zhao
Hongwei
|
|
Chief
Financial Officer (Principal
|
|
April
9, 2009
|
Zhao
Hongwei
|
|
Accounting
Officer)
|
|
|
|
|
|
|
|
/s/ Liu
Yu
|
|
Chairman
of the Board of
|
|
April
9, 2009
|
Liu
Yu
|
|
Directors
|
|
|
|
|
|
|
|
/s/ Naizhong
Che
|
|
Director
|
|
April
9, 2009
|
Naizhong
Che
|
|
|
|
|
|
|
|
|
|
/s/ Peng
Wang
|
|
Director
|
|
April
9, 2009
|
Peng
Wang
|
|
|
|
|
|
|
|
|
|
/s/ Zhixiang
Zhang
|
|
Director
|
|
April
9, 2009
|
Zhixiang
Zhang
|
|
|
|
|
Index to
Exhibits
Exhibit Number
|
|
Exhibit Description
|
|
|
|
3.1
|
|
Certificate
of Incorporation of Orsus Xelent Technologies, Inc. (incorporated by
reference from Exhibit 3.1 to the Registration Statement on Form SB-2
filed with the Securities and Exchange Commission on July 28, 2004 as
amended by that Plan of Merger and Agreement of Merger attached as Exhibit
2.1 to the Current Report on Form 8-K filed with the SEC on April 20,
2005)
|
|
|
|
3.2
|
|
Amended
and Restated Bylaws of the Registrant (incorporated by reference from
Exhibit 3.2 to the Current Report on Form 8-K filed with the Securities
and Exchange Commission on February 7, 2007, as amended by the Current
Report on Form 8-K filed with the SEC on March 5, 2007)
|
|
|
|
4.1
|
|
Specimen
Certificate of Common Stock (incorporated by reference to Exhibit 4.1 to
Amendment 2 to the Registration Statement on Form SB-2/A filed with the
Securities and Exchange Commission on October 19, 2004)
|
|
|
|
10.1
|
|
Contract
of Suretyship, dated June 20, 2007, between Yayuncun Branch of Beijing
Rural Commercial Bank and Beijing Orsus Xelent Technology & Trading
Company Limited (incorporated by reference from Exhibit 10.1 to the
Current Report on Form 8-K filed with the Securities and Exchange
Commission on September 12, 2007)
|
|
|
|
10.2
|
|
X180
Mobile Terminal Purchase Contract, dated May 31, 2007, among Unicom
Huasheng Telecommunication Technology Co., Ltd., Dalian Daxian
Distribution Company and Beijing Orsus Xelent Technology & Trading
Company Limited (incorporated by reference from Exhibit 10.1 to the
Current Report on Form 8-K filed with the Securities and Exchange
Commission on June 6, 2007)
|
|
|
|
10.3
|
|
2007
Omnibus Long-Term Incentive Plan (incorporated by reference from Exhibit
10.1 to the Current Report on Form 8-K filed with the Securities and
Exchange Commission on January 11, 2008)
|
|
|
|
10.4
|
|
Master
Distributor Agreement, dated as of August 7, 2008, by and between Beijing
Orsus Xelent Technology & Trading Company Limited and Beijing Xingwang
Shidai Commerce Co., Ltd. (incorporated by reference from Exhibit 10.1 to
the Current Report on Form 8-K filed with the Securities and Exchange
Commission on August 20, 2008)
|
|
|
|
14.1
|
|
Code
of Business Conduct and Ethics (incorporated by reference from Exhibit 14
to the Current Report on Form 8-K filed with the Securities and Exchange
Commission on February 7, 2007)
|
|
|
|
16.1
|
|
Letter
from Mazars CPA Limited to the Securities and Exchange Commission dated
October 21, 2008 (incorporated by reference from Exhibit 16.1 to the
Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 22,
2008)
|
|
|
Exhibit Description
|
|
|
|
21.1
|
|
List
of Subsidiaries *
|
|
|
|
23.1
|
|
Consent
of Mazars CPA Limited *
|
|
|
|
24.1
|
|
Power
of Attorney (included on signature page)
|
|
|
|
31.1
|
|
Certification
of Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act
of 2002 *
|
|
|
|
31.2
|
|
Certification
of Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act
of 2002 *
|
|
|
|
32.1
|
|
Certification
of Principal Executive Officer and Principal Financial Officer under
Section 906 of the Sarbanes-Oxley Act of 2002
*
|
* Filed
herewith
Orsus Xelent Technolgies New Common Stock (AMEX:ORS)
Historical Stock Chart
From Jun 2024 to Jul 2024
Orsus Xelent Technolgies New Common Stock (AMEX:ORS)
Historical Stock Chart
From Jul 2023 to Jul 2024