SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC 20549







FORM
10-Q




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





For
the quarterly period ended March 31, 2010





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





For
the transition period from ______ to ______.





Commission
file number: 001-33456





ORSUS
XELENT TECHNOLOGIES, INC.


(Exact
name of registrant as specified in its charter)





Delaware
              
              20-1198142(State
      of incorporation)
              
              (I.R.S.  Employer
      Identification No.)





29th 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)




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





Yes   ̈              No  x





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





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





Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule
12-b2 of the Exchange Act).





Yes   ̈              No  x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12-b2 of the Exchange Act).





Yes   ̈              No  x





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 May 24, 2010Common
      Stock, US$.001 par value per share
              
              29,756,000
      shares








PagePart
      I: Financial Information
                
                1Item
      1 -Financial Statements
                
                1Consolidated
      Balance Sheets
                
                1Consolidated
      Statements of Operations and Comprehensive Income
                
                2Consolidated
      Statements of Cash Flows
                
                3Notes
      to Consolidated Financial Statements
                
                4Item
      2 - Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
                
                15Item
      3 - Quantitative and Qualitative Disclosures about Market
    Risk
                
                21Item
      4T - Controls and Procedures
                
                21Part
      II. Other Information
                
                22Item
      1 - Legal Proceedings
                
                22Item
      1A - Risk Factors
                
                22Item
      2 - Unregistered Sales of Equity Securities and Use of
      Proceeds
                
                22Item
      3 - Defaults Upon Senior Securities
                
                22Item
      4 – Removed and Reserved
                
                22Item
      5 – Other Information
                
                22Item
      6 - Exhibits
                
                22Signatures
                
                24










PART
I – FINANCIAL INFORMATION


Item
      1.
              Financial
      Statements





Orsus
Xelent Technologies, Inc. and Subsidiaries


Consolidated
Balance Sheets


(In
thousands, except number of shares and per share data)





March 31,
      2010
                                    
                                    
                                    December 31,2009(Unaudited)ASSETSCurrent
      assetsCash
      and cash equivalents
                                    
                                    $
                                    10
                                    
                                    
                                    $
                                    374Restricted
      cash
                                    
                                    
                                    4
                                    
                                    
                                    
                                    4Notes
      Receivable
                                    
                                    
                                    -
                                    
                                    
                                    
                                    2,779Accounts
      receivable
                                    
                                    
                                    85,370
                                    
                                    
                                    
                                    81,130Trade
      deposit paid, net
                                    
                                    
                                    6,658
                                    
                                    
                                    
                                    5,875Other
      current assets, net
                                    
                                    
                                    28
                                    
                                    
                                    
                                    29Pledged
      deposit
                                    
                                    
                                    1,290
                                    
                                    
                                    
                                    1,290Total
      current assets
                                    
                                    
                                    93,360
                                    
                                    
                                    
                                    91,481Property,
      plant and equipment, net
                                    
                                    
                                    170
                                    
                                    
                                    
                                    178Deferred
      tax asset
                                    
                                    
                                    4,341
                                    
                                    
                                    
                                    4,095$
                                    97,871
                                    
                                    
                                    $
                                    95,754LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilitiesShort-term
      bank loans
                                    
                                    $
                                    9,391
                                    
                                    
                                    $
                                    9,390Short-term
      loan payable
                                    
                                    
                                    307
                                    
                                    
                                    
                                    307Accounts
      payable
                                    
                                    
                                    7,669
                                    
                                    
                                    
                                    7,652Accrued
      expenses and other accrued liabilities
                                    
                                    
                                    3,616
                                    
                                    
                                    
                                    3,413Trade
      deposits received
                                    
                                    
                                    1,883
                                    
                                    
                                    
                                    1,884Due
      to shareholders
                                    
                                    
                                    620
                                    
                                    
                                    
                                    611Income
      taxes payable
                                    
                                    
                                    5,871
                                    
                                    
                                    
                                    5,870Other
      taxes payable
                                    
                                    
                                    22,502
                                    
                                    
                                    
                                    21,423Liabilities
      for possible settlement to accounts payable
                                    
                                    
                                    4,182
                                    
                                    
                                    
                                    2,928Total
      current liabilities
                                    
                                    
                                    56,041
                                    
                                    
                                    
                                    53,478Stockholders’
      equityPreferred
      stock, par value US$0.001; authorized 100,000,000 shares; none
      issued
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Common
      stock, par value US$0.001; authorized 100,000,000
      shares;Issued and
      outstanding 29,756,000 shares as of March 31, 2010 and December 31,
      2009
                                    
                                    
                                    30
                                    
                                    
                                    
                                    30Additional
      paid-in capital
                                    
                                    
                                    3,209
                                    
                                    
                                    
                                    3,209Unappropriate
      retained earnings
                                    
                                    
                                    1,042
                                    
                                    
                                    
                                    1,042Appropriated
      retained earnings
                                    
                                    
                                    31,909
                                    
                                    
                                    
                                    32,363Accumulated
      other comprehensive income
                                    
                                    
                                    5,640
                                    
                                    
                                    
                                    5,632Total
      stockholders’ equity
                                    
                                    
                                    41,830
                                    
                                    
                                    
                                    42,276$
                                    97,871
                                    
                                    
                                    $
                                    95,754





See notes
to consolidated financial statements.


1


Orsus
Xelent Technologies, Inc. and Subsidiaries


Consolidated
Statements of Operation and Comprehensive Income


(In
thousands, except number of shares and per share data)





Three months ended March 31,2010
                
                
                2009(Unaudited)
                
                
                (Unaudited)Net
      sales
                
                $
                7,591
                
                
                
                19,724Cost
      of sales
                
                
                6,995
                
                
                
                16,632Gross
      profit
                
                
                596
                
                
                
                3,092Operating
      expenses:Selling
      expenses
                
                
                41
                
                
                
                123General
      and administrative expenses
                
                
                27
                
                
                
                266Research
      and development expenses
                
                
                5
                
                
                
                17Depreciation
      and amortization
                
                
                8
                
                
                
                23Allowance
      for doubtful accounts
                
                
                (251
                )
                
                
                -Income
      from operations
                
                
                766
                
                
                
                2,663Other
      income/(expenses)Interest
      expense
                
                
                (213
                )
                
                
                (222
                )Other
      (expenses)/income, net
                
                
                (1,252
                )
                
                
                17(Loss)/income
      before income tax expense
                
                
                (699
                )
                
                
                2,458Income
      tax (expenses)/benefitCurrent
      tax expense
                
                
                -
                
                
                
                (323
                )Deferred
      taxes benefit
                
                
                245
                
                
                
                -Net
      (loss)/income
                
                
                (454
                )
                
                
                2,135Other
      comprehensive incomeForeign
      currency translation adjustment
                
                
                8
                
                
                
                64Comprehensive
      (loss)/income
                
                $
                (446
                )
                
                
                2,199(Loss)/Earnings
      per share:Basic
      and diluted
                
                $
                (0.02
                )
                
                $
                0.07Weighted
      average number of common shares outstanding – basic and
      diluted
                
                
                29,756,000
                
                
                
                29,756,000





See notes
to consolidated financial statements.


