SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 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, 2005

[ ] 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: 000-117718

                         ORSUS XELENT TECHNOLOGIES, INC.
             (Exact name of registrant as specified in its charter)

        Delaware                                         20-11998142
(State of incorporation)                    (I.R.S. Employer Identification No.)

                12th 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:

                                      None

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

                    Common Stock, par value $0.001 per share


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. [ ]

<PAGE>

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer, or a  non-accelerated  filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ 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 March 17, 2006,  the  aggregate  market value of the  registrant's  common
stock held by  non-affiliates  of the  registrant was  $14,464,800  based on the
closing price as reported on the OTC Bulletin Board.

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

                 Class                             Outstanding at March 17, 2006
---------------------------------------            -----------------------------
Common Stock, $.001 par value per share                    29,756,000 shares











<PAGE>

                                     PART I


Item 1.       Business.

     Except as otherwise  indicated by the  context,  references  in this Annual
Report to "we," "us," "our," or the  "Company"  are to the combined  business of
Orsus  Xelent  Technologies,  Inc.  and its  indirect  wholly-owned  subsidiary,
Beijing Orsus Xelent Technology & Trading Company Limited ("Xelent").

Introduction

     On March 31, 2005, we completed a stock exchange transaction (the "Exchange
Transaction")  with the stockholders 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 (the
"Exchange Agreement").

     Pursuant to the Exchange Agreement, we issued shares of our common stock to
the stockholders of UFIL, in exchange for 100% of the outstanding  capital stock
of UFIL.  Pursuant to the  Exchange  Transaction,  UFIL became our wholly  owned
subsidiary.  We carry on our business  through  UFIL's wholly owned  subsidiary,
Xelent.

Description of Business

     We, through the  operations of Xelent,  have been engaged since May 2003 in
the business of designing  for retail and  wholesale  distribution  economically
priced cellular phones. In February of 2004, Xelent registered  "ORSUS" with the
State Administration for Industry and Commerce in the People's Republic of China
(the "PRC") as its product trademark,  also known as "Orsus Cellular" within the
industry.  Xelent has sold  approximately  240,000 cellular phones in the PRC in
2005

     The market in the PRC for  cellular  phones has  continued to expand and we
have taken advantage of that expansion by gradually introducing more mature 2.5G
wireless  products  to the public in the PRC.  As the 3G  standards  become more
accepted and widely utilized, we anticipate that we will seek to produce our own
3G  products  based  on both  our  own  research  and  development  efforts  and
cooperation with our strategic partners in the industry.

Organizational Structure

     The  organizational  structure  of the  company  is linear in nature and is
comprised  of ten  separate  departments  developed  to  ensure  proper  project
management and control. These departments are as follows:

     o    Product Planning Department,  which is responsible for formulating the
          medium  and  long-range  strategic  plans  for  us and  our  products,
          proposing and adjusting  product planning and research and development
          scheduling as a part of overall strategic planning;


                                       1
<PAGE>

     o    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 the project schedules.

     o    Production Management Department,  which is responsible for production
          planning,  management of  production  materials  and  techniques,  and
          control and tracking of production routes;

     o    Technology   Support  and  Quality   Control   Department,   which  is
          responsible for technical support for software and hardware design and
          testing and industrial design and mechanical design ("ID/IM") checking
          and  auditing,  as well as tooling  engineering  and  quality  control
          during mass production;

     o    Business  Management  Department,  which is responsible  for materials
          purchase,  supply chain management,  business coordination and to sign
          the business  agreements,  contracts  and other kinds of documents for
          the business partners;

     o    Planning  and Finance  Department,  which is  responsible  for overall
          accounting  matters,   including  accounting  methods  and  processes,
          auditing,   compiling  financial  plans  and  monthly/quarterly/yearly
          financial statements and financial budgets, and control of expenses;

     o    Human  Resources  Department,  which is responsible for our employment
          issues, including hiring and termination of staff;

     o    Administration and Strategy Planning Department,  which is responsible
          for administration,  investment and financing analysis, legal affairs,
          intellectual property support and IT support;

     o    Customer  Service  Department,  which is responsible for  maintenance,
          spare parts ordering,  authorized  network  management,  refurbishing,
          after-sale data analysis and service charge fees return,  as well as a
          hotline service center and customer service training center, technical
          support  and  after-sale  service  quality  assurance  systems  of the
          Company; and

     o    Value-added  Service  Department  that is responsible for new business
          development  related to or derived from our cellular  phone  products.
          The Value-added  Service Department  actively seeks strategic business
          partners in SMS messaging,  internet  content  providers and any other
          value-added  suppliers to the cellular  phone market.  The goal of the
          department is to establish  profit-yielding business models with solid
          development and implementation plan.

     o    Marketing  Development  Department,  which is responsible for help the
          Company  to  find  new  business  partners,  which  will  act  as  the
          countryside   distributors,   provincial  dealers  and  some  overseas
          wholesalers.  The department also helps the long-term partners and new
          incomers to set up the marketing concepts and business models of Orsus
          Cellular.

     Our  headquarters in Beijing have seven regional  management  centers and a
technical  support  center.  We also have an  unaffiliated  network  of  service
providers,  including 179 cellular phone service centers located  throughout the
PRC. Of these providers, 42 are provincial replacement and refurbishment centers
and 137 are maintenance and repair centers.


                                       2
<PAGE>

Market Overview and Strategic Partners

     According to research conducted by China Ministry of Information  Industry,
in 2005,  new cellular  phone users in the PRC, the largest nation in the world,
increased  by 58 million,  with total  consumers  reaching  393 million out of a
population  of  approximately  1.3  billion.  The number of users is expected to
reach over 500 million by 2007.  According  to industry  research  publications,
global sales for cellular phones  worldwide in 2005 were over 800 million units,
which  represented  a 21% growth rate from 2004.  During that same time  period,
sales for  cellular  phones in the  Asia-Pacific  Region  were over 200  million
units, making this region the largest market in the world.

     Our cellular  products  combine many of the  currently  popular1.8-inch  to
2.2-inch TFT color  displays,  one to 120 minutes video  recording,  300K to 200
mega pixels photography, MP3, MPEG4 and U disk support, 40 to 64 polyphonic ring
tones, handwriting and PDA functions, all at low to moderate price points.

     Our  relationships  with  our  strategic  partners,  CEC  Cellular  Limited
("CECM"),  Beijing  Xingwang Shidai Tech & Trading Co., Ltd.  ("XWSD") and Hebei
Mascot Communication  Equipment Co., Ltd ("MASCOT") have help us to increase our
market penetration.  CECM, which is controlled by China Electronics  Corporation
Group,  is  a  manufacturer  of  cellular  phones  with  annual   production  of
approximately  one million units. CECM serves as a manufacturer for our cellular
phone products. In addition, CECM has its own sales network, and we sell some of
our products to CECM, who in turn sells those products to its own provincial and
national  sales  distributors  and dealers,  thus  increasing  the  distribution
capabilities for our products. XWSD is also one of our major agents, selling our
cellular phones to provincial distributors,  city distributors and dealers. XWSD
employ several market promotion services companies to enhance the sales networks
of our products  throughout the PRC.  MASCOT whose sales networks covers most of
the main cities all the PRC,  particularly  in the northern  region,  is a newly
developed  provincial  distributor  since  the 3rd  quarter  of 2005 and  mainly
responsible to distribute our old products.












                                       3
<PAGE>
<TABLE>
<CAPTION>

Description of Products & Services

     Since inception,  Xelent has developed,  and where indicated launched,  the
following cellular phone products:

------------------------------- ---------------------------- ------------------------------- -------------------------
<S>                             <C>                          <C>                             <C>
           Project                      Launch Date                Model/Project Code                Network
       Initiation Date

------------------------------- ---------------------------- ------------------------------- -------------------------
May 17, 2003                    August 8, 2003               CEC F88                         Watch-style cellular,
                                                                                             CDMA 1X
------------------------------- ---------------------------- ------------------------------- -------------------------
May 30, 2003                    September 28, 2003           CEC F16                         GSM/GPRS
------------------------------- ---------------------------- ------------------------------- -------------------------
June 30, 2003                   November 28, 2003            CEC F18                         GSM/GPRS
------------------------------- ---------------------------- ------------------------------- -------------------------
January 14, 2004                March 18, 2004               CEC ORSUS FG525                 GSM/GPRS
------------------------------- ---------------------------- ------------------------------- -------------------------
April 18, 2004                  Not launched                 CEC ORSUS FG 528                GSM/GPRS
------------------------------- ---------------------------- ------------------------------- -------------------------
March 15, 2004                  April 26, 2004               CECT OS 830                     GSM/GPRS
------------------------------- ---------------------------- ------------------------------- -------------------------
                                June 25, 2004                CEC OS 850                      GSM/GPRS
------------------------------- ---------------------------- ------------------------------- -------------------------
                                July 30, 2004                CECT OS 83                      GSM/GPRS
------------------------------- ---------------------------- ------------------------------- -------------------------
                                July 30, 2004                CECT OS 85                      GSM/GPRS
------------------------------- ---------------------------- ------------------------------- -------------------------
                                September 1, 2004            CECT OS 70                      GSM/GPRS
------------------------------- ---------------------------- ------------------------------- -------------------------
                                September 27, 2004           CECT OS 86                      GSM/GPRS
------------------------------- ---------------------------- ------------------------------- -------------------------
                                Not launched                 CECT OS 50                      GSM/GPRS
------------------------------- ---------------------------- ------------------------------- -------------------------
                                September 24, 2004           CECT M851                       GSM/GPRS
------------------------------- ---------------------------- ------------------------------- -------------------------
August 3, 2004                  December 20, 2004            CECT M62                        GSM/GPRS
------------------------------- ---------------------------- ------------------------------- -------------------------
September 3, 2004               March 8, 2005                CECT M72                        GSM/GPRS
------------------------------- ---------------------------- ------------------------------- -------------------------
October 28, 2004                April 30, 2005               CECT M525+                      GSM/GPRS
------------------------------- ---------------------------- ------------------------------- -------------------------
                                June 6, 2005                 CECT OS70+                      GSM/GPRS
------------------------------- ---------------------------- ------------------------------- -------------------------
                                September 7, 2005            C 100                           CDMA
------------------------------- ---------------------------- ------------------------------- -------------------------
                                September 18, 2005           DAXIAN X680                     GSM/GPRS
------------------------------- ---------------------------- ------------------------------- -------------------------
                                September 22, 2005           HX 8203                         GSM/GPRS
------------------------------- ---------------------------- ------------------------------- -------------------------
                                September 28, 2005           HX 8205                         GSM/GPRS
------------------------------- ---------------------------- ------------------------------- -------------------------
                                September 30, 2005           CECT M62+                       GSM/GPRS
------------------------------- ---------------------------- ------------------------------- -------------------------
                                October 2, 2005              CECT M60                        GSM/GPRS
------------------------------- ---------------------------- ------------------------------- -------------------------
</TABLE>

     We  outsource  the  manufacturer  of our  products  to  unaffiliated  third
parties.  Once our  products  have been  manufactured,  they are  delivered to a
network of unaffiliated national sales distributors (see "Description of Current
Business - Market  Overview and Strategic  Partners") and dealers that, in turn,
distribute the products to provincial  sales  distributors and dealers and these
provincial sales  distributors and dealers  distribute our products to retailers
throughout the PRC.


                                       4
<PAGE>

Research & Development

     We do business with two kinds of research and development  enterprises.  We
cooperate with  professional  design houses such as Shanghai  Simcom  Technology
Limited ("Simcom") and Shanghai Huntel Technologies Co., Ltd.("Huntel"), who are
mainly involved with us in MMI (U2) ("Man Machine Interface")  design,  software
and hardware testing, CTA ("China Type Approval") certification, acquisition and
phone main board updating and software  adaptability  testing.  In addition,  we
work  with  cooperative  partners,  such as  Dalian  Daxian  Telecom  Co.,  Ltd.
("Daxian")  and Mobicom  Corporation  ("Mobicom")  in  developing  ID/MD and the
layout of cellular  phone main boards.  Based on this research and  development,
our strategic  business  partners and we are then able to design and develop new
products.

     We mainly cooperate with other professional design houses and work together
on research and development projects.  Whenever possible, we use and lease their
instruments and equipment,  rather than purchasing it ourselves.  In the area of
software  compiling,  testing & 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.

     As 3G continues to develop in the PRC in 2006, we  anticipate  that we will
be able to develop our own 3G mobile  phones  based on both our own research and
development efforts and cooperation with the strategic industry partners. We are
now being  negotiated  with  several  parties  including  foreign 3G  technology
providers such as Spreadtrum  Communication  (Shanghai) Inc. ("SCI"), several 3G
chipset and solution providers in order to get us well prepare the launch of 3 G
services in coming future.  We will put our efforts to focus on the  development
of the products in TDS-CDMA and WCDMA standard. Our strategic partners,  such as
SCI  developed  2.5 G and 3G  integrated  circuit and provides  2.5G GPRS and 3G
TDS-CDMA  chipset and software  development  platforms  and  solutions,  are the
successful  corporations in the PRC  telecommunication  industry. We believe the
cooperation  with 3G  technology  providers  in working on future  research  and
development projects will help facilitate our entry into the 3G wireless market.

