Delaware
(State
or other jurisdiction of
incorporation
or organization)
|
20-1198142
(I.R.S.
Employer Identification No.)
|
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨
|
Smaller
reporting company x
|
Class
|
Outstanding
as of April 14, 2009
|
|
Common
Stock, $.001 par value per share
|
29,756,000
shares
|
Item
1.
|
Business.
|
|
·
|
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.
|
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 |
Item
1A.
|
Risk
Factors.
|
|
·
|
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.
|
|
·
|
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.
|
|
·
|
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.
|
|
·
|
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.
|
|
·
|
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.
|
|
·
|
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.
|
|
·
|
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.
|
|
·
|
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.
|
|
·
|
economic
structure;
|
|
·
|
level
of government involvement in the
economy;
|
|
·
|
level
of development;
|
|
·
|
level
of capital reinvestment;
|
|
·
|
control
of foreign exchange;
|
|
·
|
methods
of allocating resources; and
|
|
·
|
balance
of payments position.
|
|
·
|
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.
|
Item
1B.
|
Unresolved
Staff Comments.
|
Item
2.
|
Properties.
|
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
|
||||||||||||
12th
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) | |||||||||||
29th
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
29th 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
|
Item
4.
|
Submission
of Matters to a Vote of Security
Holders
|
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
|
Votes
received
|
|
For
|
25,368,298
|
Against
|
339,725
|
Abstain
|
316,130
|
Item
5.
|
Market
For Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
|
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 |
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
6.
|
Selected
Financial Data.
|
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
|
|
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.
|
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 |
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 | % |
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.
|
|
·
|
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”).
|
|
·
|
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.
|
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 | % |
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 | % |
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 | % |
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 | )% |
|
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.
|
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.
|
Item
8.
|
Financial
Statements and Supplementary Data.
|
Item
9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure.
|
Item
9A(T).
|
Controls
and Procedures.
|
Item
9B.
|
Other
Information.
|
Item
10.
|
Directors,
Executive Officers and Corporate
Governance.
|
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
|
Audit Committee
|
Nominating/Corporate
Governance Committee
|
Compensation Committee
|
||
Zhixiang
Zhang (Chair)
|
Naizhong
Che (Chair)
|
Naizhong
Che (Chair)
|
||
Peng
Wang
|
Zhixiang
Zhang
|
Peng
Wang
|
Item
11.
|
Executive
Compensation.
|
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.
|
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
|
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.
|
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.
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
|
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.
|
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.
|
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.
|
Item
14.
|
Principal
Accounting Fees and Services.
|
Item
15.
|
Exhibits
and Financial Statement Schedules
|
(a)
|
Financial
Statements.
|
(b)
|
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)
|
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
*
|
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
|
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 |
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$0.001 per share : Authorized 100,000,000
shares;
|
||||||||
issued
and outstanding 29,756,000 shares as of December 31, 2008
|
||||||||
and
2007
|
30 | 30 | ||||||
Additional
paid-in capital
|
3,209 | 2,484 | ||||||
Dedicated
reserves - Note 14
|
1,042 | 1,042 | ||||||
Accumulated
other comprehensive income
|
5,389 | 2,906 | ||||||
Retained
earnings
|
38,731 | 27,435 | ||||||
TOTAL
STOCKHOLDERS’ EQUITY
|
48,401 | 33,897 | ||||||
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
94,006 | 67,234 |
Accumulated
|
||||||||||||||||||||||||||||
Common
stock
|
Additional
|
other
|
||||||||||||||||||||||||||
No.
of
|
paid-in
|
Dedicated
|
comprehensive
|
Retained
|
||||||||||||||||||||||||
shares
|
Amount
|
capital
|
reserves
|
income
|
earnings
|
Total
|
||||||||||||||||||||||
US$’000
|
US$’000
|
US$’000
|
US$’000
|
US$’000
|
US$’000
|
|||||||||||||||||||||||
Balance
as of January 1, 2007
|
29,756,000 | 30 | 2,484 | 1,042 | 975 | 17,752 | 22,283 | |||||||||||||||||||||
Net
income
|
- | - | - | - | - | 9,683 | 9,683 | |||||||||||||||||||||
Foreign
currency translation
|
||||||||||||||||||||||||||||
adjustment
|
- | - | - | - | 1,931 | - | 1,931 | |||||||||||||||||||||
Balance
as of January 1, 2008
|
29,756,000 | 30 | 2,484 | 1,042 | 2,906 | 27,435 | 33,897 | |||||||||||||||||||||
Net
income
|
11,296 | 11,296 | ||||||||||||||||||||||||||
Compensation
costs for stock
|
||||||||||||||||||||||||||||
options
granted
|
- | - | 725 | - | - | - | 725 | |||||||||||||||||||||
Foreign
currency translation
|
||||||||||||||||||||||||||||
adjustment
|
- | - | - | - | 2,483 | - | 2,483 | |||||||||||||||||||||
Balance
as of December
|
||||||||||||||||||||||||||||
31,
2008
|
29,756,000 | 30 | 3,209 | 1,042 | 5,389 | 38,731 | 48,401 |
Year
ended December 31
|
||||||||
2008
|
2007
|
|||||||
US$’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 |
1.