2


Orsus
Xelent Technologies, Inc. and Subsidiaries


Consolidated
Statements of Cash Flows


(In
thousands)





Three
      months ended March 31,2010
                
                
                2009(Unaudited)
                
                
                (Unaudited)Cash
      flows from operating activitiesNet
      (loss)/income
                
                $
                (454
                )
                
                $
                2,135Adjustments
      to reconcile net (loss)/income to net cash used in operating
      activities:Deferred
      tax
                
                
                (245
                )
                
                
                -Depreciation
      and amortization
                
                
                8
                
                
                
                23Loss
      due to liability for possible settlement to accounts
    payable
                
                
                1,253
                
                
                
                -Changes
      in assets and liabilities:Accounts
      receivable
                
                
                (4,227
                )
                
                
                (4,545
                )Note
      receivable
                
                
                2,779
                
                
                
                -Trade
      deposits paid, net
                
                
                (783
                )
                
                
                8,116Other
      current assets, net
                
                
                -
                
                
                
                48Accounts
      payables
                
                
                17
                
                
                
                (6,375
                )Accrued
      expenses, other accrued liabilities and other tax payable
                
                
                1,287
                
                
                
                696Due
      to shareholders
                
                
                -
                
                
                
                (250
                )Income
      tax payable
                
                
                -
                
                
                
                289Net
      cash flows (used in)/provided by operating activities
                
                
                (365
                )
                
                
                137Cash
      flows from financing activitiesProceeds
      from banks and other loans
                
                
                -
                
                
                
                2,512Repayment
      of bank loans
                
                
                -
                
                
                
                (2,687
                )Repayment
      of mortgage loans
                
                
                -
                
                
                
                (12
                )Net
      cash flows used in financing activities
                
                
                -
                
                
                
                (187
                )Net
      change in cash and cash equivalents
                
                
                (365
                )
                
                
                (50
                )Effect
      of foreign exchange rate changes on cash and cash
    equivalent
                
                
                1
                
                
                
                -Cash
      and cash equivalent - beginning of period
                
                
                374
                
                
                
                102Cash
      and cash equivalent - end of period
                
                $
                10
                
                
                $
                52Supplemental
      disclosure for cash flow informationInterest
      paid
                
                $
                -
                
                
                $
                43Income
      taxes paid
                
                $
                -
                
                
                $
                34





See notes
to consolidated financial statements.


3


ORSUS
XELENT TECHNOLOGIES, INC. AND SUBSIDIARIES




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




(In
thousands, except number of shares and per share data)





1.
            ORGANIZATION





Orsus
Xelent Technologies Inc. (“ORS” or the “Company”), formerly known as Universal
Flirts Corp., was organized under the laws of the State of Delaware on May 25,
2004.





Prior to
reorganization with United First International Limited (“UFI”) on March 31,
2005, a company incorporated in the Hong Kong Special Administrative Region
(“HK”) of the People’s Republic of China (the “PRC”), ORS was a development
stage company which had no operations or revenues. ORS exited the development
stage after the recapitalization.





Upon the
completion of the reorganization, ORS assumed the business operations of UFI as
primarily undertaken by its subsidiary, Beijing Orsus Xelent Technologies &
Trading Co., Limited (“BOXT”) (English translation for identification purposes
only), an enterprise incorporated in Beijing, PRC on November 10, 2004 which is
engaged in the business of design, retail and wholesale distribution of cellular
phones.





On July
14, 2005, Orsus Xelent Holdings (BVI) Limited (“OXHBVI”) was incorporated by ORS
in the British Virgin Islands (“BVI”) with issued capital of US$2.00. OXHBVI is
a wholly-owned subsidiary of ORS; OXHBVI’s principal activity is investment
holding. On July 22, 2005, Orsus Xelent Trading (HK) Company Limited (“OXTHK”)
was incorporated by OXHBVI in HK with issued capital of HK$100.00 (equivalent to
US$13.00); OXTHK is a company engaged in trading cellular phones and
accessories, and is wholly owned by OXHBVI.





2.
            DESCRIPTION
      OF BUSINESS


The
Company is principally engaged in the business of designing and
distributing economically priced cellular phones for retail and wholesale
distribution. The Company does not produce the products but
outsourcing the manufacturing to third party factories and pay to the
factories at a fixed price according to the production volume, therefore, there
is no inventory held by the Company. In February 2004, the Company registered
“ORSUS” with the State Administration for Industry and Commerce in the PRC as
its trademark, which is also known as “Orsus Cellular” within the industry. In
January 2007, the trademark “PROXLINK” was registered for the Company’s
specialized application mobile series.


3.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES





Basis of presentation





The
accompanying unaudited consolidated financial statements of the Company have
been prepared in accordance with accounting principles generally accepted in the
United States of America (“GAAP”) and include the financial statements of the
Company and its subsidiaries.





The
accompanying unaudited consolidated financial statements as of March 31, 2010,
and for the three months ended March 31, 2010 and 2009 have been prepared in
accordance with GAAP for interim financial information and with the instructions
to Form 10-Q and Rule 8-03 of Regulation S-X applicable to smaller reporting
companies. In the opinion of management, all adjustments necessary for a fair
statement of the results for the interim periods have been made, and all
adjustments are of a normal recurring nature (or a description of the nature and
amount of any adjustments other than normal recurring adjustments). The
unaudited consolidated interim financial statements should be read in
conjunction with the Company’s audited consolidated financial statements and
notes thereto for the year ended December 31, 2009 that are included in the
Company’s 2009 annual report on 10-K filed with the Securities and Exchange
Commission.


4





Principle
of consolidation





The
consolidated unaudited financial statements include the accounts of Orsus Xelent
Technologies, Inc. and its subsidiaries. All inter-company transactions and
balances have been eliminated in consolidation.





Use
of Estimates





The
preparation of unaudited interim Consolidated Financial Statements in conformity
with accounting principles generally accepted in the United States requires us
to make estimates and assumptions that affect the amounts reported and disclosed
in the financial statements and the accompanying notes. Actual results could
differ materially from these estimates. We evaluate our estimates on an ongoing
basis, including those related to accounts receivable and sales allowances,
useful lives of property and equipment, fair values of options to purchase our
common stock, the realizability of deferred tax assets, accruals for income tax
uncertainties and other contingencies. We base our estimates on historical
experience and on various other assumptions that are believed to be reasonable,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities.




Recently
issued accounting pronouncements





In
January 2010, the FASB issued the following ASC Updates:





ASU No.
2010-01—Equity (Topic 505): Accounting for Distributions to Shareholders with
Components of Stock and Cash. This Update clarifies that the stock portion of a
distribution to shareholders that allows them to elect to receive cash or stock
with a potential limitation on the total amount of cash that all shareholders
can elect to receive in the aggregate is considered a share issuance that is
reflected in EPS prospectively and is not a stock dividend for purposes of
applying Topics 505 and 260 (Equity and Earnings Per Share). The amendments in
this Update are effective for interim and annual periods ending on or after
December 15, 2009 with retrospective application.





ASU No.
2010-02—Consolidation (Topic 810): Accounting and Reporting for Decreases in
Ownership of a Subsidiary. This Update amends ASC 810 subtopic 10 and related
guidance to clarify that the scope of the decrease in ownership provisions of
the Subtopic and related guidance applies to (i) a subsidiary or group of assets
that is a business or nonprofit activity; (ii) a subsidiary that is a business
or nonprofit activity that is transferred to an equity method investee or joint
venture; and (iii) an exchange of a group of assets that constitutes a business
or nonprofit activity for a non-controlling interest in an entity, but does not
apply to: (i) sales of in substance real estate; and (ii) conveyances of
petroleum and gas mineral rights. The amendments in this Update are effective
beginning in the period that an entity adopts FAS 160 (now included in ASC 810
subtopic 10).