     We have established a team for technology  development.  The members of our
team  are  our  product  planning  division,  project  management  division  and
industrial  design center.  Our product  planning  division is  responsible  for
constructing  the medium  term  strategic  plans and  research  and  development
scheduling.  Our  project  management  division  administers  our  research  and
development efforts,  overseas manufacturing and quality control of our products
and monitors costs, including human resource costs. Our industrial design center
is responsible  for evaluating  design plans provided by third party  industrial
design companies and confirming  model structural  design and tracing the issues
on module production and quality.

     o    Introduced the first  watch-style  cellular  based on CDMA2000IX  with
          joint efforts of Telson  Electronics  Co., Ltd, a South Korea company,
          in May of 2003.

     o    Based on GPRS  CLASS 10  module,  developed  the first  GPRS  cellular
          collaborating  system,  with South Korea's  TELSON,  which is based on
          WISMO PAC P5186D, the GPRS module of WAVECOM company,  in May of 2003,
          which was introduced on October of 2003.

     o    Formed a  production  line of 1 to  3-million  Charge  Coupled  Device
          ("CCD")   pixel   camera   by   configuring    high-resolution    CMOS
          ("Complementary Metal Oxide Semiconductor")


                                       5
<PAGE>

     We also cooperate with Sim Design Ltd. ("Sim Design") and Shenzhen  Newplan
Products  Design  Ltd.   (`Newplan")  in  designing   cellular  phone  features,
appearances and functions to suit the tastes of Chinese  consumers.  Sim Design,
which is located in South  Korea,  is an ID/MD  design  company  wholly owned by
Simcom. Newplan is a professional design company established  approximately five
years  ago  that  provides  ID/MD  designs   tailored  to  suit  the  needs  and
requirements of its customers, such as Xelent.

     We have formed long-term strategic relationship with Simcom and Mobicom for
the development of all-in-one solution cellular phones. The capability of Simcom
and Mobicom in wireless technology,  software development,  wireless application
protocol,  and production and testing provides us with  comprehensive  solutions
for wireless products.

Competition

     The  Company  faces  substantial  competition  from  other  wireless  phone
manufacturers   such  as:  Nokia,   Motorola  and  Samsung,   which   controlled
approximately 23.8%,13.3% and 9.6%, respectively,  of the cellular market in the
PRC in 2005. In addition we face  competition  from Ningbo Bird  Corporation Ltd
and  Lenovo  Group  Limited,  both of  which  are  domestic  PRC  producers  and
controlled  approximately 6.1% and 4.1%,  respectively of the cellular market in
the PRC in 2005.

Government Regulation

     There is no  government  regulation  banning or making  material  effect on
Xelent,  including  but not limited,  any law,  rule or regulation or any order,
writ,  judgment,  injunction,  decree,  determination  or  award  binding  on or
applicable to Xelent.  In the PRC cellular market,  cellular  manufacturers  are
responsible  for repair,  replacement  and return of cellular phone to customers
within the warranty  period in accordance  with certain rules and  regulation in
the PRC.

Intellectual Property and Proprietary Rights

     Xelent  has  applied  for  "[GRAPHIC   OMITTED][GRAPHIC   OMITTED]"as   the
registered   trademark   and  the  China   Trademark   Agency  has   distributed
"Notification of Acceptance" is serial number ZC3878232SL.

     We utilize  other  intellectual  property  legally  with  partners  that we
cooperate with through contracts or agreements.

Employees

     We have approximately 185 employees. Of the 185 employees, 12 persons serve
in management related capacities. The remaining employees are in 10 departments,
namely the Product Planning Department which employs eight persons,  the Project
Management  Department  which employs seven persons;  the Production  Management
Department which employs 14 persons;  the Technology Support and Quality Control
Department which employs 18 persons;  the Business  Management  Department which
employs 12 persons;  the Administration  and Strategy Planning  Department which
employs 13 persons; the Planning and Finance Department which employs 10


                                       6
<PAGE>

persons;   the  Human  Resources  Department  which  employs  two  persons;  the
Value-added Service Department which employs one person and the Customer Service
Department which employs 88 persons.

     We believe that our relationship  with our employees is good, and there are
no collective bargaining arrangements in place.

Item 1A.     Risk Factors.

     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 customers, or other major customers, could casually hurt our
business by reducing our revenues and profitability.

     Our success depends  substantially upon retaining our significant  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.

We face intense competition.

     The market we serve is intensely  competitive  in the PRC.  There are other
providers that we compete with for business. There are low barriers to entry for
new  competitors  in this  market and we may  experience  negative  impacts as a
result  of  increased  competition.  In  addition,  our  existing  or  potential
competitors  may in the  future  achieve  greater  market  acceptance  and  gain
additional market share, which in turn could reduce our revenues.

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 and employees
or fail to add new senior and middle managers to our management.

     Our future success is heavily  dependent upon 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  and  employees  are unable or
unwilling to continue in their present  positions,  we may not be able to easily
replace them, and our business may be severely disrupted. In addition, if any of
these key  executives  or  employees  joins a  competitor  or forms a  competing
company,  we could lose customers and suppliers and incur additional expenses to
recruit and train personnel.  Each of our executive officers has entered into an
employment agreement with us.

     We also rely on a number of key  technology  staff for the operation of our
company.  Given  the  competitive  nature  of  our  industry,  the  risk  of key
technology  staff  leaving  our  company is little  high and could  disrupt  our
operations.


                                       7
<PAGE>

We rely on a third party production center.

     We  utilize a third  party  production  center for the  manufacture  of the
products we sell to our customers.  Should we be required to utilize a different
source for our manufactured products our costs could be negatively affected.

Rapid growth and a rapidly  changing  operating  environment  strain our limited
resources.

     We will need to increase our investment in our  technology  infrastructure,
facilities and other areas of operations, in particular our 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
our business may suffer.  Our future success will depend on, among other things,
our ability to:

     o    Continue to develop  through our research and  development  facilities
          new technologies acceptable to the PRC market,

     o    continue training, motivating and retaining our existing employees and
          attract and integrate new employees,  including our senior management,
          most of whom have been with our company for less than one year,

     o    develop and improve our operational,  financial,  accounting and other
          internal systems and controls, and

     o    maintain  adequate controls and procedures to ensure that our periodic
          public  disclosure under applicable  laws,  including U.S.  securities
          laws, is complete and accurate.

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  contractual   restrictions   on  disclosure  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.
Our  management may determine in the future to make  application  for copyright,
trademark  or  trade  secret  protection  if  management  determines  that  such
protection would be beneficial and cost-effective.

     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  claim of  infringement  and our failure or  inability  to develop
non-infringing  technology  or  content  or  license  the  infringed  or similar
technology or content on a timely basis,  our business  could suffer.  Moreover,
even if we are able to license the  infringed or similar  technology or content,
license fees that we pay to licensors could be substantial or uneconomical.

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


                                       8
<PAGE>

result,  we do not  have  any  business  liability  insurance  coverage  for our
operations. Any business disruption, litigation or natural disaster might result
in substantial costs and diversion of resources.

Our ability to generate revenues could suffer if the Chinese market for cellular
phones does not develop as anticipated.

     The  cellular  phones  market 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 our market.  It is
extremely  difficult to accurately  predict  consumer  acceptance and demand for
various existing and potential new offerings and services,  and the future size,
composition and growth of this market.

Risks Related to Doing Business in the PRC

A downturn in the Chinese economy may slow down our growth and profitability.

     The growth of the Chinese economy has been uneven across geographic regions
and  economic  sectors.  There can be no  assurance  that  growth of the Chinese
economy will be steady or that any downturn  will not have a negative  effect on
our  business.  Our  profitability  will decrease if  expenditures  for wireless
services decrease due to a downturn in the Chinese economy.  More  specifically,
increased  penetration of wireless services in the less  economically  developed
central and western provinces of China will depend on those provinces  achieving
certain  income  levels so that  cellular  phones and  related  services  become
affordable to a significant portion of the population.

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 the access to our services.

The  uncertain  legal  environment  in China could  limit the legal  protections
available to you.

     The Chinese  legal system is a civil law system based on written  statutes.
Unlike  common law  systems,  it is a system in which  decided  legal cases have
little  precedential  value. In the late 1970s, the Chinese  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 foreign invested enterprises
in China. However, these laws, regulations and legal requirements are relatively
recent  and are  evolving  rapidly,  and their  interpretation  and  enforcement
involve  uncertainties.  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 requisite business licenses.


                                       9
<PAGE>

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
China, 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:

     o    quarantines  or closures of some of our offices  which would  severely
          disrupt our operations,

     o    the sickness or death of our key officers and employees, and

     o    a general slowdown in the Chinese 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 China's political and economic policies could harm our business.

     The economy of China 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 Chinese government have had a positive
effect on the  economic  development  of China,  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
Chinese  economy  differs from the economies of most countries  belonging to the
Organization  for  Economic   Cooperation  and   Development,   or  OECD.  These
differences include:

     o    economic structure;

     o    level of government involvement in the economy;

     o    level of development;

     o    level of capital reinvestment;

     o    control of foreign exchange;

     o    methods of allocating resources; and

     o    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 Chinese economy were similar
to those of the OECD member countries.

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,
any future  restrictions  on  currency  exchanges  may limit our  ability to use
revenue  generated in Renminbi to fund any future  business  activities  outside
China or to make  dividend  or other  payments  in U.S.  dollars.  Although  the


                                       10
<PAGE>

Chinese   government   introduced   regulations   in  1996  to   allow   greater
convertibility  of the Renminbi 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 Renminbi for capital
account items, including direct investment and loans, is subject to governmental
approval in China,  and  companies  are required to open and  maintain  separate
foreign  exchange  accounts for capital account items. We cannot be certain that
the Chinese regulatory  authorities will not impose more stringent  restrictions
on the  convertibility  of the  Renminbi,  especially  with  respect  to foreign
exchange transactions.

The value of our  securities  will be  affected  by the  foreign  exchange  rate
between U.S. dollars and Renminbi.

     The value of our common stock will be affected by the foreign exchange rate
between U.S.  dollars and Renminbi.  For example,  to the extent that we need to
convert U.S.  dollars into  Renminbi  for our  operational  needs and should the
Renminbi 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  Renminbi  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  Renminbi,  the U.S.  dollar  equivalent of our
earnings from our subsidiaries in China would be reduced.

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:

     o    actual or anticipated fluctuations in our quarterly operating results,

     o    announcements of new products and services by us or our competitors,

     o    changes in financial estimates by securities analysts,

     o    changes in the  economic  performance  or market  valuations  of other
          companies providing similar products and services,

     o    announcements   by  our   competitors  of  significant   acquisitions,
          strategic partnerships, joint ventures or capital commitments,

     o    additions or departures of key personnel,

     o    potential litigation, or

     o    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.


                                       11
<PAGE>

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.

     A  large  portion  of our  common  stock  is  held  by a  small  number  of
stockholders.  As a result, these stockholders are able to influence 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.

We may be subject to "penny stock" regulations.


     The U. S.  Securities  and  Exchange  Commission  has  adopted  rules  that
regulate  broker-dealer  practices in  connection  with  transactions  in "penny
stocks." Penny stocks generally are equity  securities with a price of less than
$5.00 (other than securities registered on certain national securities exchanges
or  quoted  on the  NASDAQ  system,  provided  that  current  price  and  volume
information  with respect to  transactions in such securities is provided by the
exchange or  system).  Penny stock  rules  require a  broker-dealer,  prior to a
transaction in a penny stock not otherwise exempt from those rules, to deliver a
standardized  risk  disclosure  document  prepared by the SEC,  which  specifies
information  about penny stocks and the nature and  significance of risks of the
penny stock market. A broker-dealer  must also provide the customer with bid and
offer quotations for the penny stock, the compensation of the broker-dealer, and
our sales person in the transaction,  and monthly account statements  indicating
the  market  value  of each  penny  stock  held in the  customer's  account.  In
addition,  the penny stock rules require that, prior to a transaction in a penny
stock not  otherwise  exempt from those  rules,  the  broker-dealer  must make a
special written  determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's  written agreement to the transaction.
These  disclosure  requirements  may have the  effect of  reducing  the  trading
activity in the secondary  market for stock that becomes  subject to those penny
stock rules.  Whenever any of our  securities  become subject to the penny stock
rules,  holders  of  those  securities  may have  difficulty  in  selling  those
securities.


                                       12
<PAGE>

Our securities are quoted on the OTC Bulletin Board,  which limits the liquidity
and price of our securities more than if our securities were quoted or listed on
The Nasdaq Stock Market or a national exchange.

     Our securities are traded in the over-the-counter  market and quoted on the
OTC  Bulletin  Board,  an  inter-dealer  automated  quotation  system for equity
securities  sponsored  and operated by the National  Association  of  Securities
Dealers,  Inc., or NASD, but not included in The Nasdaq Stock Market.  Quotation
of our  securities  on the OTC Bulletin  Board limits the liquidity and price of
our securities  more than if our securities  were quoted or listed on The Nasdaq
Stock Market or a national  exchange.  Lack of liquidity will limit the price at
which  you may be able  to sell  our  securities  or your  ability  to sell  our
securities at all.

Item 1B.     Unresolved Staff Comments.

     Not applicable.

Item 2.       Properties.

     We have offices in Beijing, Shenzhen,  Shanghai, Tianjin and Hong Kong. Our
Beijing office serves as our corporate headquarters.  Our Shenzhen Office serves
as the base for cellular  component sourcing and coordination with suppliers and
manufacturers.  Our  Shanghai  Office is mainly  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 the mass production. Our Tianjin Office is mainly responsible for
the  production  management.   It's  functions  include  coordination  with  our
principal  manufacturer  to adjust the  produciton  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 the quality  control.  The office in Hong Kong is a  representive  office for
coordination with customers.