|
Corporate
information
|
2.
|
Description
of business
|
3.
|
Summary
of significant accounting policies
|
3.
|
Summary
of significant accounting policies
(continued)
|
3.
|
Summary
of significant accounting policies
(continued)
|
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.
|
3.
|
Summary
of significant accounting policies
(continued)
|
3.
|
Summary
of significant accounting policies
(continued)
|
3.
|
Summary
of significant accounting policies
(continued)
|
3.
|
Summary
of significant accounting policies
(continued)
|
4.
|
Concentrations
|
Year
ended December 31,
|
||
2008
|
2007
|
|
%
|
%
|
|
Customer
A
|
87
|
92
|
Customer
B
|
10
|
3
|
Year
ended December 31,
|
||
2008
|
2007
|
|
%
|
%
|
|
Supplier
A
|
36
|
-
|
Supplier
B
|
19
|
5
|
Supplier
C
|
15
|
14
|
Supplier
D
|
10
|
35
|
Supplier
E
|
-
|
15
|
(c)
|
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$’000
|
|||||||
PRC
|
237 | 312 | ||||||
Hong
Kong
|
4 | 6 | ||||||
Total
long-lived assets
|
241 | 318 |
5.
|
Other
income, net
|
6.
|
Income
taxes
|
6.
|
Income taxes
(continued)
|
(a)
|
Income
tax expenses comprised the
following:
|
Year
ended December 31,
|
||||||||
2008
|
2007
|
|||||||
US$’000
|
US$’000
|
|||||||
Current
tax
|
||||||||
Hong
Kong
|
98 | - | ||||||
PRC
|
1,775 | 1,648 | ||||||
1,873 | 1,648 |
(b)
|
Reconciliation
from the expected statutory tax rate in the PRC of 25% (2007 : 24%) is
asfollows:
|
Year
ended December 31,
|
||||||||
2008
|
2007
|
|||||||
%
|
%
|
|||||||
Statutory
rate - the PRC
|
25.0 | 24.0 | ||||||
Under-provision
for prior year
|
0.7 | - | ||||||
Tax
holiday
|
(13.5 | ) | (14.9 | ) | ||||
Tax
non-deductible items
|
2.0 | 5.5 | ||||||
Effective
tax rate
|
14.2 | 14.6 |
7.
|
Earnings
per share
|
8.
|
Trade
accounts receivables
|
9.
|
Other
current assets
|
10.
|
Property,
plant and equipment, net
|
As
of December 31,
|
||||||||
2008
|
2007
|
|||||||
US$’000
|
US$’000
|
|||||||
Mould
|
4 | 4 | ||||||
Leasehold
improvements
|
131 | 123 | ||||||
Plant
and machinery
|
20 | 19 | ||||||
Office
equipment
|
303 | 284 | ||||||
Motor
vehicles
|
303 | 284 | ||||||
761 | 714 | |||||||
Accumulated
depreciation
|
(520 | ) | (396 | ) | ||||
Property,
plant and equipment, net
|
241 | 318 |
11.
|
Short-term
bank loans
|
12.
|
Short-term
loan from a non-financial
institution
|
13.
|
Mortgage
loan
|
As
of December 31,
|
||||||||
2008
|
2007
|
|||||||
US$’000
|
US$’000
|
|||||||
Current
portion
|
12 | 68 | ||||||
Non-current
portion
|
- | 5 | ||||||
12 | 73 |
14.
|
Dedicated
reserves
|
15.
|
Pension
costs
|
16.
|
Related
party transactions
|
(a)
|
Name
and relationship of related
parties
|
Related party
|
Relationship
|
|
Mr.
Wang Xin
|
Director
and stockholder of the Company
|
|
Mr.
Liu Yu
|
Director
and stockholder of the
Company
|
(b)
|
Summary
of related party balances
|
As
of December 31,
|
||||||||
2008
|
2007
|
|||||||
US$’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 |
17.
|
Stock
option plan
|
17.
|
Stock
option plan (continued)
|
Number
of
share
options
|
||||
As
of January 1, 2008
|
- | |||
Granted
|
614,000 | |||
Exercised
|
- | |||
Cancelled/lapsed
|
- | |||
As
of December 31, 2008
|
614,000 |
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
|
(b)
|
Contingencies
|
18.
|
Commitments
and contingencies (continued)
|
(b)
|
Contingencies
(continued)
|
ORSUS
XELENT TECHNOLOGIES, INC.
|
||
By:
|
/S/ Guoji Liu
|
|
Guoji
Liu
|
||
Chief
Executive Officer
|
||
DATED: April
15, 2009
|
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
|
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 Number
|
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
*
|