ASU No.
2010-05—Compensation—Stock Compensation (Topic 718): Escrowed Share Arrangements
and the Presumption of Compensation. This Update simply codifies EITF Topic
D-110, “Escrowed Share Arrangements and the Presumption of Compensation and does
not change any existing accounting standards.





ASU No.
2010-06—Fair Value Measurements and Disclosures (Topic 820): Improving
Disclosures about Fair Value Measurements.  This Update amends ASC 820
subtopic 10 that requires new disclosures about transfers in and out of Levels 1
and 2 and activity in Level 3 fair value measurements. This Update also amends
ASC 820 subtopic 10 to clarify certain existing disclosures. The new disclosures
and clarifications of existing disclosures are effective for interim and annual
reporting periods beginning after December 15, 2009, except for the disclosures
about purchases, sales, issuances, and settlements in the roll forward of
activity in Level 3 fair value measurements, which are effective for fiscal
years beginning after December 15, 2010.





The
Company expects that the adoption of the above updates issued in January 2010
will not have any significant impact on its financial position and results of
operations.


5





4.
            RESTRICTED
      CASH





There are
three blocked bank accounts with restricted cash with the amount of US$4 as of
March 31, 2010. Two bank accounts are related to the legal disputes with two
suppliers of BOXT. Shenzhen Songding Industry Ltd., (“Songding”) provides the
battery chargers and Beijing Baoxin Packing Materials Co., Ltd. (“Baoxin”)
provides the packing materials to BOXT. The third bank account was blocked
because the loan from Beijing Rural Commercial Bank has been overdue since
September 27, 2009, and the Company has not repaid any principle or interest.
The balance of this account on March 31, 2010 was zero. (Refer to Note 13,
“Commitments And Contingencies”.)





There are
two blocked bank accounts with restricted cash with the amount of US$4 as of
December 31, 2009, which related to Songding and Baoxin.




5.
            ACCOUNTS
      RECEIVABLE





The
Company’s business relies on a few distributors. US$85,370 and US$81,130 of
accounts receivable as of March 31, 2010 and December 31, 2009, respectively,
mainly consisted of a balance of US$78,296 and US$75,616 due from Beijing
Xingwang Shidai Commerce Co., Ltd. (“Xingwang”), the major distributor of the
Company. The reason for the large accounts receivable balance as of March 31,
2010 and December 31, 2009 is due to a longer turnover cycle than in prior
fiscal periods.  The main reason for longer turnover cycle is that the
industry profits have decreased and as a result the middle -level distributors
have been removed and the national -level distributor Xingwang  has to
sell the products to direct customers (the retailers), whose turn-over rate is
always slower than middle -level distributors.





The long
aged account receivable to Xingwang is guaranteed by a third-party gurantee
company licensed by the PRC government, Zhong Hui Guarantee Corporation
(“Zhonghui”). On December 25, 2008, Xingwang entered into an irrevocable Credit
Guarantee Contract (the “Guarantee Contract”) with Zhonghui and BOXT under which
Zhonghui agreed to guarantee up to Renminbi (“RMB”) 300 million (equivalent to
US$43,885), for the principal debt, fine, damages arising out of breach of
contract, and costs incurred for realizing those legal rights including but not
limited to legal proceeding fees, attorney fees and travel expenses arising out
of the distributor agreement entered into by BOXT and Xingwang. The Guarantee
Contract was effective as of December 25, 2008 and provides a guarantee for all
of the accounts receivable that are or may become outstanding from
Xingwang to BOXT from January 1, 2008 through December 31, 2008. On
December 31, 2009, the guarantee contract expired. A new guarantee contract was
signed between BOXT, Xingwang Shidai and Zhonghui on January 1, 2010 and
provides a guarantee for all the accounts receivable that are or may become
outstanding from Xingwang to BOXT from January 1, 2008 through December 31,
2010. Since this account receivable is guaranteed by above mentioned guarantee
agreement, no allowance for doubtful accounts is accrued.




6.
            TRADE
      DEPOSIT PAID, NET




US$6,658 and
US$5,875 of trade deposit was paid to suppliers on March 31, 2010 and December
31, 2009, is payment in advance to suppliers, which consisted of the
following:





March 31, 2010
                            
                            
                            December 31, 2009(US$’000)
                            
                            
                            (US$’000)(Unaudited)Trade
      deposit paid
                            
                            $
                            6,787
                            
                            
                            $
                            6,004Less:
      allowance for doubtful accounts
                            
                            
                            (129
                            )
                            
                            
                            (129
                            )Total
                            
                            $
                            6,658
                            
                            
                            $
                            5,875




During
the year ended December 31, 2009, the Company wrote off total trade deposit paid
with balance of US$11,937 to two suppliers, Beijing Runyu Kebo Trading Co., Ltd.
(“Runyu Kebo”) of US$11,686 and Beijing Kebo Hongyuan Trading Center. (“Kebo
Hongyuan”) of US$251, which were liquidated by Beijing Industry and Commerce
Bureau, as of December 31 2009.
  During
the three months ended March 31, 2010, the written-off trade deposit from Kebo
Hongyuan has been reversed in the amount of US$251, because the Company
collected the amount from Kebo Hongyuan’s remaining assets. Meanwhile, the
Company accrued US$129 as a provision towards its other vendors with the
accounts aged over three years.


6




7.
            OTHER
      CURRENT ASSETS, NET





As of
March 31, 2010 and December 31, 2009, other current assets of US$28 and US$29,
respectively, are mainly composed of the advanced payment for employee travel
and the components and parts for post-sales maintenance stored with the
maintenance vendors.





Allowance
for doubtful accounts of US$1,787 as of March 31, 2010 and December 31, 2009 was
due to the provision for receivables from Leimeng Times and other accounts with
the aging over three years. The management believes these accounts are
uncollectable, and as such, the allowance for doubtful account is
provided.





March
      31, 2010
                        
                        
                        December 31, 2009(US$’000)
                        
                        
                        (US$’000)(Unaudited)Other
      current assets
                        
                        $
                        1,815
                        
                        
                        $
                        1,816Less:
      allowance for doubtful accounts
                        
                        
                        (1,787
                        )
                        
                        
                        (1,787
                        )Total
                        
                        $
                        28
                        
                        
                        $
                        29




8.
            PLEDGED
      DEPOSIT





US$1,290
of pledged deposits at March 31, 2010 and US$1,290 of pledged deposits at
December 31, 2009 were paid to Zhonghui, a guarantee company, in September 2008
as a pledge for US$6,874 (RMB47,000) of bank loans. Refer to Note 10,
“Short-term Bank Loans” for more discussion of the bank loans.




9.
            PROPERTY,
      PLANT AND EQUIPMENT, NET





Property,
plant and equipment as of March 31, 2010 and December 31, 2009 consisted of the
following:


March 31, 2010
                    
                    
                    December 31,
                      2009US$’000
                    
                    
                    US$’000(Unaudited)Moulds
                    
                    
                    4
                    
                    
                    
                    4Leasehold
      improvements
                    
                    
                    131
                    
                    
                    
                    131Office
      equipment
                    
                    
                    323
                    
                    
                    
                    323Motor
      vehicles
                    
                    
                    303
                    
                    
                    
                    303761
                    
                    
                    
                    761Less:
      Accumulated depreciation
                    
                    
                    (591
                    )
                    
                    
                    (583
                    )170
                    
                    
                    
                    178





The
depreciation expenses were US$8 and US$23 for the three months ended March 31,
2010 and 2009, respectively.