                                       13
<PAGE>
<TABLE>
<CAPTION>

     The following is relevant information on our offices:

             Address              Office /      Process /   Monthly     Monthly         Lease period
                                 Production       Lease     rental       Rental
                                                             (rmb)       (usd)
<S>                              <C>            <C>         <C>         <C>             <C>
26T, Xinbaohui Plaza, Nanyou       Office         Lease    17,800.0     2,144.58     7/12/04 to 7/11/05
Avunue, Nanshan Dist.,
Shenzhen
12th Floor, Tower B, Chaowai       Office         --(1)       --           --        5/01/05 to 4/30/06
MEN Office Building, 26
Chaowai Street, Chaoyang
Disc., Beijing
No. 3, Lane 600, Tianshan          Office         Lease    29,118.6     3,508.27     2/28/04 to 2/27/05 (1)
Rd., Changning Dist.,
Shanghai
No.185, Xinda Road, Hebei          Office         --(2)       --           --                --
District, Tianjin
Room 1502, Jubilee Centre,         Office         Lease    15,673.0     1,937.0       9/5/05 to 9/4/07
18 Fenwick Street, 46
Gloucester Road, Wanchai,
Hong Kong
----------------
</TABLE>

(1)  From May, 1 2005 to April 30,  2006,  there is a  rent-free  period for our
     headquarter  in Beijing,  the rental charge is still under the  negotiation
     with landlord.

(2)  Our Tianjin  office is located in the CECM factory.  The office is provided
     by CECM and is cost-free to us.

Item 3.       Legal Proceedings.

     We are not party to any litigation,  and we are not aware of any threatened
litigation that would have a material adverse effect on us or our business.

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

     No matters were  submitted to a vote of  securityholders  during the fourth
quarter of the fiscal period ended December 31, 2005.


                                     PART II

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

     Shares of our common stock are traded on the OTC  Bulletin  Board under the
symbol  "ORXT.OB"  Our common  stock has been traded on the OTC  Bulletin  Board
since March 2005.


                                       14
<PAGE>

Holders.

     As of March 17, 2006, we had  approximately  24  stockholders of our common
stock of record, and our common stock had a closing bid price of $2.05 per share
and a closing ask price of $1.85 per share.

     The  following  table sets  forth the  quarterly  average  high and low bid
prices  per  share  for our  common  stock for the  period  commencing  with the
Exchange Transaction and ending on December 31, 2005:

   ----------------------------- ------------------------------------------
   Fiscal Year Ended                            Common Stock

                                         High                  Low

   ----------------------------- ------------------------------------------
   December 31, 2005
   ----------------------------- --------------------- --------------------
        First Quarter                     NA                   NA
   ----------------------------- --------------------- --------------------
        Second Quarter                  $3.10                 $1.90
   ----------------------------- --------------------- --------------------
        Third Quarter                   $2.00                 $1.10
   ----------------------------- --------------------- --------------------
        Fourth Quarter                  $2.25                 $1.29
   ----------------------------- --------------------- --------------------


     The  source  for the high and low  closing  bids  quotations  is the  Yahoo
Finance website and does not reflect  inter-dealer  prices.  Such quotations are
without retail mark-ups, mark-downs or commissions, and may not represent actual
transactions and have not been adjusted for stock dividends or splits.

Outstanding Options, Conversions, and Planned Issuance of Common Stock.

     There are no warrants or options  outstanding  to acquire any shares of our
common stock

Preferred Stock.

     Our  corporate  charter  permits  us to issue up to 10  million  shares  of
preferred  stock from time to time, as are determined by resolution of our Board
of Directors.  The issuance of preferred  stock may have the effect of delaying,
deferring  or  preventing  a change in control of our  Company  without  further
action by  stockholders  and could  adversely  affect  the  rights  and  powers,
including  voting  rights,  of  holders  of  common  stock,  with us  acting  in
accordance with our corporate charter and bylaws. In certain circumstances,  the
issuance of preferred stock could depress the market price of the common stock.

     There are no shares of preferred stock outstanding.

Dividends.

     We have never declared or paid any cash dividends or  distributions  on our
common  stock.  We  currently  intend to retain our future  earnings  to support
operations  and to finance future growth and expansion  and,  therefore,  do not
anticipate  paying any cash  dividends  on our common  stock in the  foreseeable
future.


                                       15
<PAGE>

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.

Securities Authorized for Issuance Under Equity Compensation Plans.

     As of the fiscal year ended December 31, 2005, we have no shares of our
common stock or preferred stock that are issuable under compensation plans
approved by our security holders.

Recent Sales of Unregistered Securities.

     Each issuance set forth below was made in reliance upon the exemptions from
registration  requirements of the Securities Act of 1933, as amended,  contained
in Section  4(2) on the basis that such  transactions  did not  involve a public
offering.  When  appropriate,  we determined  that the  purchasers of securities
described below were  sophisticated  investors who had the financial  ability to
assume  the  risk of  their  investment  in our  securities  and  acquired  such
securities for their own account and not with a view to any distribution thereof
to the public. Where required by applicable law, the certificates evidencing the
securities bear legends stating that the securities are not to be offered,  sold
or transferred other than pursuant to an effective  registration statement under
the Securities Act or an exemption from such registration requirements.

     Each of the following  individuals  received  their shares  pursuant to the
Exchange Agreement on March 31, 2005:

     ------------------------------ ------------------------------
     Name                                      Shares

     ------------------------------ ------------------------------
     Wang Xin                                 3,000,000
     ------------------------------ ------------------------------
     Liu Yu                                   6,000,000
     ------------------------------ ------------------------------
     Wang Zhibin                              6,000,000
     ------------------------------ ------------------------------












                                       16
<PAGE>

Item 6.       Selected Financial Data.

     The following selected financial data has been extracted from our financial
statements  for the period  from April 1, 2005  (commencement  of  business)  to
December 31, 2005.  This selected  financial  data should be read in conjunction
with our financial  statements  and the related notes included in Item 8 of this
Annual Report.

      ---------------------------------------------------------------------
                          Statement of Operations Data
                      For the year ended December 31, 2005
      ---------------------------------------------------------------------

      -------------------------------------------------- --- --------------
      Operating Expenses                                 $      25,711,000
      -------------------------------------------------- --- --------------

      -------------------------------------------------- --- --------------
      Other Income - Interest, net                       $         544,000
      -------------------------------------------------- --- --------------

      -------------------------------------------------- --- --------------
      Net Income                                         $       3,492,000
      -------------------------------------------------- --- --------------

      -------------------------------------------------- --- --------------
      Weighted Average Common Shares Outstanding               29,756,0000
      -------------------------------------------------- --- --------------

      -------------------------------------------------- --- --------------
      Net Income Per Common Share - Basic and Diluted    $            0.12
      -------------------------------------------------- --- --------------


                               Balance Sheet Data
                             As of December 31, 2005
      ---------------------------------------------------------------------

      -------------------------------------------------- --- --------------
      Working Capital                                    $      14,158,000
      -------------------------------------------------- --- --------------

      -------------------------------------------------- --- --------------
      Total Assets                                       $      31,011,000
      -------------------------------------------------- --- --------------

      -------------------------------------------------- --- --------------
      Stockholders' Equity                               $      14,939,000
      -------------------------------------------------- --- --------------


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

     The following  discussion  should be read in conjunction with our financial
statements and footnotes thereto contained in this report.

Overview

     The Company was organized  under the laws of 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 Darrel Lerner, the sole shareholder, 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 purchase  and share  exchange  transaction,  Universal
Flirts Inc. became the wholly-owned subsidiary of the Company.


                                       17
<PAGE>

     Pursuant to 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.  The  Company  then 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 UFIL. The exchange was consummated  under
the laws of State of Delaware and  pursuant to the terms of Exchange  Agreement.
In connection  with its  acquisition of UFIL, the Company also  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,  $0.001 par value, to the stockholders of
UFIL, representing  approximately 50.41% of the Company's issued and outstanding
common stock,  in exchange for  20,000,000  outstanding  shares of UFIL and 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.

     On April 19,  2005,  the Company  changed  its listed name to Orsus  Xelent
Technologies,  Inc.  Pursuant  to  the  exchange,  UFIL  became  a  wholly-owned
subsidiary of the Company and most of the Company's business  operations are now
conducted through Xelent, UFIL's wholly-owned subsidiary See, Item 1. Business

     In July, 2005 a wholly owned  subsidiary,  namely Orsus Xelent Trading (HK)
Company Limited was incorporated in Hong Kong. Orsus Xelent Trading (HK) Company
Limited is  engaged  in the  trading of  cellular  phones and  accessories  with
overseas customers.

Business Review

     Since the 4th quarter 2004,  the growth rate of the whole  cellular  phones
market in the PRC slowed  down as a result from (1) the  oversupply  of cellular
phones in the  market  after the rapid  growth in last few  years;  (2) the mass
production  of the  simple  function  cellular  phones  products  due to rapidly
changing customer  preferences;  (3) obsolescence of slow-moving cellular phones
products in 2004; and (4)  competition  from the  counterfeit and "black market"
cellular  phones in the PRC market,  which affect the market  environment of the
PRC  cellular  phones  industry  as well as the  profitability  of our  domestic
legitimate manufacturers. These factors caused domestic branded manufacturers to
clear  inventories  through  price-cutting or stopping  production.  Most of the
small cellular  phones  manufacturers  in the PRC were forced to operate at loss
and eventually exited the market.

     The cellular phones market in the PRC is  characterized by rapidly changing
customer preferences.  Cellular phones with multi-media,  FM ratio, large memory
capacity  functions  replaced  camera and color  display  functions  and rapidly
became the most popular products in 2005.  Additionally,  foreign  manufacturers
have made  substantial  investment  in the promotion of mid to low end products.
They have launched a significant  number of new products into the PRC market and
spent a  substantial  amount on  advertising,  which  has  resulted  in  foreign
manufacturers  increasing  their  market  share  to the  detriment  of  domestic
manufacturers.

     In response to the fierce competition in the PRC cellular phones market, we
enhanced the quality and  function of our  products to increase our  competitive
edge. During 2005,  multimedia  cellular phones were the mainstream  products in


                                       18
<PAGE>

the market. In the first half of 2005, we successfully  developed new platforms,
namely  SpreadTrum  and MTK , which  enabled  us to  develop  a series of low to
moderately  priced new products,  namely 70A(70+),  62+, 8205, 60+ and M72, with
innovative functions,  such as multi-media,  MPEG4, FM radio, stereo sound, over
one mega pixels photography and large memory capacity,  to meet the rapid change
in the PRC  market.  We intend to continue  to launch new  products  timely with
advanced  features.  A two mega pixel  camera and  intelligent  handwriting  PDA
cellular phone, namely D9000, was launched into market in the end of March 2006.
Through the  introduction  of new products  with  advanced  features and low and
moderate  price,  our  products  and brand would  penetrate  the PRC market.  We
believe our revenues  could be  maintained at a steady growth rate in the coming
year.

     In the second half of 2005,  we provided the solution and software for CDMA
cellular  phones  manufacturers  to  enhance  their  development  of  innovation
features products. Additionally, we cooperated with a domestic telecommunication
operator and a cellular  phone  manufacturer  in the  production  of  innovative
features for CDMA cellular phones and through this process we were able to enter
the CDMA cellular phones market. Since most of the  telecommunication  operators
in PRC are all big  enterprises,  we believe that a good  business  relationship
with those  telecommunication  operators  will be beneficial to our business and
we, therefore,  will continue to cooperate with the telecommunication  operators
whenever possible.

     To  establish  a  more  diversified  revenue  base,  we  also  successfully
developed the trading business in domestic and Hong Kong market.  Although,  the
trading  activities only attributed  minimal  revenues to us in 2005, we believe
that the risk of concentration in a single market can be minimized and our brand
can be further  promoted  through the  development  of overseas  markets for our
products.

     To increase  our  competitiveness,  we are in the process of applying for a
license to produce  our own GSM  cellular  phone.  We are seeking  this  license
through a joint  venture with a domestic  cellular  phone  manufacturer,  namely
Chang Zhou Moben  Communication  Co.,  Ltd In  addition,  we are also  exploring
opportunities  with other domestic cellular phone  manufacturers in this regard.
Although,  the license  application  process is still at an early stage,  we are
working  diligently  to obtain  the  license as quickly as we can so that we can
start to produce our own GSM cellular phone.

         Going forward, we will continue to adopt effective cost control
measures to enhance our competitiveness, launch new products in timely manner,
explore business opportunities with telecommunication operators and develop the
sales in overseas market. Although the overall business environment in the PRC
cellular phone industry in 2005 was difficult and our revenues decreased by
59.47% to $29 million, the gradually improving operating environment in the
latter part of 2005 permitted us to introduce to the market, with the
cooperation of our telecommunication partner, new products with innovative
features . This enabled us to maintain products margins above 21.5% in 2005, and
compared with 20.6% in 2004, our profitability was not adversely affected by the
intense competition in the domestic PRC market.


                                       19
<PAGE>
<TABLE>
<CAPTION>

The following table summarizes our operation result for the year 2005 and 2004:

----------------------------- ------------------------------ ------------------------------ --------------------
                              Year ended December 31, 2005   Year ended December 31, 2004   Comparison
----------------------------- ------------------------------ ------------------------------ --------------------
<S>                           <C>                            <C>                            <C>
                              $' 000       % of revenue      $' 000       % of revenue      $'000        %
----------------------------- ------------ ----------------- ------------ ----------------- --------- ----------
Revenues                      28,705       --                     70,822  --                -42,117    -59.47%
----------------------------- ------------ ----------------- ------------ ----------------- --------- ----------
Cost of sales                 22,370       77.93%                 56,231  79.40%            -33,861    -60.22%
----------------------------- ------------ ----------------- ------------ ----------------- --------- ----------
Sales & Marketing expenses    1,554        5.41%                   3,314  4.68%             -1,760     -53.11%
----------------------------- ------------ ----------------- ------------ ----------------- --------- ----------
General & Admin expenses      1,064        3.71%                   1,435  2.03%             -371       -25.85%
----------------------------- ------------ ----------------- ------------ ----------------- --------- ----------
R&D expenses                  413          1.44%                     586  0.83%             -173       -29.52%
----------------------------- ------------ ----------------- ------------ ----------------- --------- ----------
Depreciation & Amortization   310          1.08%                     598  0.84%             -288       -48.16%
----------------------------- ------------ ----------------- ------------ ----------------- --------- ----------
Interest expenses             25           0.09%                    -143  -0.20%            168       -117.48%
----------------------------- ------------ ----------------- ------------ ----------------- --------- ----------
Other income, net             544          1.90%                      64  0.09%             480        750.00%
----------------------------- ------------ ----------------- ------------ ----------------- --------- ----------
Income before tax             3,513        12.24%                  8,579  12.11%            -5,066     -59.05%
----------------------------- ------------ ----------------- ------------ ----------------- --------- ----------
Income taxes                  21           0.07%                       0  0.00%             21           0.00%
----------------------------- ------------ ----------------- ------------ ----------------- --------- ----------
Minority interest             0            0.00%                     120  0.17%             -120      -100.00%
----------------------------- ------------ ----------------- ------------ ----------------- --------- ----------
Net income                    3,492        12.17%                  8,699  12.28%            -5,207     -59.86%
----------------------------- ------------ ----------------- ------------ ----------------- --------- ----------
</TABLE>

Application of critical accounting policies and estimates

     Our  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 the reported amounts of assets, liabilities,
revenues  and  expenses,   and  related  disclosure  of  contingent  assets  and
liabilities,  including  those  related  to  revenue  recognition,  inventories,
adequacy of allowances for doubtful  accounts,  valuation of long-lived  assets,
income taxes,  and  warranties.  On an on-going basis, we evaluate our estimates
based  on  historical  experience  and on  various  other  assumptions  that are
believed to be reasonable under the circumstances, the results of which form 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  under  different  assumptions  or  conditions.   The  policies
discussed below are considered by management to be critical to an  understanding
of our financial statements.

Revenue recognition

     Net sales  represent the invoiced value of goods,  net of  value-added  tax
("VAT") and returns.  We generally  recognize  product  revenue when  persuasive
evidence of an arrangement  exists,  delivery has occurred,  the fee is fixed or
determinable,  and  collectibility  is  probable.  We have a policy of including
handling costs incurred for finished goods, which are not significant,  in sales
and marketing expenses.


                                       20
<PAGE>

Warranties

     We offer warranties on the products we manufacture. Terms generally are for
one year from the date of sale.  Provision for warranty  expense is  established
for costs that are  expected  to be  incurred  after the sales and  delivery  of
products under  warranty.  We provided for anticipated  warranty  expense in the
amount of $452,000 and paid  warranty  claims of $330,000  during the year ended
December 31, 2005. 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 PRC.

     Income tax  expense is  computed  based on pre-tax  income  included in the
consolidated statements of operations. Deferred 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.

Trade receivables and allowance for doubtful accounts

     Trade  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 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 receivables are recorded in the results of
operations for the year in which the estimate is revised.  Trade receivables are
presented net of an allowance for uncollectible amounts of $141,000 and $0 as of
December 31, 2005 and of 2004 respectively.

Inventories

     Inventories  are  stated at the lower of cost or market.  Potential  losses
from  obsolete and  slow-moving  inventories  are provided for when  identified.
Cost, which comprises all costs of purchase and, where  applicable,  other costs
that have been incurred in bringing the  inventories  to their present  location
and  condition,   is  calculated  using  the  weighted  average  method.  Market
represents the estimated  selling price in the ordinary  course of business less
the estimated  costs of completion and the estimated costs necessary to make the
sale.

Impairment of long-lived assets

     The long-lived assets we hold and use 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


                                       21
<PAGE>

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.

Results of operation

Revenues

     Our revenues were $28,705,000 in 2005, representing a decrease of 59.47% as
compared to the same period in 2004.  The decrease was  primarily  due to fierce
competition of the RPC cellular phone market.  The cellular phone  manufactures'
enlarging  production  capability  during  the past  years  rapid  growth of the
industry  period and  accelerating  speed of new  products  launch,  lead to the
shorter products  lifecycle and the over supply.  Additionally,  the competition
from the counterfeit and "black market"  cellular phones in the PRC market which
affect the operating mode and order, and market  environment of the PRC cellular
phones  industry.  For the purpose of meet to the changing  market  demands,  we
developed  a series of new  products  with  innovative  functions  to extend our
product lines by using our newly  developed  platform  SpreadTrum and MTK in the
second half of the year.

     Our revenues had increased  from 3,440,000 in the first half of the year to
25,265,000 in the second half of the year,  represented 88.02% of the whole year
revenues.  The  significant  rise  in  the  revenues  was  primarily  due to the
introduction of a series of new products with innovative functions, such as 70A,
62+, 8205,  60+, M72 and M36. During 2005,  multimedia  cellular phones were the
mainstream  product  in the  market.  We  captured  the latest  demand  trend of
domestic  consumption  market to launch the new  models  with  leading  features
including MP3, MPEG4, FM radio and large memory capacity. Such new products also
generated a higher profit margin to us.

     Additionally,  in the second half of the year,  we changed our  strategy to
develop  cellular  phone  products  other than the GSM  system.  We adopted  the
strategy to strengthen the cooperation with telecommunication operator and other
cellular phone manufacturers to provide solution  consultation in the production
of CDMA cellular  phones,  model C100.  The solution  consultation  included the
knowledge of software application,  field testing, mechanical and molding design
and marketing.  Through the  co-operation  with  telecommunication  operator and
other cellular phones manufacturer,  we participated in the CDMA cellular phones
production and also built up a relationship with the telecommunication operator,
which would provide us an opportunity  to develop a potential  CDMA market,  and
also  generate  a higher  profit and stable  orders  from the  telecommunication
operator in future.  During  this  quarter,  the sales of C100 were  $5,032,000,
represents 17.53% of our revenues.

     In addition,  during this  quarter,  we commenced  cellular  phone  trading
activities  with  domestic  and  overseas  customers.  In the  domestic  market,
although  the  margin  would be lower than the sales of  self-produced  cellular
phones, we still can earn profit by using our existing strategic partners' sales
networks.  In the overseas  market,  we have  successfully  stepped out from PRC
domestic market that 10,000 unit M18+ was sold to a customer in Hong Kong during


                                       22
<PAGE>

this quarter. We will further develop our product to overseas market,  including
Southeast  Asia,  Hong Kong and Middle East so as to further  broaden our profit
base.

Breakdown by products

     For the year ended December 31, 2005,  products  attributed  over 5% of our
revenues are shown as follows:

     --------------------- -----------------------------------------------
                           Year ended December 31, 2005

     --------------------- -----------------------------------------------
                           $'000                        % of revenue

     --------------------- ---------------------------- ------------------
     C100                  5,032                        17.53%
     --------------------- ---------------------------- ------------------
     N108                  2,326                        8.10%
     --------------------- ---------------------------- ------------------
     8068                  2,326                        8.10%
     --------------------- ---------------------------- ------------------
     OS70+                 1,959                        6.82%
     --------------------- ---------------------------- ------------------
     K600                  1,443                        5.03%
     --------------------- ---------------------------- ------------------

         The sales of OS70+, represents 6.82% of our revenues and relates to the
new products launched into market during this year. In the second half of the
year, total sales of new products were over $4,410,000, represented 15.36% of
total revenues.

         The sales of C100 amounting to $5,032,000, represented 17.53% of
revenues, are the cooperation with a telecommunication operator. The trading
activities generated from the sales of GSM cellular phones N108 and 8068 and
CDMA cellular phone K600 were amount to $2,326,000, $ 2,326,000 and $1,443,000,
respectively, represented 8.10%, 8.10% and 5.03% of revenues respectively.
Through the introduction of new innovative features models and the development
of new business streams, we believe, our revenues would have a stable growth
since this quarter.

Breakdown by customers

------------------------------------------------- -----------------------------
                                                  Year ended December 31, 2005

------------------------------------------------- -----------------------------
                                                  $'000       % of revenue

------------------------------------------------- ----------- -----------------
Beijing Xingwang Shidai Tech & Trading Co., Ltd.  16,175      56.35%
------------------------------------------------- ----------- -----------------
Hebei Mascot Communication Equipment Co., Ltd     5,871       20.45%
------------------------------------------------- ----------- -----------------
CEC Cellular Limited                              5,777       20.13%
------------------------------------------------- ----------- -----------------
Others                                            882         3.07%
------------------------------------------------- ----------- -----------------

     Our revenues were  primarily  derived from three major  customers.  For the
year 2005, our revenues  mainly  generated from Beijing  Xingwang  Shidai Tech &
Trading Co.,  Ltd.  ("XWSD"),  Hebei  Mascot  Communication  Equipment  Co., Ltd
("MASCOT") and CEC Cellular  Limited ("CECM") were  $16,175,000,  $5,871,000 and
$5,777,000  respectively,  which  represents  56.35%,  20.45%  and 20.13% of the
revenue  respectively.  We have established  strategic partnership with CECM and
XWSD for a long  period  of time,  both of which  are  provincial  and  national
distributors  and dealers,  and the sales networks cover most of the main cities


                                       23
<PAGE>
<TABLE>
<CAPTION>

all over the PRC. MASCOT is a newly developed  provincial  distributor since the
3rd quarter of 2005, its sales  networks  covers most of the main cities all the
PRC, particularly in the northern region.

     It is our  primary  policy to broaden  our  distribution  channels so as to
minimize the  concentration  risk to few  distributors.  We will  explore  other
opportunity continually to further develop our distribution channels. To enhance
a healthy  competition,  MASCOT  is mainly  responsible  to  distribute  our old
products. Through the cooperation with different strategic partners in different
areas,  we  believe we could  further  extend our  distribution  channels  would
stimulate  our revenues in short-run  and also  strengthen  our brand  awareness
finally.

Other income, net

     For the year ended December 31, 2005, other income,  net was $544,000,  and
accounted for 1.62% of the total revenues,  as compared to $64,000,  or 0.09% of
total revenues for the  corresponding  period in 2004.  Other income,  net had a
sharp  period-to-period  increase  that is mainly  due to a royalty  fee  rebate
amounting to $309,000 in the 2nd quarter of 2005.

Operating expenses

     For year ended December 31, 2005,  operating  expenses mainly include sales
and marketing expenses,  general and administrative  expenses and R & D expenses
and shown as follows:

------------------- ------------------------- ------------------------- ----------------------
<S>                 <C>                       <C>                       <C>
                    Year ended December 31,   Year ended December 31,   Comparison
                    2005                      2004

------------------- ------------------------- ------------------------- ----------------------
                    $'000      % of revenue   $'000      % of revenue   $'000        %

------------------- ---------- -------------- ---------- -------------- ------------ ---------
Cost of sales       22370      77.93%         56,231     79.40%         -33,861      -60.22%
------------------- ---------- -------------- ---------- -------------- ------------ ---------
Sales & marketing   1554       5.41%          3,314      4.68%          -1,760       -53.11%
------------------- ---------- -------------- ---------- -------------- ------------ ---------
General & admin     1064       3.71%          1,435      2.03%          -371         -25.85%
------------------- ---------- -------------- ---------- -------------- ------------ ---------
R&D                 413        1.44%          586        0.83%          -173         -29.52%
------------------- ---------- -------------- ---------- -------------- ------------ ---------
Total               25,401     i@             61,566     i@             -36,165      -58.74%
------------------- ---------- -------------- ---------- -------------- ------------ ---------
</TABLE>

Cost of sales

     For the year ended December 31, 2005,  our cost of sales were  $22,370,000,
representing  77.93% of  revenue,  compared  to  $56,231,000  and  79.40% of the
corresponding  period in 2004. Compared to the corresponding period in 2004, the
cost of sales had a  period-to-period  decrease of 60.22%,  which varied in line
with our sales revenues decrease of 59.47%.  Although the fierce competition led
to the cutting of sales prices for old products, the cost of sales percentage to
revenues can be maintained through our effectively control of raw materials used
and  negotiation of lower materials  prices with  suppliers,  as wellas the high
profit margin of our new products launched in the second half of the year.


                                       24
<PAGE>

Sales and marketing expenses

     Sales and  marketing  expenses  mainly  represent the free-gift and product
model to customers and dealers  respectively,  cost of provision for after-sales
services, remunerations for sales personnel and development of market.

     For the year ended  December 31, 2005,  sales and  marketing  expenses were
$1,554,000,  accounting  for  5.41%  of  the  total  revenues,  as  compared  to
$3,314,000,  or 4.68% of total  revenues for the  corresponding  period in 2004.
Sales and  marketing  expenses had a  period-to-period  decrease of 53.11%.  The
percentage in total  revenues  increased  from 4.68% to 5.41% as compared to the
corresponding  period in 2004 are due to the total  revenue's  decrease  and the
approximately  steady absolute  expense.  A large portion of sales and marketing
expenses was fixed expenses, such as remunerations for sales personnel. Compared
to the period  ended June 30,  2005,  the  percentage  represented  in the total
revenues  decreased  from  20.38%  to  5.41%  was due to sharp  recovery  of our
revenues,  and we  effectively  controlled  the  cost  of  marketing,  including
remunerations  for sales  personnel,  after-sales  repair cost and free-gift and
product model to customers and dealers.