10.
            SHORT-TERM
      BANK LOANS





All bank
loans outstanding at March 31, 2010 and December 31, 2009 were borrowed by BOXT.
Details of short-term bank loans are summarized as follows:





At March 31,
                    2010
                  
                  Amount
                    (RMB’000)
                  
                  Annual
                    interest rate
                  
                  Term
                  
                  Guarantee provided by(Unaudited)Loan
      from Beijing Rural
                    Commercial
      Bank
                  
                  47,000
                    (US$6,875)
                  
                  10.08%
                  
                  From
      September 28, 2008 to September 27, 2009
                  
                  Director
      Liu Yu; A guarantee company; pledged deposit of
US$1,290Loan
      from Huaxia Bank
                  
                  17,200
                    (US$2,516)
                  
                  6.3720%
                  
                  From
      February 20,2009 to February 20, 2010
                  
                  Director
      Liu Yu; Two third party companies; Distributor
Xingwang.Total
                  
                  64,200
                    (US$9,391)


7





At December 31,
                                      2009
                                    
                                    Amount
                                      (RMB’000)
                                    
                                    Annual
                                      interest rate
                                    
                                    
                                    Term
                                    
                                    Guarantee provided byLoan
      from Beijing Rural Commercial Bank
                                    
                                    47,000
                                      (US$6,874)
                                    
                                    10.08%
                                    
                                    
                                    From
      September 28, 2008 to September 27, 2009
                                    
                                    Director
      Liu Yu; A guarantee company; pledged deposit of
US$1,290Loan
      from Huaxia Bank
                                    
                                    17,200
                                      (US$2,516)
                                    
                                    6.3720%
                                    
                                    
                                    From
      February 20, 2009 to February 20, 2010
                                    
                                    Director
      Liu Yu; Two third party companies; Distributor
Xingwang.Total
                                    
                                    64,200
                                      (US$9,390)





Interest
expense incurred for the three months ended March 31, 2010 and 2009 were US$213
and US$222, respectively.





US$6,875 of
a loan from Beijing Rural Commercial Bank was originally due on September 27,
2009. The Company is currently negotiating an extension of the term with the
bank. The penalty interest rate on the principal and interest in default is 130%
of the contracted interest rate and is chargeable from the due date of
the principal. The Company accrued US$190 in penalty interest for the three
months ended March 31, 2010, and US$425 in penalty interest from September 28,
2009 to March 31, 2010.




US$2,516
of a loan from Huaxia Bank was due on February 20, 2010.  The Company
is currently negotiating an extension of the term with the bank. The penalty
interest rate on the principal and interest in default is 150% of the contracted
interest rate and is chargeable from the due date of the principal. The Company
estimates that the possible penalty amount is insignificant and the extension
agreement will be entered soon and Huaxia Bank will not charge the penalty
interest to the Company. No penalty interest expense is accrued as of March 31,
2010.


11.
            SHORT-TERM
      LOAN FROM A NON-FINANCIAL
INSTITUTION




The
US$307 short-term loan from a non-financial institution as of March 31, 2010 and
December 31, 2009 was provided by a third party company Zhonghui. It was
unsecured, interest-free and repayable on September 27, 2009. The Company is
currently negotiating an extension of the term with Zhonghui. No default penalty
interest is chargeable according to the loan agreement.





12.
            AMOUNT
      DUE TO SHAREHOLDERS AND RELATED PARTY
  TRANSACTIONS





(a)
              Name
      and relationship of
shareholders





Related party
                
                RelationshipMr.
      Liu Yu
                
                Director
      and shareholder of the CompanyMr.
      Wang Xin
                
                Shareholder
      and former director of the Company (Resigned on March 27,
      2009)





(b)
              Summary
      of balances due to shareholders and related party
    transactions


March 31, 2010
                    
                    
                    December 31, 2009US$’000
                    
                    
                    US$’000(Unaudited)Due
      to shareholdersMr.
      Liu Yu
                    
                    
                    411
                    
                    
                    
                    402Mr.
      Wang Xin
                    
                    
                    209
                    
                    
                    
                    209620
                    
                    
                    
                    611Bank
      loans guaranteed by Mr. Liu Yu
                    
                    
                    9,391
                    
                    
                    
                    9,390




8





The
amounts due to shareholders are unsecured, interest-free and repayable on
demand.




13.
            COMMITMENTS
      AND CONTINGENCIES





(a)
            Operating
      lease commitments


As of
March 31, 2010, the Company had non-cancelable operating leases with one-year
terms for its office premises, under which the expected rental payment due
within the next year was US$40.


(b)
            Contingencies





Tax
penalty





In
accordance with the PRC’s tax regulations, BOXT’s sales are subject to a 17% of
value added tax (“VAT”) upon the sales made to customers. BOXT follows the
practice of reporting its revenue with VAT invoices issued to PRC tax
authorities for VAT purposes.  For the three months ended
March  31, 2010 and 2009, there were sales amounting to US$6,258 and
US$19,724 respectively, for which VAT invoices have not yet been
issued.





The sales
revenue of the three months ended March 31, 2010 and 2009 was US$7,591 and
US$19,724, respectively, representing US$1,291 and US$3,353 output VAT,
respectively. Meanwhile, the input VAT for which the invoice had been received
was US$214 and US$1,111for the three months ended March 31, 2010 and 2009,
respectively. Therefore, the net accrued VAT payable is US$1,077 and
US$2,242 for the three months ended March 31, 2010 and 2009
respectively.





According
to PRC tax law, only the input VAT supported with a sufficient invoice could be
deducted from the current period’s output VAT.  If a purchase is made
without obtaining an invoice, then the related input VAT is not allowed to be
deducted.





As there
is little tax payment made during the years, the accumulated VAT payable is
US$22,502 and US$21,423 as of March 31, 2010 and December 31, 2009,
respectively.




Furthermore,
BOXT reports its revenue for PRC Enterprise Income Tax (“EIT”) purposes when VAT
invoices are issued rather than when goods are delivered, although EIT payable
is fully provided for all sales. All unbilled revenue will become taxable when
invoices are issued.


The above
practice is not in strict compliance with the relevant PRC laws and regulations
in respect of VAT and EIT.  Despite the fact that BOXT has made full
provision on VAT and EIT including any estimated surcharge in the consolidated
financial statements, BOXT may be subject to a penalty for the deferred
reporting of the above tax obligations.  The exact amount of penalty
cannot be estimated with any reasonable degree of certainty.  The
board of directors considers it is not probable the penalty will be
imposed.





Financial guarantee
contract





On June
20, 2007, BOXT entered into a guarantee contract for three years from June 20,
2007 to June 16, 2010 to serve as guarantor of a bank loan amounting to
approximately US$17,550 (equivalent to RMB120,000) to an independent
third-party, Chinacom Communications Co., Ltd. (“CECT”), from Beijing Rural Bank
to provide CECT with capital for equipment purchases. Under the guarantee
contract, BOXT shall perform all obligations of CECT under the loan contract
including principal and interest, late interest payments, fines and other
expenses incurred in the claiming process, if CECT fails to perform its
obligations as set forth in the loan contract, including, but not limited to,
ceasing production, going out of business, dissolving the business, having its
business license withdrawn and filing for bankruptcy.


9


According
to a March 20, 2009 valuation report issued by an independent
professional appraiser, the fair value of the undiscounted maximum potential
amount of future payments as of December 31, 2009 that BOXT could be
required to make under the guarantee contract was approximately US$470. The
Company’s management assessed that the fair value of the undiscounted maximum
potential amount of future payments as of March 31, 2010 did not materially
differ from the same figure as of December 31, 2009. Management believes it is
not probable BOXT will need to fulfill any obligation under this
contract.