R&D expenses

     The R&D cost was  $413,000  for the year ended  December  31,  2005,  which
represents 1.44% of total revenue, compared with $586,000 and 0.83% respectively
in the same period in 2004. R&D expenses incurred in 2004 mainly represented the
ADI platform  development  expense and several  models of mobile phone  research
expense.  R&D expenses  incurred in the year mainly  represented the development
cost on SPREADTRUM and MTK platform,  some innovative features function, such as
MP3,  MPEG4  and U disk  could  be  developed  with  utilization  of  these  new
platforms.

     Our R&D investment  would allow us to respond to the market change quickly.
We introduced  many models of cellular  phones with  innovative  functions  this
quarter, such as OS70+, M62+, OX8205. We expect the investment in R&D activities
would be  continued  in next  year.  We  believe  that our R&D  activities  will
strengthen  our  technologies,  reduce the costs of existing  products  and also
provide future revenue streams through the launch of new innovative products.

General and administrative expenses

     General and  administrative  expenses consist primarily of compensation for
personnel,   travel   expenses,   materials   expenses   related   to   ordinary
administration and fees for professional services.

     For the year of December 31, 2005, general and administrative expenses were
$1,064,000,  accounting  for  3.71%  of  the  total  revenues,  as  compared  to
$1,435,000, or 2.03% of the total revenues for the corresponding period in 2004.
General and administrative  expenses had a period-to-period  sharply decrease of
25.85%.  The  period-to-period  sharp  decrease  was mainly due to  reduction of
compensation  for  personnel  by  simplifying   personnel  and  lower  personnel
compensation,  and reduction of daily expense by economizing travel expenses and
administrative expense.


                                       25
<PAGE>

Gross profit and gross margin

     For the year  December  31, 2005,  our gross profit was $ 6,335,000,  which
represented a decrease of 56.58% as compared to the gross profit of  $14,591,000
in the same period in 2004. Our gross margin for the reporting  period increased
slightly from 20.06% in 2004 to 22.07% in 2005.

     A slightly  increase  in our gross  margin  under a fierce  competition  is
attributable to new products  successfully  launched into the market and changea
in our products mix.  Although our gross margin decreased due to price reduction
for sales promotion, it was offset by the high gross margin new products such as
CDMA cellular phone C100. Overall,  the gross margin has slightly increased.  We
controlled  usage of raw materials  effectively  and reduced  materials price by
negotiation with suppliers, so as to control our cost of sales.

Net income

     For the year ended of December 31, 2005, our net income was $3,492,000,  as
compared to net income of $8,699,000  of the same period in 2004.  The recession
in our  profit  is due to the tough  environment  since  the 4th  quarter  2004.
Comparing  with the 2nd quarter of 2005,  our net income had  increased  sharply
from net loss  US$524,000 to net income  US$4,016,000  in the second half of the
year.

Liquidity and Capital Resources

     We generally finance our operations from cash flow generated internally.

     As of December  31, 2005,  we had current  assets of  $30,230,000.  Current
assets are mainly comprised of inventories of $4,460,000, accounts receivable of
$12,034,000, trade deposits and other receivables aggregated of $10,580,000, and
restricted  cash, cash and cash equivalents of $2,974,000.  Current  liabilities
comprised accounts payable of $7,939,000,  trade deposit received of $5,432,000,
accrued expenses and other accrued  liabilities of $2,259,000,  due to directors
of $320,000, and provision for warranty of $122,000.

     We offer two trading terms to our customers,  i.e.  cash-on-delivery and on
credit term within 90 days. As of December 31, 2005, our net accounts receivable
were  $12,034,000,  compared to  $8,250,000  as of  December  31,  2004.  45.87%
increase in the  accounts  receivable  is due to  significant  growth in revenue
generated  during the second half of the year. We strictly request our customers
to settle the  outstanding  receivables  before  new order is made.  There is no
particular  change in our credit  policy  that  three  months  credit  period is
offered  to our  long-term  customers,  XWSD,  and two months  credit  period is
offered  to our new  distributor,  MASCOT.  We have  reviewed  the  credit  risk
regularly.  Although some of the  receivables  are over due, the settlement from
our major  customers is continuing  that about  $3.3million  was received in the
first quarter of 2006.

     As of December 31, 2005, our inventories  were  $4,460,000,  as compared to
$5,781,000 as of  December.31,  2004,  which  represented  moderate  decrease of
22.85%.  The main reason for this  decrease  is due to overall  drop in revenue.
However,  we have  certain  aged  materials  for  production  of  older  type of


                                       26
<PAGE>

products.  We  stimulated  the sales of these  products by reducing  the selling
price.  Furthermore,  we modified our old products,  such as OS70, M62 by adding
new functions  (such as MP3, MPEG4 etc.).  We have entered into  agreements with
overseas  business partners for the sales of the old products such as OS70, etc.
According to the agreements,  we shall also develop our new solution platform by
utilization of our old materials'  inventories  and launch the new products into
the oversea market. The geographical  difference could enhance difference demand
to these products. We also have critically evaluated our inventories,  provision
for obsolete inventories amounting to $223,000 were made in this year.

     As of December 31, 2005, our cash and bank balances were mainly denominated
in Renminbi ("RMB") and Hong Kong Dollar.  Our revenue and expenses,  assets and
liabilities  are mainly  denominated in RMB.  Renminbi had ceased to pledge at a
relative  constant rate to the United States dollar.  Although Renminbi had been
slightly  inflated  in July  2005,  as a result of the  change in  pledging  RMB
against  a  basket  of  currencies  instead  of  singly  of the US  dollar,  our
activities,  assets and  liabilities  are mainly  denominated  in Renminbi,  any
further possible  inflation of Renminbi would be benefit to us. We consider that
the exposure to exchange  fluctuations  is relatively  low and therefore we have
not engaged in any hedging activity.

Cash Flows

     As of  December  31  2005,  we have  the  restricted  cash,  cash  and cash
equivalents of $2,974,000, compared to $2,557,000 as of December 31, 2004, which
representing  an increase of 16.31%.  It is mainly due to the  repayment  from a
related  company  in the  first  quarter  of 2005  and cash  generated  from our
operating  profit.  $3,715,000  increase in accounts  receivable  and $6,266,000
decrease in accounts payable were due to significant growth in revenue since the
second half of the year

     Our gearing ratio,  calculated as total debts over total assets, was 51.83%
as of December 31, 2005, 61.76% as of December 31, 2004.

Contingent Liabilities

     As of December 31, 2005,  we had not entered into any  guarantee  contracts
nor any non-disclosed  contracts which will affect stockholders' equity or share
structure.

Off Balance Sheet Arrangements

     As of December 31, 2005, we had no off balance sheet arrangements.


                                       27
<PAGE>
<TABLE>
<CAPTION>

Contractual Commitments

     The Company is obligated to make future 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  at  December  31,  2005,   reported  by  maturity  of
obligation.


                                                  Payments due by period
                                   ---------------------------------------------------
Contractual Obligations            Total     Less than 1-3 years  3-5 years  More than
                                              1 year                          5 years
--------------------------------   --------- --------- ---------  ---------  ---------
<S>                                <C>       <C>       <C>        <C>        <C>
                                   $    '000 $    '000 $    '000  $    '000  $    '000

Long-term Debt Obligations                -         -         -          -          -
Capital Lease Obligations                 -         -         -          -          -
Operating  Lease Obligations              54        27        27         -          -
Purchase Obligations                     852       852        -          -          -
Other long-term liabilities
   reflected on the registrant's
   balance sheet under GAAP               -         -         -          -          -

                                   --------- --------- ---------  ---------  ---------

Total                                    906       879        27         -          -
                                   ========= ========= =========  =========  =========
</TABLE>


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. We are not presently engaged in and, if a suitable business target is
not identified by us prior to the prescribed liquidation date of the trust fund,
we may not engage in, any substantive commercial business.  Accordingly,  we are
not and,  until such time as we consummate a business  combination,  we will not
be, exposed to risks associated with foreign exchange rates,  commodity  prices,
equity prices or other  market-driven  rates or prices.  The net proceeds of our
initial public  offering held in the trust fund have been invested only in money
market funds meeting certain  conditions under Rule 2a-7  promulgated  under the
Investment  Company Act of 1940. Given our limited risk in our exposure to money
market funds, we do not view the interest rate risk to be significant.

     The Company considers Renminbi as its functional  currency as a substantial
portion of the Company's business activities are based in Renminbi. However, the
Company has chosen the United States dollar as its reporting currency.

     Transactions  in currencies  other than the functional  currency during the
year are  translated  into the functional  currency at the  applicable  rates of
exchange  prevailing  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.

     Translation  adjustments,  when  material  resulting  from this process are
recorded in accumulated other comprehensive  income (loss) within  stockholders'
equity.


                                       28
<PAGE>

Item 8.       Financial Statements and Supplementary Data.

     Reference  is made to pages F-1 through  F-17  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.      Controls and Procedures.

     The Company maintains  disclosure controls and procedures that are designed
to ensure  that  information  required  to be  disclosed  in our  reports  filed
pursuant  to the  Securities  Exchange  Act of 1934,  as amended,  is  recorded,
processed,  summarized  and reported  within the time  periods  specified in the
SEC's  rules,  regulations  and  related  forms,  and that such  information  is
accumulated and  communicated to our principal  executive  officer and principal
financial officer, as appropriate,  to allow timely decisions regarding required
disclosure.

     The Company, under the supervision of our chief executive officer and chief
financial officer,  carried out an evaluation of the effectiveness of the design
and operation of its disclosure controls and procedures as of December 31, 2005.
Based upon that evaluation,  management,  including our chief executive  officer
and chief financial officer,  concluded that the Company's  disclosure  controls
and  procedures  were effective in alerting it in a timely manner to information
relating to the Company required to be disclosed in this report.

     During our  fiscal  year 2005,  there  were no  significant  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 and Executive Officers of the Registrant.

Our current directors and executive officers are as follows:

       Name                 Age     Positions Held and Tenure

       Wang Xin              37     Chief Executive Officer and a Director
       Zhao Hongwei          40     Chief Financial Officer
       Liu Yu                40     Director
       Wang Zhibin           36     Director


                                       29
<PAGE>

     Wang Xin has served as Chief Executive Officer and a member of our Board of
Directors since March 31, 2005.  From April 2003 to present,  he has also served
as Director and General Manager of Xelent. Prior to joining Xelent, he served as
the as the  General  Manager of the Sales and  Marketing  Division  of  Shanghai
Cellstar  International  Trading  Co.,  Ltd.  from  January  2003 to April 2003,
Director of  Logistics & Customer  Service of  Shanghai  Cellstar  International
Trading Co., Ltd.  from  November  1997 to January  2003,  and Director and Vice
President  of Beijing VA  Communication  Equipment  Co.,  Ltd.  from May 1996 to
October 1997.

     Zhao Hongwei has served as our Chief  Financial  Officer  since October 26,
2005.  Mr.  Zhao has over 15  years'  experience  in  accounting  and  financial
management,  mainly with  listed  companies  in Hong Kong and  Foreign  Invested
Enterprise  in  the  PRC,  most  recently  serving  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 May 1990.  From May
1998 to  present  he has  also  served  as  Chairman  of the  Board  of  Beijing
Huanyitong Technology & Trading Co., Ltd. From May 1995 to April 1998, he served
as General Manager of Beijing Lianwanjia Telecommunication Trading Center.

     Wang  Zhibin 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 August 2004.
From May 1998 to present, he has also served as General Manager of Beijing Glory
Real  Estate  Development  Co.,  Ltd.,  and a  director  of  Beijing  Huanyitong
Technology  & Trading  Co.,  Ltd.  From May 1995 t o April 1998,  he served as a
Manager of Beijing Lianwanjia Telecommunication Trading Center.

Audit Committee

     We do not have an audit  committee of our Board of Directors nor do we have
an audit committee financial expert, because we do not believe the nature of our
business is such that an audit  committee or audit  committee  financial  expert
would be useful or necessary.  Furthermore, our equity securities are not listed
on an exchange or automated  quotation system that requires its listed companies
to appoint an audit committee.

Section 16(a) Beneficial Ownership Reporting Compliance

     Section  16(a) of the  Securities  and  Exchange  Act of 1934,  as amended,
requires our directors,  officers and persons owning more than 10% of our common
stock to file reports of ownership and changes of ownership  with the Securities
and  Exchange  Commission.  Based on its  review of the  copies of such  reports
furnished to us, or representations from certain reporting persons that no other
reports were required,  we believe that all applicable filing  requirements were
complied with during the fiscal year dated December 31, 2005.


                                       30
<PAGE>

Item 11.      Executive Compensation.

     There  was no  officer  whose  salary  and bonus  for the  period  exceeded
$100,000.

                           Summary Compensation Table


----------------------------- -------- ----------- --------- ----------------
Name and Principal position     Year      Salary     Bonus     Other Annual
                                                               Compensaton
----------------------------- -------- ----------- --------- ----------------
Wang Xin, CEO                   2005     $60,000      NA            NA
----------------------------- -------- ----------- --------- ----------------
Zhao Hongwei, CFO               2005     $30,000      NA            NA
----------------------------- -------- ----------- --------- ----------------

     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.

     We have no stock option,  retirement,  pension, or profit-sharing  programs
for the  benefit of  directors,  officers or other  employees,  but our Board of
Directors may recommend adoption of one or more such programs in the future.


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 March 17, 2006:

     o    each person known by us to be the beneficial  owner of more than 5% of
          our outstanding shares of common stock;

     o    each of our officers and directors; and

     o    all our officers and directors as a group.












                                       31
<PAGE>
<TABLE>
<CAPTION>

     Unless otherwise indicated,  we believe that all persons named in the table
have sole voting and investment power with respect to all shares of common stock
beneficially owned by them.

                                                            Amount and Nature of Beneficial Ownership(1)
                                                            --------------------------------------------
<S>                                                           <C>                     <C>
                                                                  Number                Percent of
Name of Beneficial Owner                                      of Shares (2)           Voting Stock (3)

Wang Xin, Chief Executive Officer and Director                 3,000,000                  10.09%
Liu Yu, Director                                               6,000,000                  20.16%
Wang Zhibin, Director                                          6,000,000                  20.16%
Zhao Hongwei, Chief Financial Officer                               --                      --
Darrell Lerner                                                 7,700,000                  25.88%


Directors and executive officers as a group (4 persons)                                   50.41%
</TABLE>

-----------------------------------
Less than 1%

(1)  On March  17,  2006,  there  were  27,956,000  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.

(2)  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.

(3)  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 March 17,
     2006 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  include  shares  which may be issued upon the  exercise of any
     other  options  or  warrants  or the  conversion  of any other  convertible
     securities.


                                       32
<PAGE>

Item 13.      Certain Relationships and Related Transactions.

     Messrs  Wang Xiu,  Liu Yu and Wang  Zhibin  have  outstanding  loans to the
Company in the amount of $320,000, which loans are unsecured,  interest-free and
repayable by the Company on demand.

Item 14.      Principal Accounting Fees and Services.

     The firm of Moores  Rowland  Mazars acts as our principal  accountant.  The
following  is a summary of fees paid to our  principal  accountant  for services
rendered.

Audit Fees

     During the fiscal year ended  December 31, 2005, the fees for our principal
accountant   were  $87,500  in  connection  with  our  initial  public  offering
(financial  statements  included in the Form S-1 and Current  Report on Form 8-K
filed with the Securities  and Exchange  Commission on November 1, 2005) and the
review of our Quarterly  Report on Form 10-Q for the quarter ended September 30,
2005.

Audit Related Fees

     During 2005, our principal  accountant did not render assurance and related
services  reasonably  related  to the  performance  of the  audit or  review  of
financial statements.

Tax Fees

     During 2005, our principal accountant did not render services to us for tax
compliance, tax advice and tax planning.

All Other Fees

     During 2005,  there were no fees billed for products and services  provided
by the principal accountant other than those set forth above.

Audit Committee Approval

     We  currently  do not  have an audit  committee.  Our  Board  of  Directors
approved the engagement of Moores Rowland Mazars as our  independent  registered
public accounting firm in a meeting held May 9, 2005.


                                     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.


                                       33
<PAGE>

     (b)  Exhibits.

     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 (1)

 3.2                Bylaws (1)

10.1                Securities  Exchange Agreement by and among Universal Flirts
                    Corp,   United   First   International   Limited   and   the
                    Shareholders of United First International Limited (2)

10.2                National  Sales and Agency  Contract by and among CEC Mobile
                    Co. Ltd., Beijing Prosperous Times Commercial & Trading Co.,
                    Ltd. and Beijing Orsus Xelent  Technology & Trading  Company
                    Limited dated May 26, 2004. (2)

10.3                National  Sales and Agency  Contract by and among CEC Mobile
                    Co. Ltd., Beijing Prosperous Times Commercial & Trading Co.,
                    Ltd. and Beijing Orsus Xelent  Technology & Trading  Company
                    Limited dated March 18, 2004. (2)

10.4                National  Sales and Agency  Contract by and among CEC Mobile
                    Co. Ltd., Beijing Prosperous Times Commercial & Trading Co.,
                    Ltd. and Beijing Orsus Xelent  Technology & Trading  Company
                    Limited dated April 29, 2004. (2)

10.5                Purchase   Contract  by  and  among   Beijing  Orsus  Xelent
                    Technology & Trading Company  Limited and Shanghai  Chengxin
                    Electronic Technology Co., Ltd. dated May 28, 2004 (2)

10.6                Purchase   Contract  by  and  among   Beijing  Orsus  Xelent
                    Technology & Trading Company  Limited and Shanghai  Chengxin
                    Electronic Technology Co., Ltd. dated May 28, 2004 (2)

10.7                Purchase   Contract  by  and  among   Beijing  Orsus  Xelent
                    Technology & Trading Company  Limited and Shanghai  Chengxin
                    Electronic Technology Co., Ltd. dated May 28, 2004 (2)

10.8                Purchase   Contract  by  and  among   Beijing  Orsus  Xelent
                    Technology & Trading  Company  Limited and  Shanghai  Suncom
                    Logidtics Limited dated April 14, 2004 (2)

10.9                Purchase   Contract  by  and  among   Beijing  Orsus  Xelent
                    Technology & Trading  Company  Limited and  Shanghai  Suncom
                    Logistics Limited dated May 27, 2004 (2)

10.10               Purchase   Contract  by  and  among   Beijing  Orsus  Xelent
                    Technology & Trading  Company  Limited and  Shanghai  Suncom
                    Logistics Limited dated May 27, 2004 (2)


                                       34
<PAGE>

10.11               Purchase   Contract  by  and  among   Beijing  Orsus  Xelent
                    Technology & Trading  Company  Limited and  Shanghai  Suncom
                    Logistics Limited dated May 27, 2004 (2)

10.12               Purchase   Contract  by  and  among   Beijing  Orsus  Xelent
                    Technology & Trading Company Limited and Truly Semiconductor
                    Co., Ltd. dated May 21, 2004 (2)

10.13               National  Sales and Agency  Contract by and among CEC Mobile
                    Co., Ltd.,  Beijing  Prosperous  Times  Commercial & Trading
                    Co.,  Ltd.  and Beijing  Orsus  Xelent  Technology & Trading
                    Company Limited dated May 26, 2004 (2)

10.14               National  Sales and Agency  Contract by and among CEC Mobile
                    Co., Ltd.,  Beijing  Prosperous  Times  Commercial & Trading
                    Co.,  Ltd.  and Beijing  Orsus  Xelent  Technology & Trading
                    Company Limited dated May 26, 2004 (2)

21.1                Subsidiaries of the Company (3)

24.1                Power of Attorney (set forth on signature page)

31.1                Certification of Principal  Executive  Officer under Section
                    302 of the Sarbanes-Oxley Act of 2002 (3)

31.2                Certification of Principal  Financial  Officer under Section
                    302 of the Sarbanes-Oxley Act of 2002 (3)

32.2                Certification under Section 906 of the Sarbanes-Oxley Act of
                    2002 (3)

------------

(1) Incorporation by reference to the Company's  Registration  Statement on Form
S-1, as amended (Registration No. 333-125687).

(2) Incorporated by reference to the Company's  Current Report on Form 8-K dated
May 4, 2005.

(3) Filed herewith











                                       35
<PAGE>

Orsus Xelent Technologies, Inc.

Index to Consolidated Financial Statements
Year ended December 31, 2005 and 2004
--------------------------------------------------------------------------------



                                                                         Page
                                                                         ----

Report of Independent Certified Registered Public Accounting Firm         F-1

Consolidated Statements of Operations                                     F-2

Consolidated Balance Sheets                                               F-3

Consolidated Statements of Changes in Stockholders' Equity                F-4

Consolidated Statements of Cash Flows                                     F-5

Notes to Consolidated Financial Statements                              F6 - F17















                                       35
<PAGE>

Report of Independent Registered Public Accounting Firm


To the Stockholders and Board of Directors
Orsus Xelent Technologies, Inc.





We have audited the  accompanying  consolidated  balance  sheets of Orsus Xelent
Technologies,  Inc. and its subsidiary  (the  "Company") as of December 31, 2005
and 2004,  and the related  consolidated  statements of  operations,  changes in
stockholders' equity and cash flows for 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 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  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, 2005 and 2004 and the results of its  operations and its cash flows
for the years then ended in  conformity  with  accounting  principles  generally
accepted in the United States of America.







Moores Rowland Mazars
Chartered Accountants
Certified Public Accountants
Hong Kong

Date:  March 29, 2006




                                      F-1
<PAGE>

Orsus Xelent Technologies, Inc.

Consolidated Statements of Operations
Years ended December 31, 2005 and 2004
--------------------------------------------------------------------------------



                                                            2005           2004
                                              Note       USD'000        USD'000


Operating revenues - Net sales                            28,705         70,822
                                                     -----------    -----------

Operating expenses:
   Cost of sales                                          22,370         56,231
   Sales and marketing                                     1,554          3,314
   General and administrative                              1,064          1,435
   Research and development                                  413            586
   Depreciation                                              310            598
                                                     -----------    -----------

   Total operating expenses                               25,711         62,164
                                                     -----------    -----------

Operating income                                           2,994          8,658

Interest expense                                             (25)          (143)
Other income, net                                            544             64
                                                     -----------    -----------

Income before income taxes and minority
   interest                                     8          3,513          8,579
Income taxes                                                 (21)          --
                                                     -----------    -----------

Income before minority interest                            3,492          8,579

Minority interest                                           --              120
                                                     -----------    -----------

Net income                                                 3,492          8,699

Other comprehensive income
Foreign currency translation adjustment                      349           --
                                                     -----------    -----------

Comprehensive Income                                       3,841          8,699
                                                     ===========    ===========

Earnings per share
   Basic and diluted                            4           0.12           0.29
                                                     ===========    ===========


Weighted average number of common shares
   outstanding                                        29,756,000     29,756,000
                                                     ===========    ===========





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



                                      F-2
<PAGE>
<TABLE>
<CAPTION>

Orsus Xelent Technologies, Inc.

Consolidated Balance Sheets
As of December 31, 2005 and 2004
---------------------------------------------------------------------------------------

                                                                       2005        2004
                                                           Note     US$'000     US$'000
<S>                                                        <C>      <C>         <C>
ASSETS
Current assets
   Cash and cash equivalents                                          2,974         224
   Restricted cash                                                     --         2,333
   Accounts receivable - Trade                                       12,034       8,250
   Due from related company                                 11         --         3,319
   Inventories                                               7        4,460       5,781
   Trade deposits paid                                               10,580       8,126
   Other current assets                                                 182         210
                                                                  ---------   ---------

   Total current assets                                              30,230      28,243

Property, plant and equipment, net                           6          781         778
                                                                  ---------   ---------

Total assets                                                         31,011      29,021
                                                                  =========   =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
   Accounts payable - Trade                                           7,939      13,840
   Accrued expenses and other accrued liabilities                     2,259       1,103
   Trade deposits received                                            5,432       2,487
   Due to directors                                          7          320         311
   Provision for warranty                                               122         182
                                                                  ---------   ---------

  Total current liabilities                                          16,072      17,923
                                                                  ---------   ---------
                                                            12
Commitments and contingencies

Stockholders' equity Preferred stock, US$0.001 par value:
   Authorized: 100,000,000 shares, no shares issued                    --          --
Common stock and paid-in capital, US$0.001 par value:
   Authorized: 100,000,000 shares
Issued and outstanding: 29,756,000 shares as of
   December 31, 2005 and as of December 31, 2004                         30          30
Additional paid-in capital                                            2,484       2,484
Dedicated reserves                                           9        1,042       1,042
Other comprehensive income                                              349        --
Retained earnings                                                    11,034       7,542
                                                                  ---------   ---------

Total stockholders' equity                                           14,939      11,098
                                                                  ---------   ---------

Total liabilities and stockholders' equity                           31,011      29,021
                                                                  =========   =========
</TABLE>


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



                                      F-3
<PAGE>
<TABLE>
<CAPTION>

Orsus Xelent Technologies, Inc.

Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 2005 and 2004
--------------------------------------------------------------------------------------------------------------------

                          Common stock issued
                        -----------------------
                                                                                  Other      Retained
                                                  Additional                    compre-     earnings/
                            No. of                   paid-in     Dedicated      hensive  (accumulated
                            shares       Amount      capital      reserves       income       losses)          Total
                                        US$'000      US$'000       US$'000      US$'000       US$'000        US$'000
                        ----------   ----------   ----------    ----------   ----------   ------------    ----------
<S>                     <C>          <C>          <C>           <C>          <C>          <C>             <C>

Balance as of
  January 1, 2004       15,000,000           15        2,549          --           --             (115)        2,449

Reverse merger and
  recapitalization      14,756,000           15          (65)         --           --             --             (50)

Net income                    --           --           --            --           --            8,699         8,699

Transfer to dedicated
  reserves                    --           --           --           1,042         --           (1,042)         --
                        ----------   ----------   ----------    ----------   ----------   ------------    ----------
Balances as of
  December 31, 2004     29,756,000           30        2,484         1,042         --            7,542        11,098

Net income                    --           --           --            --           --            3,492         3,492

Foreign currency
  translation
  adjustment                  --           --           --            --            349           --             349

Balances as of
  December 31, 2005     29,756,000           30        2,484         1,042          349         11,034        14,939
                        ==========   ==========   ==========    ==========   ==========   ============    ==========
</TABLE>



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



                                      F-4
<PAGE>
<TABLE>
<CAPTION>

Orsus Xelent Technologies, Inc.