Litigation




There are
two legal disputes with two suppliers of BOXT. Shenzhen Songding Industry Ltd.,
(“Songding”) provides battery chargers and Beijing Baoxin Packing Materials Co.,
Ltd. (“Baoxin”) provides packing materials to BOXT. The legal disputes with
abovementioned suppliers arose because the Company did not accept accessories
and materials supplied by Songding and Baoxin due to quality issues. The
management of BOXT determined to cease payment to Songding and Baoxin
accordingly.




The
dispute between Baoxin and BOXT commenced in arbitration initiated by Baoxin on
October 2006 which was arbitrated by the Beijing Arbitration Commission on
October 24, 2006. BOXT is obligated to pay Baoxin US$246. Currently, BOXT and
Baoxin are in the process of the final negotiation based on the arbitration
result. As such, Baoxin applied to the court for property preservation and one
of BOXT’s bank accounts has been blocked accordingly. BOXT has recorded the
arbitration result as an account payable to the supplier after the arbitration.
The balance of account payable to Baoxin as of March 31, 2010 is
US$36.





The
dispute between Songding and BOXT is still pending for final arbitration.
Songding has argued for BOXT to pay the amount of US$281 to Songding. Songding
prepared the arbitration application on December 28, 2009 and applied to the
court for property preservation to block the bank account of BOXT. The
application was formally accepted by the Beijing arbitration commission on
January 12, 2010. Since Songding applied for the property preservation to the
court, one of BOXT’s bank accounts is blocked accordingly. The balance of
account payable to Songding as of March 31, 2010 is US$54.





Warranty





During the
three months ended March 31, 2010, we made no allowance for warranty for product
problems because, during this period, post-sale services for newly-launched
products were undertaken by OEM factories rather than the Company. Therefore,
allowances were not made accordingly for these post-sale services.





Overdue Bank
Loan




The
Company currently has an overdue bank loan of US$6,875 from Beijing Rural
Commercial Bank and US$2,516 from Huaxia Bank that were loaned on March 31,
2010. The Company is negotiating an extension of the term of the loan with the
banks.  The Company accrued US$425 in penalty interest from September 28,
2009 to March 31, 2010.


14.
            UNAPPROPRIATED
      RETAINED EARNINGS





The
Company’s subsidiary, BOXT, was required to allocate at least 10% of its after
tax profits as determined under generally accepted accounting principle in the
PRC to a statutory dedicated reserve until the reserve balance reaches 50% of
its registered capital. For the three months ended March 31, 2010, BOXT made
appropriations to this statutory reserve of US$0 due to net loss incurred for
the period. The accumulated balance of the dedicated reserve at BOXT as of March
31, 2010 and December 31, 2009 were US$1,042 and US$1,042,
respectively.




15.
            STOCK
      OPTIONS





On March
27, 2008, a stock option plan named the “2007 Omnibus Long-Term Incentive Plan”
(the “Plan”) was approved by the board of directors. The purpose of the Plan is
to promote the long-term performance goals and general prosperity of the
Company. The Plan, which provides for the grant of stock options, stock
appreciation rights, restricted stock, restricted stock units, unrestricted
stock and cash awards, is designed to help the Company and its subsidiaries and
affiliates attract and retain senior officers for positions of substantial
responsibility and to provide non-employee directors and key employees with
additional motivation and an incentive to improve the business results and
contribute to the success of the Company.


10




On April
2, 2008, stock options to a subscribed total of 614,000 shares were granted to
certain directors, senior officers and other key employees of the Company at an
exercise price of US$2.26 per share. The options granted are exercisable from
July 2, 2008. The expiration date of the options is April 2, 2018.





In
accordance with the terms of the share-based payment arrangement, the
aforementioned options were vested at the date of grant. According to a
valuation report, dated August 1, 2008, issued by an independent professional
appraiser, the fair value of these options was US$725, which was estimated on
the date of grant using the Binomial Lattice option pricing model. Where
relevant, the expected life used in the model has been adjusted based on
management’s best estimate for the effects of transferability, exercise
restrictions and behavioral consideration. Compensation expense of US$725 is
charged to income as the benefit was fully vested at the date of grant. Key
assumptions included in the estimation are as follows:





Expected
      dividend yield
                    
                    
                    -Expected
      stock price volatility
                    
                    
                    85.07
                    %Risk
      free interest risk
                    
                    
                    3.61
                    %Expected
      life of share options
                    
                    10 Years





A summary
of the share option plan activity during the three month period ended March 31,
2010 is presented below:





Number of
                      share options(Unaudited)As
      of January 1, 2010
                    
                    
                    614,000Granted
                    
                    
                    -Exercised
                    
                    
                    -Cancelled/lapsed
                    
                    
                    -As
      of March 31, 2010
                    
                    
                    614,000





16.
            LIABILITIES
      FOR POSSIBLE SETTLEMENT FOR ACCOUNTS
PAYABLE





Liabilities
for possible settlement for accounts payable of US$4,182 is arising from the
provision of penalty for unpaid accounts payable to suppliers at March 31,
2010. In the purchase contracts signed between suppliers and the Company
since 2006, an agreed term between BOXT and the suppliers acknowledges that any
outstanding payment which exceeds the agreed payment schedule will be imposed on
an additional 0.3% per day delayed payment penalty based on principle amount of
contract liability. However, since some of such purchase contracts were signed
before 2006, according to relevant PRC civil laws and regulations, if the
creditors did not claim for the right in writing to the Company within two years
since the date on which the liability was due, the periods of prescription will
be expired after two years from the date on which the liability was due. We
noted that  meanwhile, no  legal letters related to this
liability (0.3% penalty arising from the outstanding payment.) were issued from
our suppliers in past 4 years. However, the Company felt it was prudent to
accrue this liability based on the terms of the contract. As of March 31, 2010,
the Company accrued a possible penalty for the purchase contracts signed after
March 31, 2008 based on such penalty term with amount of US$4,182. US$1,252 of
such possible liability was accrued during the three months ended March 31,
2010.





17.
            PENSION
      COSTS




As
stipulated by the PRC regulations, the Company maintains a defined contribution
retirement plan for all of its employees who are residents of the
PRC.  All retired PRC employees of the Company are entitled to an
annual pension equivalent to their basic annual salary upon
retirement.  The Company contributed to a state sponsored retirement
plan approximately 20% of the basic salary of its PRC employees and has no
further obligations for the actual pension payments or post-retirement benefits
beyond the annual contributions.  The state sponsored retirement plan
is responsible for the entire pension obligation payable to all employees. The
pension expenses were US$17 and US$22 for the three months ended March 31, 2010
and 2009 respectively.


11




The
pension paid for three months ended March 31, 2010 and 2009 is US$51 and US$0
respectively;




18.
            INCOME
      TAXES





The
Company and its subsidiaries file separate income tax returns.





The
United States of America





Orsus
Xelent Technologies, Inc. is incorporated in the State of Delaware in the
United States, and is subject to a gradual U.S. federal corporate income tax of
15% to 35%. The State of Delaware does not impose any corporate state income
tax.





British
Virgin Islands





OXHBVI is
incorporated in the British Virgin Islands. Under the current laws of the
British Virgin Islands, OXHBVI is not subject to tax on income or capital gains.
In addition, upon payments of dividends by OXHBVI, no British Virgin Islands
withholding tax is imposed.





Hong
Kong





UFI and
OXTHK are incorporated in Hong Kong. UFI and OXTHK did not earn any income that
was derived in Hong Kong for the three months ended March 31, 2010 and 2009 and
therefore was not subject to Hong Kong Profits Tax. The payments of dividends by
Hong Kong companies are not subject to any Hong Kong withholding
tax.





PRC





Effective
from January 1, 2008, the PRC’s statutory income tax rate is 25%. According to
prior Corporate Income Tax Law, BOXT is characterized as a “Manufacturing
Foreign Invested Enterprise” and enjoyed a 5 year tax holiday. In the first 2
years, the Corporate Income Tax was exempted and during the remaining 3 years,
an incentive tax rate (12.5%) was provided to the enterprise. Fiscal year 2009
is the last year of the five year holiday. BOXT has to declare and pay 25% tax
rate from the year 2010.





The
Company’s effective income tax rate was 0% and 13.14% for the three-month
periods ended March 31, 2010 and 2009, respectively. The difference between the
effective tax rate and the statutory tax rate primarily represented the tax
effects on the non-taxable income and non-deductible expenses.





The
Company had deferred tax assets of approximately $4,341 and $4,095 as of March
31, 2010 and December 31, 2009, respectively, which arose from allowance for
doubtful accounts and provision for liability for possible settlement to
accounts payable. The Company had no other temporary differences as of March 31,
2010 and December 31, 2009.





As of
March 31, 2010 and  the year ended December 31, 2009, the Company
and its subsidiaries did not have unrecognized tax benefits, and therefore no
interest or penalties related to unrecognized tax benefits were accrued. The
Company does not expect that the amount of unrecognized tax benefits will change
significantly within the next 9 months.





The
Company and its subsidiaries mainly file income tax returns in the United States
and PRC. The Company is subject to U.S. federal income tax examination by tax
authorities for tax years beginning in 2008.  According to the PRC Tax
Administration and Collection Law, the statute of limitations is three years if
the underpayment of taxes is due to computational errors made by the taxpayer or
the withholding agent. The statute of limitations is extended to five years
under special circumstances where the underpayment of taxes is more than RMB100
(US$15). In the case of transfer pricing issues, the statute of limitations is
ten years. There is no statute of limitations in the case of tax evasion. The
PRC tax returns for the Company’s PRC subsidiary are open to examination by the
PRC state and local tax authorities for the tax years beginning in
2008.


12




19.
            (LOSS)/EARNINGS
      PER SHARE




The
following table sets forth the computation of basic and diluted earnings per
share for the periods presented:




Three months ended March 31,2010
                    
                    
                    2009(Unaudited)
                    
                    
                    (Unaudited)Numerator
      used in basic net income per share:Net
      (loss)/income
                    
                    
                    (454
                    )
                    
                    
                    2,135Shares
      (denominator):Weighted
      average common shares outstanding
                    
                    
                    29,756,000
                    
                    
                    
                    29,756,000Plus:
      weighted average incremental shares from assumed exercise of
      options
                    
                    
                    -
                    
                    
                    
                    -Weighted
      average common shares outstanding used in computing diluted net
      income per common share
                    
                    
                    29,756,000
                    
                    
                    
                    29,756,000(Loss)/Earnings
      per common share-basic and diluted
                    
                    $
                    (0.02
                    )
                    
                    $
                    0.07




As of
March 31, 2010 and 2009, the Company had 614,000 outstanding options that could
potentially dilute basic income per share in the future, but which were excluded
in the computation of diluted income per share in the periods presented, as
their effect would have been anti-dilutive since the exercise price of these
options was higher than average market price during three months ended March 31,
2010 and 2009.





20.
            CONCENTRATIONS
      AND CREDIT RISKS




At March
31, 2010 and December 31, 2009, the Company had a credit risk exposure of
uninsured cash in banks of approximately US $10 and US$374, respectively.
 To limit exposure to credit risk relating to deposits, the Company
primarily places cash deposits only with large financial institutions in the PRC
with acceptable credit ratings.




During
the three months ended March 31, 2010, the Company was engaged principally in
the design and trading of cellular phones to two primary distributors in the
PRC.  The Company’s policy is that the sole agent arrangement gives
the dealers more incentive to promote the Company’s products and reduce the
Company’s exposure to the distribution market.





The
Company buys certain major materials from one major supplier (over 82% of
materials purchased). In addition, the Company subcontracts material purchasing
and assembly works of cellular phones primarily to two subcontracting
factories. The diversification of suppliers will reduce the risk of increasing
production cost.




(a)
            During
      the three months ended March 31, 2010 and 2009, the Company’s operating
      revenue was mainly derived from two distributors. For three months ended
      March 31, 2010 and 2009, 82.4% and 100%, respectively, of total revenue
      was derived from our largest distributor Xingwang. There was no trade
      deposit received from Xingwang as of March 31, 2010 and 2009. Accounts
      receivable from Xingwang were US$78,296 and US$75,616 as of March 31, 2010
      and December 31, 2009, respectively. As mentioned in note 5, “Accounts
      Receivable”, in year 2008, a guarantee company provided a guarantee up to
      US$43,829 (RMB300 million) for the accounts receivable from Xingwang for
      two years from the date they are due.  The agreement has been renewed
      and re-signed as of January 20, 2010, and the guaranteed period was
      extended to the year ended December 31,
2010.




13


(b)
            Suppliers
      accounting for over 10% of the Company’s purchases are as
      follows:





ThethreemonthsendedMarch31,2010
                                        
                                        2009%
                                        
                                        %(Unaudited)
                                        
                                        (Unaudited)Supplier
      A
                                        
                                        
                                        82
                                        
                                        
                                        56Supplier
      B
                                        
                                        
                                        18
                                        
                                        
                                        44100
                                        
                                        
                                        100





Advances
to the above suppliers were US$4,599 and US$3,815 as of March 31, 2010 and
December 31, 2009, respectively. Accounts payable owed to the above suppliers
were US$17 and US$0 as of March 31, 2010 and December 31, 2009,
respectively.




(c)
            The
      Company’s revenue for the three months ended March 31, 2010 and 2009,
      respectively, were all derived from the PRC. Geographical information of
      the carrying amount of long-lived assets is as
  follows:





March31,
                              2010
                            
                            
                            December
                              31,2009US$’000
                            
                            
                            US$’000(Unaudited)PRC
                            
                            
                            168
                            
                            
                            
                            176Hong
      Kong
                            
                            
                            2
                            
                            
                            
                            2Total
      long-lived assets
                            
                            
                            170
                            
                            
                            
                            178




The
Company’s operations are carried out in the PRC. Accordingly, the Company’s
business, financial condition and results of operations may be influenced by the
political, economic and legal environments in the PRC as well as by the general
state of the PRC’s economy. The business may be influenced by changes in
governmental policies with respect to laws and regulations, anti-inflationary
measures, currency conversion and remittance abroad, and rates and methods of
taxation, among other things.




21.
            SUBSEQUENT
      EVENTS





Management
has considered all events occurring through May 24, 2010, the date the financial
statements have been issued, and has determined that there are no such events
that are material to the financial statements, or all such material events have
been fully disclosed.


14


Item
2.  Management Discussion and Analysis of Financial Conditions and Results
of Operations





The
following is management's discussion and analysis of certain significant factors
which have affected our financial position and operating results during the
periods included in the accompanying consolidated financial statements, as well
as information relating to the plans of our current management. This report
includes forward-looking statements. Generally, the words "believes,"
"anticipates," "may," "will," "should," "expect," "intend," "estimate,"
"continue," and similar expressions or the negative thereof or comparable
terminology are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties, including the matters set forth
in this report or other reports or documents we file with the Securities and
Exchange Commission from time to time, which could cause actual results or
outcomes to differ materially from those projected. Undue reliance should not be
placed on these forward-looking statements which speak only as of the date
hereof. We undertake no obligation to update these forward-looking
statements.