Consolidated Statements of Cash Flows
Years ended December 31, 2005 and 2004
----------------------------------------------------------------------------------------------

                                                                             2005         2004
                                                                          US$'000      US$'000
<S>                                                                       <C>          <C>
Cash flows from operating activities
Net income                                                                  3,492        8,699
Adjustments to reconcile net income to net cash (used in) provided by
    operating activities:
    Depreciation                                                              310          598
    Loss on disposal of property, plant and equipment                        --              7
    Provision for bad debts                                                   149         --
    Provision for obsolete inventory                                           98          269
    Loss on liquidation of a subsidiary                                      --            120
    Minority interest                                                        --           (120)
    Exchange difference                                                        53         --
Changes in assets and liabilities:
    Accounts receivable - trade                                            (3,715)      (8,250)
    Inventories, net                                                        1,376       (5,687)
    Trade deposits paid                                                    (2,239)      (8,125)
    Other current assets                                                       34         (149)
    Trade deposits received                                                 2,879        2,487
    Accounts payable - trade                                               (6,266)      13,651
    Provision for warranty                                                    (65)         182
    Accrued expenses and other accrued liabilities                          1,317          959
    Provision for taxation                                                     21         --
                                                                        ---------    ---------

Net cash (used in) provided by operating activities                        (2,556)       4,641
                                                                        ---------    ---------

Cash flows from investing activities
    Purchase of property, plant and equipment                                (503)      (1,397)
    Proceeds from sales of property, plant and equipment                     --             43
    Repayment from a related company                                        3,407        4,524
    Loan to a related company                                                --         (7,107)
    Repayment from stockholders                                              --          1,352
    Decrease (increase) in restricted cash                                  2,395       (2,333)
                                                                        ---------    ---------

Net cash provided by (used in) investing activities                         5,299       (4,918)
                                                                        ---------    ---------

Cash flows from financing activities
Advance from stockholders                                                       1          311
                                                                        ---------    ---------

Net cash provided by financing                                                  1          311
                                                                        ---------    ---------

Net increase in cash and cash equivalents                                   2,744           34

Cash and cash equivalents, beginning of the year                              224          190
Exchange gain on cash and cash equivalents                                      6         --
                                                                        ---------    ---------

Cash and cash equivalents, end of the year                                  2,974          224
                                                                        =========    =========
</TABLE>


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




                                      F-5
<PAGE>

Orsus Xelent Technologies, Inc.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------



1.   BASIS OF FINANCIAL STATEMENT PRESENTATION AND REORGANIZATION

     Orsus  Xelent  Technologies,  Inc.  ("ORXT"),  formerly  known as Universal
     Flirts Corp.,  was organized under the laws of the State of Delaware on May
     25, 2004. Through its subsidiary,  Universal Flirts,  Inc., ORXT engaged in
     developing and operating an online dating service.

     As described in Note 2 below, 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,  ORXT was a development  stage company,  which,
     other  than  providing  an online  dating  service,  had no  operations  or
     revenues.  After recapitalization,  ORXT exited the development stage after
     March 31, 2005.

     Upon the  completion  of the  reorganization,  ORXT  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 established in Beijing, the
     PRC that is engaged in the business of designing  for retail and  wholesale
     distribution  cellular phones. BOXT had a 55% interest in Shanghai Sapphine
     Telecom Tech Co., Ltd. ("Sapphine") (English translation for identification
     purpose  only), a company  engaged in research and  development of cellular
     phones which was incorporated in the PRC. On August 19, 2004, the owners of
     Sapphine signed an agreement to liquidate Sapphine.

     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 ORXT 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 HK$100
     (equivalent  to US$13),  a company  engaged in trading of mobile  phone and
     accessories, and is 100% owned by OXHBVI.


2.   REORGANIZATION

     a)   Reorganization

          On March 18, 2005, the board of directors  approved a 4-for-1  forward
          split of its issued and outstanding common stock with a record date of
          March 28, 2005.

          Pursuant to a Stock  Transfer  Agreement  dated March 29,  2005,  ORXT
          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 ORXT's common stock.  Subsequently,  ORXT had 14,756,000  shares of
          its common stock outstanding.

     b)   Recapitalization

          Effective  on  March  31,  2005,   ORXT  completed  a  stock  exchange
          transaction with the  stockholders of UFI.  Pursuant to the Securities
          Exchange Agreement,  ORXT issued 15,000,000 shares of its common stock
          to the  stockholders  of UFI, in exchange for  20,000,000  outstanding
          shares of UFI and cash  payment of  US$50,000  from UFI.  After giving
          effect to the exchange, ORXT had 29,756,000 shares of its common stock
          outstanding.  As a result of the exchange,  UFI became a  wholly-owned
          subsidiary of ORXT.



                                      F-6
<PAGE>

Orsus Xelent Technologies, Inc.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------



2.   REORGANIZATION (CONTINUED)

     b)   Recapitalization (Continued)

          For  accounting  purposes,  the  transaction  has  been  treated  as a
          recapitalization  of UFI with ORXT  being the legal  survivor  and UFI
          being the accounting  survivor and the operating entity.  That is, the
          historical  financial  statements prior to March 31, 2005 are those of
          UFI, even though they are labeled as those of ORXT.  Retained earnings
          of  the  accounting  survivor,  UFI,  is  carried  forward  after  the
          recapitalization.  Operations prior to the  recapitalization are those
          of the accounting survivor,  UFI. Earnings per share for periods prior
          to the  recapitalization are restated to reflect the equivalent number
          of  shares.   Upon  completion  of  the  transaction,   the  financial
          statements become those of the operating company,  with adjustments to
          reflect   the  changes  in  equity   structure   and  receipt  of  the
          assets/liabilities  of  the  public  shell,  ORXT.  Accordingly,   the
          Company's  stockholders'  equity  as of  December  31,  2004  has been
          recapitalized and restated.

          Following  the  recapitalization,  ORXT  held 100% of the  issued  and
          outstanding shares of UFI and UFI became a wholly-owned  subsidiary of
          ORXT. In this report,  ORXT, UFI, BOXT Sapphine,  OXHBVI and OXTHK are
          collectively referred to as the "Company".

     c)   Merger under common control

          UFI was  incorporated  in Hong Kong on  September 8, 2004 and was 20%,
          40% and 40% owned by Mr.  Wang Xin,  Mr.  Liu Yu and Mr.  Wang  Zhibin
          respectively. UFI has had no operations since its incorporation.

          Pursuant to the  agreement  entered into between UFI and Mr. Wang Xin,
          Mr. Liu Yu and Mr. Wang Zhibin,  who owned 20%, 40% and 40%  interests
          respectively  in BOXT on November 1, 2004,  UFI  consummated  a merger
          with BOXT, and paid USD1,207,000, to all owners of Xelent, in exchange
          for all their beneficial interests in BOXT ("the Agreement"). BOXT was
          established  in the PRC on May 6, 2003 as a PRC company  with  limited
          liability.  The principal  activities of BOXT were the  development of
          cellular  phones  software and  technology,  including  the design and
          trading of cellular phones.

          On November 3, 2004,  the Beijing  Municipal  Bureau of Commerce  (the
          "Bureau")  approved the transfer of interests and the  application for
          the  change  of  BOXT  status  to a  wholly-owned  foreign  investment
          enterprise  ("WOFIE")  with limited  liability.  Upon  granting  WOFIE
          status,  the  operating  period of BOXT was for an initial  term of 10
          years until November 9, 2014 and UFI became the sole registered  owner
          of BOXT.

          Consistent  with the  provisions of Statement of Financial  Accounting
          Standards ("SFAS") No. 141 "Business  Combinations",  transfers of net
          assets or exchanges of equity interests  between entities under common
          control  do not  constitute  business  combinations.  Because  UFI and
          Xelent were  beneficially  owned by the same  stockholders  group, Mr.
          Wang Xin, Mr. Liu Yu and Mr. Wang Zhibin, immediately before and after
          the combination, the Agreement has been accounted for as a combination
          of  entities  under  common  control on a  historical  cost basis in a
          manner similar to a pooling of interests.  In accordance  with USGAAP,
          the  accompanying  financial  statements  of  the  Company  have  been
          prepared as if the Merger had occurred  and UFI had been  incorporated
          at the beginning of the earliest period presented, as of May 6, 2003.




                                      F-7
<PAGE>

Orsus Xelent Technologies, Inc.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------



3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Accounting principles
     The consolidated  financial  statements and accompanying notes are prepared
     in accordance with generally accepted  accounting  principles in the United
     States of America ("USGAAP").

     Basis of consolidation
     The results of the subsidiaries acquired or disposed of during the year are
     consolidated  from the effective  dates of  acquisition or to the effective
     dates of disposal, respectively.

     All significant intercompany accounts and transactions have been eliminated
     upon consolidation.

     Revenue recognition
     Net sales  represent the invoiced value of goods,  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 sale.  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  provided for anticipated
     warranty  expense in the amount of US$452,000  and paid warranty  claims of
     US$330,000 during the year ended December 31, 2005. 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 PRC.

     Income tax  expense is  computed  based on pre-tax  income  included in the
     consolidated statements of operations.  Deferred 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.




                                      F-8
<PAGE>

Orsus Xelent Technologies, Inc.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------



3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     Comprehensive income
     SFAS No. 130, "Reporting  Comprehensive Income",  requires the presentation
     of  comprehensive  income,  in  addition  to  the  existing  statements  of
     operations.  Comprehensive income is defined as the change in equity during
     the  year  from  transactions  and  other  events,  excluding  the  changes
     resulting from investments by owners and distributions to owners.

     Trade receivables
     Trade  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 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 receivables are
     recorded in the results of operations for the year in which the estimate is
     revised.   Trade   receivables  are  presented  net  of  an  allowance  for
     uncollectible amounts of US$141,000 and US$0 as of December 31, 2005 and of
     2004 respectively.

     Inventories
     Inventories  are  stated at the lower of cost or market.  Potential  losses
     from obsolete and slow-moving inventories are provided for when identified.
     Cost,  which comprises all costs of purchase and, where  applicable,  other
     costs that have been incurred in bringing the  inventories to their present
     location and condition,  is calculated  using the weighted  average method.
     Market  represents  the estimated  selling price in the ordinary  course of
     business less the estimated  costs of  completion  and the estimated  costs
     necessary to make the sale.

     Property, plant and equipment
     Property,  plant and equipment are stated at original cost less accumulated
     depreciation.

     The  cost of an  asset  comprises  its  purchase  price  and  any  directly
     attributable  costs of bringing the 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 expenses
     in the  year in which  they are  incurred.  In  situations  where it can be
     clearly  demonstrated  that the  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 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.




                                      F-9
<PAGE>

Orsus Xelent Technologies, Inc.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------


3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     Property, plant and equipment (Continued)
     Depreciation  is  provided  to write off the costs 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:

     Moulds Sum-of-the-units method Leasehold improvements

     o    Straight-line method over the lease term Machinery and equipment
     o    Straight-line method at 20% p.a.
     o    Office equipment Straight-line method at 20% p.a.
     o    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.

     Operating leases
     Leases 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 terms.

     Foreign currency translation
     The Company considers Renminbi as its functional  currency as a substantial
     portion  of the  Company's  business  activities  are  based  in  Renminbi.
     However,  the Company has chosen the United  States dollar as its reporting
     currency.

     Transactions  in currencies  other than the functional  currency during the
     year are translated into the functional currency at the applicable rates of
     exchange  prevailing 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 consolidated 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 year.




                                      F-10
<PAGE>

Orsus Xelent Technologies, Inc.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------



3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     Foreign currency translation (Continued)
     Translation  adjustments,  when  material,  resulting from this process are
     recorded  in   accumulated   other   comprehensive   income  (loss)  within
     stockholders'  equity.  Other  comprehensive  income for  foreign  currency
     translation  was  recorded  for the year ended  December 31, 2005 after the
     Renminbi ceased to be pegged to the United States Dollar during the year.

     Cash equivalents
     The Company considers  short-term,  highly liquid investments with original
     maturities of three months or less to be cash equivalents.

     Use of estimates
     The preparation of the consolidated financial statements in conformity with
     USGAAP requires the Company's  management to make estimates and assumptions
     that affect the reported  amounts of assets and  liabilities and disclosure
     of contingent  assets and  liabilities at the date of financial  statements
     and the reported amounts of revenues and expenses during the reported year.
     Actual amounts could differ from those  estimates.  Estimates are used for,
     but not limited to, the  accounting for certain items such as allowance for
     doubtful  accounts,   depreciation,   inventory  allowance,  provision  for
     warranty, taxes and contingencies.

     Segment information
     Operating  segments  are  defined as  components  of a company  about which
     separated 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  mobile  phones  which  are all  sold in the  PRC.  There is no
     reportable  business  or  geographical  segment  identified  and no segment
     information is disclosed accordingly.

     Related parties
     Parties are considered to be related if one party has the ability, directly
     or indirectly, to control the other party or exercise significant influence
     over the other party in making financial and operating  decisions.  Parties
     are also  considered to be related if they are subject to common control or
     common significant influence.

     Recently issued accounting standards
     There are no new accounting  pronouncements  for which adoption is expected
     to have a material effect on the Company's financial statements.





                                      F-11
<PAGE>

Orsus Xelent Technologies, Inc.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------


4.   EARNINGS PER SHARE

     Basic earnings per share is computed based upon the weighted average number
     of shares of common stock  outstanding  during each period as restated as a
     result of the reorganization and  recapitalization  as described in Note 2.
     The 29,756,000 shares in connection with the recapitalization were included
     in the computation of earnings per share as if outstanding at the beginning
     of each period presented.