The
following discussion and analysis should be read in conjunction with our
consolidated financial statements and the related notes thereto and other
financial information contained elsewhere in this Form 10-Q.





OVERVIEW





The Company was organized under the
laws of the State of Delaware in May 2004 under the name “Universal Flirts
Corp.” On June 1, 2004, the Company acquired all the issued and outstanding
shares of Universal Flirts, Inc., a New York corporation, from its sole
shareholder, Darrel Lerner, in consideration for the issuance of 8,500,000
shares of the Company’s common stock to Mr. Lerner pursuant to a stock exchange
agreement between Universal Flirts Inc. and the Company. Pursuant to the stock
exchange transaction, Universal Flirts Inc. became a wholly-owned subsidiary of
the Company.





Pursuant
to a Stock Transfer Agreement dated March 29, 2005, the Company transferred all
of the common stock of Universal Flirts, Inc. to Mr. Darrell Lerner in exchange
for the cancellation of 28,200,000 shares of the Company’s common stock.
Immediately following the cancellation, the Company had 14,756,000 shares of its
common stock outstanding.





On March
31, 2005, Universal Flirts Corp. completed a stock exchange transaction with the
stockholders of United First International Limited (“UFIL”), a company
incorporated under the laws of Hong Kong. The exchange was consummated under the
laws of the State of Delaware and pursuant to the terms of the Securities
Exchange Agreement dated as of March 31, 2005 (“Exchange Agreement”). In
connection with its acquisition of UFIL, the Company authorized a 4-1 forward
split of its common stock.





Pursuant
to the Exchange Agreement, Universal Flirts Corp. issued 15,000,000 shares of
its common stock, par value US$0.001 per share, to the stockholders of UFIL,
representing approximately 50.41% of the Company’s issued and outstanding common
stock, in exchange for the 20,000,000 outstanding shares of UFIL and a cash
payment of US$50,000 from UFIL. Immediately after giving effect to the exchange,
the Company had 29,756,000 shares of its common stock outstanding. Pursuant to
this exchange, UFIL became a wholly-owned subsidiary of the Company and most of
the Company’s business operations are now conducted through UFIL’s wholly-owned
subsidiary, Beijing Orsus Xelent Technology & Trading Company Limited
(“Xelent”).





On April
19, 2005, the Company, formerly known as Universal Flirts Corp., changed its
list name to Orsus Xelent Technologies, Inc.





In July,
2005, a wholly owned subsidiary of Orsus Xelent Trading (HK) Company Limited
(“OXHK”), was
incorporated under the laws of Hong Kong. This subsidiary is engaged in the
trading of cellular phones and accessories with overseas customers. In September
2005, OXHK commenced its Hong Kong operations to sell and distribute our
cellular phone products and technical support services to customers outside the
People’s Republic of China (“PRC”). Please refer the
following chart for the relationship between the Company’s subsidiaries
:


15











The
business operations of UFIL are conducted through its wholly-owned subsidiary,
Xelent, also known as “Orsus Cellular” within the cellular phone industry.
Xelent sells its handsets and total solutions, including economically priced and
fully-loaded cell phones for both Global System for Mobile communications
(“GSM”) and Code
Division Multiple Access (“CDMA”) platforms, to a
diverse base of customers and dealers, such as ordinary users, tailored
operators, and specialized users from all fields of business and government.
Most of our mobile phone models are either designed by us for both our exclusive
distribution and joint sales under established co-brands, or developed in
conjunction with outside design firms. In February 2004, Xelent registered
“ORSUS” with the PRC State Administration for Industry and Commerce as its
product trademark.





Many of
Xelent’s cellular phone products are equipped with industry cutting-edge
features such as 1.8 to 2.8-inch CSTN, TFT or QVGA dual-color display; capacity
to record videos lasting one minute up to four hours; 300K to 3 million pixel
photography; MP3, MPEG4 and U disk support; dual stereo speakers; e-mail
messaging; multimedia messaging; 40 to 64 ring tone storage; slim bar-phone and
flip-phone technology; and innovative ultra-thin lightweight
design.





Xelent
has provided its handsets to many different types of consumers in the market for
GSM mobile devices. At present, the GSM mobile devices constitute a significant
percentage of the sales and profit of the Company. In addition, Xelent has
emphasized the development of specialized application mobile terminals in
accordance with market changes and popular features. The Company has established
itself in the specialized application field and made great efforts in its
marketing since entering the field in September 2006. Based on its evaluation of
the market and the engagement proposals received from its major customers, the
Company began to produce GSM model X180 in large volumes starting in April 2007,
thereby taking advantage of the opportunity to establish a presence in the
specialized application mobile terminal market.





In April
2007, the Company’s common shares were approved for listing on the NYSE Amex
(formerly known as the American Stock Exchange) and began trading on NYSE Amex
on May 10, 2007 under the ticker symbol “ORS”.  The Company's CUSIP
Number is 68749U106.





Business
Review




The
Company sold 57,200 cell phone units and 266,000 units during the first
quarter of 2010 and 2009 respectively. For the three months ended March 31,
2010, the Company generated revenue of US$7,591,000, representing a decrease of
61.51% as compared to US$19,724,000 for the same period in 2009. Meanwhile, the
Company achieved a gross profit margin of 7.85%, a decrease of 7.83% as compared
to 15.68% earned for the same period in 2009. The Company believes this decrease
is due to the fact that our major customers didn’t get several large orders
from their customers since two main reasons; externally, the request volume of
GSM was decreased in the first quarter of 2010 due to the market reason;
internally, only two new products were launched in the first quarter of 2010,
will lead to the reduction of the sales orders. The Company continued to supply
feature-rich, economically-priced, mid-level and low-end products – a different
strategy from that of foreign brands, which tend to have higher costs and
higher output prices.  100% of the products the Company sold in this
quarter were priced below RMB1,000 (approximately US$146).




The
Company clearly understands that the cell phone market in PRC might face certain
difficulties in 2010. However, we also believe the situation may be improved in
the coming days because of market developments due-to the reorganization of PRC
telecom carriers and the market demand for new 3G technologies.





Based on
the above situation, the Company will develop the business per the three
operation strategies below:


16




1.
            Safeguard
      our traditional sales channels and explore the possibility of selling more
      GSM cell phones in traditional markets.  The Company will use
      its key ability to create telephone models that respond precisely to
      market opportunities to target customer
needs.





2.
            Launch
      our own 3G products while telecom carriers are promoting the commercial
      use of 3G. Based on the relationships we have already built with the
      telecom carriers, we believe the Company will be able to establish a
      beneficial market share in this new era of the telecom
      industry.





3.
            Expand
      our industrial structure by consummating certain acquisitions using funds
      obtained from the capital markets in order to enhance our business
      foundation and long-term
development.





CRITICAL
ACCOUNTING POLICIES AND MANAGEMENT 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. On an
on-going basis, we evaluate our estimates based on historical experience and
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.