     The Company  had no  potential  common  stock  equivalents  with a dilutive
     effect for any period  presented,  therefore basic and diluted earnings per
     share are the same.

5.   CONCENTRATIONS

     The Company is engaged  principally in the  development of mobile  software
     and  technology,  including  the design and trading of cellular  phones for
     sale  primarily to three dealers in the PRC. The Company buys certain major
     materials from six major suppliers.  In addition,  the Company subcontracts
     assembly works of cellular phones mainly to five subcontracting  factories.
     Management  believes 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.

     Customers  accounted  for over 10% of the Company's  operating  revenues as
     follows:

                                                             2005           2004
                                                                %              %
     Customer A                                                20             77
     Customer B                                                56             21
     Customer C                                                20              -
                                                       ==========     ==========

     Trade deposits received from the above customers were US$0 and US$2,487,000
     at December 31, 2005 and December 31, 2004, respectively. Trade receivables
     from the above customers were  US$11,508,000  and  US$8,250,000 at December
     31, 2005 and December 31, 2004, respectively.

     Suppliers accounted for over 10% of the Company's purchases are as follows:

                                                             2005           2004
                                                                %              %
     Supplier A                                                10             44
     Supplier B                                                19              -
     Supplier C                                                15              -
     Supplier D                                                14              -
     Supplier E                                                12              -
     Supplier F                                                 7             10
                                                       ==========     ==========

     Trade deposits from the above suppliers were US$759,000 and US$1,323,000 at
     December 31, 2005 and December 31, 2004.  Trade  payables owed to the above
     suppliers  were  US$529,000  and US$0 at December 31, 2005 and December 31,
     2004, respectively.




                                      F-12
<PAGE>

Orsus Xelent Technologies, Inc.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------



6.   PROPERTY, PLANT AND EQUIPMENT, NET

     Property, plant and equipment is summarized as follows:

                                                               2005        2004
                                                            US$'000     US$'000

     Moulds                                                   1,239       1,033
     Leasehold improvements                                     112          47
     Plant and machinery                                         14          14
     Office equipment                                           255         200
     Motor vehicles                                              86          83
                                                           --------    --------

                                                              1,706       1,377

     Accumulated depreciation                                  (925)       (599)
                                                           --------    --------

                                                                781         778
                                                           ========    ========


7.   INVENTORIES

     Inventories consisted of the followings:
                                                               2005        2004
                                                            US$'000     US$'000

     Raw materials                                            4,257       5,781
     Trading goods                                              203        --
                                                           --------    --------

                                                              4,460       5,781
                                                           ========    ========


8.   INCOME TAXES

     The Company is subject to income taxes on an entity basis on income arising
     in or derived from the tax jurisdictions in which it operates.

     ORXT had a net  operating  loss  carry-forward  for  income  tax  reporting
     purposes of  approximately  US$227,070  that might be offset against future
     taxable  income.  These net  operating  loss  carry-forwards  are  severely
     limited  when the  Company  experiences  a change  in  control.  Therefore,
     following the recapitalization as mentioned in Note 2, the amount available
     to offset future taxable  income might be limited.  No tax benefit has been
     reported in the financial  statements because the Company believes there is
     more likely than not the carry-forwards will be limited.  Accordingly,  the
     potential tax benefits of the loss carry-forwards are offset by a valuation
     allowance of the same amount.




                                      F-13
<PAGE>

Orsus Xelent Technologies, Inc.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------



8.   INCOME TAXES (CONTINUED)

     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. Determination of the amount of unrecognized deferred taxes on
     these earnings is not practical,  however, unrecognized foreign tax credits
     would be available to reduce a portion of the tax liability.

     UFI was incorporated in Hong Kong and has no assessable profit for the year
     presented.  OXTHK was also  incorporated in Hong Kong and Hong Kong Profits
     Tax has been  provided at the rate of 17.5% on OXT's  estimated  assessable
     profits for the year.

     Since BOXT has 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 for two years followed by a
     50% reduction for the next three years, commencing fiscal year 2005.

     Reconciliation  from the expected  statutory  tax rate in PRC of 24% (2004:
     33%) is as follows:

                                                               2005        2004
                                                                  %           %

     Statutory rate - PRC                                      24.0        33.0
     Difference in tax rates in the countries that the
        Company operates                                       (0.1)       --
     Tax exemption                                            (23.8)      (33.0)
     Non-deductible expenses                                    0.6        --
                                                           --------    --------

     Effective tax rate                                         0.7        --
                                                           ========    ========


9.   DISTRIBUTION OF INCOME

     The  Company's  income  is  substantially  contributed  by BOXT,  a company
     incorporated  in  the  PRC.  Income  of  BOXT  is   distributable   to  its
     stockholders  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  2004,  dedicated
     reserves of BOXT include a statutory surplus reserve and a statutory public
     welfare fund.  In accordance  with the relevant PRC Companies Law and rules
     and  regulations,  it is required to transfer amounts equal to at least 10%
     and  5% of its  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 liquidation of BOXT.




                                      F-14
<PAGE>
<TABLE>
<CAPTION>

Orsus Xelent Technologies, Inc.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------



9.   DISTRIBUTION OF INCOME (CONTINUED)

     Since  BOXT has  became 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  amount  of
     after-tax  income  and a staff  welfare  and  bonus  fund an  amount  to be
     determined by the directors.


10.  PENSION COSTS

     As  stipulated  by  PRC  regulations,   the  Company  maintains  a  defined
     contribution  retirement plan for all of its employees who are residents of
     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 US$15,000
     and US$9,000 for the years ended December 31, 2005 and 2004 respectively.

11.  RELATED PARTY TRANSACTION

     a.   Name and relationship of related parties

          Related party              Relationship with the Company during the year ended
          -------------              December 31, 2005
                                     ---------------------------------------------------
          <S>                        <C>
          Mr. Wang Xin               Director and stockholder of the Company
          Mr. Liu Yu                 Director and stockholder of the Company
          Mr. Wang Zhibin            Director and stockholder of the Company
          Beijing Huan Yitong Tech   A company owned by Mr. Liu Yu and Mr. Wang Zhibin
            & Trading Co., Ltd.*
          </TABLE>


          *English translation for identification purpose only



                                      F-15
<PAGE>
<TABLE>
<CAPTION>

Orsus Xelent Technologies, Inc.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------



11.  RELATED PARTY TRANSACTION (CONTINUED)

     b.   Summary of related party balances

                                                                     2005      2004
                                                          Note    US$'000   US$'000
                                                          ----    -------   -------
          <S>                                             <C>     <C>       <C>

          Due from related company
          Beijing Huan Yitong Tech & Trading Co., Ltd. *              --      3,319
                                                                  =======   =======

          Due to directors
          Mr. Wang Xin, Mr. Liu Yu and Mr. Wang Zhibin     (i)        320       311
                                                                  =======   =======

     c.   Summary of related party transactions

                                                                     2005      2004
                                                                  USD'000   USD'000

          Repayment from related company
          Beijing Huan Yitong Tech & Trading Co., Ltd. *            3,319       --
                                                                  =======   =======
          </TABLE>

          Note:

          (i)  The amounts are unsecured, interest-free and repayable on demand.

          *    Ceased to be related party since April 26, 2005.


12.  COMMITMENTS AND CONTINGENCIES

     (a)  Operating lease commitments

          The Company leases  certain staff  quarters and office  premises under
          non-cancelable  operating  leases.  Rental  expenses  under  operating
          leases were  USD83,000 and  USD126,000 for the year ended December 31,
          2005 and 2004 respectively.

          The following table  summarizes the approximate  future minimum rental
          payments  under  non-cancelable  operating  leases  in  effect  as  of
          December 31, 2005 and 2004:

                                                               2005         2004
                                                            USD'000      USD'000

          2005                                                 --             28
          2006                                                   27         --
          2007                                                   27         --
                                                          ---------    ---------

                                                                 44           28
                                                          =========    =========




                                      F-16
<PAGE>

Orsus Xelent Technologies, Inc.

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------


12.  COMMITMENTS AND CONTINGENCIES (CONTINUED)

     (b)  Contingencies

          In accordance  with PRC's tax  regulations,  the  Company's  sales are
          subject  to a 17% of value  added  tax  ("VAT")  upon the issue of VAT
          invoices to  customers.  As of  December  31,  2005,  there were sales
          amounted to  approximately  USD 21,300,000 for which VAT invoices have
          not yet been issued  ("Uninvoiced  sales").  Despite the fact that the
          Company has made full provision of the VAT regarding these  Uninvoiced
          sales,  the Company may be subject to penalties  for the amounts.  The
          exact amount of penalty cannot be estimated with reasonable  degree of
          certainty.
















                                      F-17
<PAGE>

                                   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/ Wang Xin
                                                         -----------------------
                                                         Wang Xin
                                                         Chief Executive Officer

DATED:  March 31, 2006

                              --------------------

                                POWER OF ATTORNEY

     The registrant and each person whose signature appears below hereby appoint
Wang Xin 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/ Wang Xin              Chief Executive Officer                March 31, 2006
------------------         (Principal Executive Officer)
Wang Xin                   and Director


 /s/ Zhal Hongwei          Chief Financial Officer                March 31, 2006
------------------         (Principal Accounting Officer)
Zhal Hongwei


 /s/ Liu Yu                Director                               March 31, 2006
-----------------
Liu Yu


 /s/ Wang Zhibin           Director                               March 31, 2006
------------------
Wang Zhibin

<PAGE>

  Exhibit
   Number                               Exhibit Description
-------------       ------------------------------------------------------------

 3.1                Certificate of Incorporation (1)

 3.2                Bylaws (1)

10.1                Securities  Exchange Agreement by and among Universal Flirts
                    Corp,   United   First   International   Limited   and   the
                    Shareholders of United First International Limited (2)

10.2                National  Sales and Agency  Contract by and among CEC Mobile
                    Co. Ltd., Beijing Prosperous Times Commercial & Trading Co.,
                    Ltd. and Beijing Orsus Xelent  Technology & Trading  Company
                    Limited dated May 26, 2004. (2)

10.3                National  Sales and Agency  Contract by and among CEC Mobile
                    Co. Ltd., Beijing Prosperous Times Commercial & Trading Co.,
                    Ltd. and Beijing Orsus Xelent  Technology & Trading  Company
                    Limited dated March 18, 2004. (2)

10.4                National  Sales and Agency  Contract by and among CEC Mobile
                    Co. Ltd., Beijing Prosperous Times Commercial & Trading Co.,
                    Ltd. and Beijing Orsus Xelent  Technology & Trading  Company
                    Limited dated April 29, 2004. (2)

10.5                Purchase   Contract  by  and  among   Beijing  Orsus  Xelent
                    Technology & Trading Company  Limited and Shanghai  Chengxin
                    Electronic Technology Co., Ltd. dated May 28, 2004 (2)

10.6                Purchase   Contract  by  and  among   Beijing  Orsus  Xelent
                    Technology & Trading Company  Limited and Shanghai  Chengxin
                    Electronic Technology Co., Ltd. dated May 28, 2004 (2)

10.7                Purchase   Contract  by  and  among   Beijing  Orsus  Xelent
                    Technology & Trading Company  Limited and Shanghai  Chengxin
                    Electronic Technology Co., Ltd. dated May 28, 2004 (2)

10.8                Purchase   Contract  by  and  among   Beijing  Orsus  Xelent
                    Technology & Trading  Company  Limited and  Shanghai  Suncom
                    Logidtics Limited dated April 14, 2004 (2)

10.9                Purchase   Contract  by  and  among   Beijing  Orsus  Xelent
                    Technology & Trading  Company  Limited and  Shanghai  Suncom
                    Logistics Limited dated May 27, 2004 (2)

10.10               Purchase   Contract  by  and  among   Beijing  Orsus  Xelent
                    Technology & Trading  Company  Limited and  Shanghai  Suncom
                    Logistics Limited dated May 27, 2004 (2)

10.11               Purchase   Contract  by  and  among   Beijing  Orsus  Xelent
                    Technology & Trading  Company  Limited and  Shanghai  Suncom
                    Logistics Limited dated May 27, 2004 (2)

<PAGE>

10.12               Purchase   Contract  by  and  among   Beijing  Orsus  Xelent
                    Technology & Trading Company Limited and Truly Semiconductor
                    Co., Ltd. dated May 21, 2004 (2)

10.13               National  Sales and Agency  Contract by and among CEC Mobile
                    Co., Ltd.,  Beijing  Prosperous  Times  Commercial & Trading
                    Co.,  Ltd.  and Beijing  Orsus  Xelent  Technology & Trading
                    Company Limited dated May 26, 2004 (2)

10.14               National  Sales and Agency  Contract by and among CEC Mobile
                    Co., Ltd.,  Beijing  Prosperous  Times  Commercial & Trading
                    Co.,  Ltd.  and Beijing  Orsus  Xelent  Technology & Trading
                    Company Limited dated May 26, 2004 (2)

21.1                Subsidiaries of the Company (3)

24.1                Power of Attorney (set forth on signature page)

31.1                Certification of Principal  Executive  Officer under Section
                    302 of the Sarbanes-Oxley Act of 2002 (3)

31.2                Certification of Principal  Financial  Officer under Section
                    302 of the Sarbanes-Oxley Act of 2002 (3)

32.2                Certification under Section 906 of the Sarbanes-Oxley Act of
                    2002 (3)

------------

(1) Incorporation by reference to the Company's  Registration  Statement on Form
S-1, as amended (Registration No. 333-125687).

(2) Incorporated by reference to the Company's  Current Report on Form 8-K dated
May 4, 2005.

(3) Filed herewith