RESULTS
OF OPERATIONS





The
following table summarizes our operating results for the three months ended
March 31, 2010 and 2009, respectively (in thousand US$):





Three months ended
                                  
                                  
                                  Three months endedMarch31,2010
                                  
                                  
                                  March31,2009
                                  
                                  
                                  Comparison(US$000)
                                  
                                  
                                  %of
                                    Revenue
                                  
                                  
                                  (US$000)
                                  
                                  
                                  %of
                                    Revenue
                                  
                                  
                                  (US$000)
                                  
                                  
                                  %Net
      sales
                                  
                                  
                                  7,591
                                  
                                  
                                  
                                  100.00
                                  %
                                  
                                  
                                  19,724
                                  
                                  
                                  
                                  100.00
                                  %
                                  
                                  
                                  (12,133
                                  )
                                  
                                  
                                  (61.51
                                  )%Cost
      of sales
                                  
                                  
                                  6,995
                                  
                                  
                                  
                                  92.15
                                  %
                                  
                                  
                                  16,632
                                  
                                  
                                  
                                  84.32
                                  %
                                  
                                  
                                  (9,637
                                  )
                                  
                                  
                                  (57.94
                                  )%Sales
      expenses
                                  
                                  
                                  41
                                  
                                  
                                  
                                  0.54
                                  %
                                  
                                  
                                  123
                                  
                                  
                                  
                                  0.62
                                  %
                                  
                                  
                                  (82
                                  )
                                  
                                  
                                  (66.67
                                  )%General
      & administrative expenses
                                  
                                  
                                  27
                                  
                                  
                                  
                                  0.36
                                  %
                                  
                                  
                                  266
                                  
                                  
                                  
                                  1.35
                                  %
                                  
                                  
                                  (239
                                  )
                                  
                                  
                                  (89.85
                                  )%Research
      and development expenses
                                  
                                  
                                  5
                                  
                                  
                                  
                                  0.07
                                  %
                                  
                                  
                                  17
                                  
                                  
                                  
                                  0.09
                                  %
                                  
                                  
                                  (12
                                  )
                                  
                                  
                                  (70.59
                                  )%Depreciation
      and amortization
                                  
                                  
                                  8
                                  
                                  
                                  
                                  0.11
                                  %
                                  
                                  
                                  23
                                  
                                  
                                  
                                  0.12
                                  %
                                  
                                  
                                  (15
                                  )
                                  
                                  
                                  (65.22
                                  )%Allowance
      for doubtful accounts
                                  
                                  
                                  (251
                                  )
                                  
                                  
                                  (3.31
                                  )%
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (251
                                  )
                                  
                                  
                                  100.00
                                  %Interest
      expenses
                                  
                                  
                                  (213
                                  )
                                  
                                  
                                  (2.81
                                  )%
                                  
                                  
                                  (222
                                  )
                                  
                                  
                                  (1.13
                                  )%
                                  
                                  
                                  9
                                  
                                  
                                  
                                  4.05
                                  %Other
      (expenses)/income, net
                                  
                                  
                                  (1,252
                                  )
                                  
                                  
                                  (16.50
                                  )%
                                  
                                  
                                  17
                                  
                                  
                                  
                                  0.09
                                  %
                                  
                                  
                                  (1,269
                                  )
                                  
                                  
                                  7466.06
                                  %Income
      before income tax expense
                                  
                                  
                                  (699
                                  )
                                  
                                  
                                  (9.21
                                  )%
                                  
                                  
                                  2,458
                                  
                                  
                                  
                                  12.46
                                  %
                                  
                                  
                                  (3,157
                                  )
                                  
                                  
                                  (128.45
                                  )%Current
      tax expense
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (323
                                  )
                                  
                                  
                                  (1.64
                                  )%
                                  
                                  
                                  323
                                  
                                  
                                  
                                  (100.00
                                  )%Deferred
      taxes benefit
                                  
                                  
                                  245
                                  
                                  
                                  
                                  3.23
                                  %
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  245
                                  
                                  
                                  
                                  100.00
                                  %Net
      (loss)/income
                                  
                                  
                                  (454
                                  )
                                  
                                  
                                  (5.98
                                  )%
                                  
                                  
                                  2,135
                                  
                                  
                                  
                                  10.82
                                  %
                                  
                                  
                                  (2,589
                                  )
                                  
                                  
                                  (121.27
                                  )%




17





Net
sales





Our
revenue was US$7,591,000 for the three months ended March 31, 2010, representing
a decrease of 61.51% compared to US$19,724,000 for the same period in
2009.





As stated
in the Business Review section above, despite the global economic turmoil, we
believe China's economy has begun to improve gradually. However, it seems that
the economy has mainly focused on large-scale projects instead of the consumer
goods markets, as the sector has experienced a much slower recovery. During this
quarter, the Company has continued to undertake its sales strategy of supplying
feature-rich, low-priced, mid-level and low-end products. It has also put great
efforts into developing new products tailored for telecom operators and
expanding its sales channels beyond the enhanced traditional market in which
products were traded at prices less than RMB1,000, or approximately
US$146.





Products
Segment





For the
three months ended March 31, 2010, the Company’s sales were primarily
attributable to the following products:


Cellular
                          phones model
                        
                        Three months ended March 31, 2010Amount
                          (US$’000)
                        
                        
                        % of total revenueDX796
                        
                        
                        5,376
                        
                        
                        
                        70.82
                        %LM7100B
                        
                        
                        1,333
                        
                        
                        
                        17.56
                        %DX5388
                        
                        
                        882
                        
                        
                        
                        11.62
                        %Total
                        
                        
                        7,591
                        
                        
                        
                        100.00
                        %




Customer
Segments





For the
three months ended March 31, 2010, our sales in the aggregate amount of
US$6,258,000 were derived from Beijing Xingwang Shidai Tech & Trading Co.,
Ltd. (“Xingwang”).  Xingwang has been our most important distributor
for a long period of time. It is one of the largest distributors in mainland
China and has sales networks in major cities across the PRC.





Three months ended March 31, 2010Amount
                        (US$’000)
                      
                      
                      % of total revenueBeijing
      Xingwang Shidai Tech & Trading Co., Ltd.
                      
                      
                      6,258
                      
                      
                      
                      82.44
                      %Tianjin
      Tongguang
                      
                      
                      1,333
                      
                      
                      
                      17.56
                      %Total
                      
                      
                      7,591
                      
                      
                      
                      100.00
                      %





Gross
Margin





For the
three months ended March 31, 2010, gross margin was US$596,000, representing a
decrease of US$2,496,000 in gross margin when compared to the same period of
2009.  During this period, to cope with the global financial crisis
and the increasing competition in the Chinese cell phone market, many
manufacturers were involved in price wars, clearance sales and capital recalls,
regardless of the losses they might suffer from in the short term. As a result,
normal selling prices of products were unstable and products’ gross profits
dropped severely. The Company’s gross margin for the period decreased to 7.85%
as compared to 15.68% for the same period of 2009.





Selling
expenses





Selling
expenses mainly represent payments made to sales personnel and transportation
costs.





For the
three months ended March 31, 2010, selling expenses were US$41,000, or 0.54% of
revenues, representing a US$82,000 decrease compared with US$123,000 for the
corresponding period in 2009.


18


We rely
more on concentrated distributors in products sales and this strategy led to the
decrease of selling expenses.





Research
and Development (R&D) expenses





For the
three months ended March 31, 2010, R&D expenses were US$5,000, or 0.07% of
revenue, representing a decrease of US$12,000 or 70.59%, compared with the
numbers for the corresponding period in 2009. The significant decrease in
R&D expenses was a result of the Company’s focus on more regular R&D
initiatives and the fact that it did not launch full R&D projects for
development of new products during the current year. This decision was
considered prudent in light of the potential impact from the pending telecom
industrial reorganization in the PRC.





General
and administrative expenses





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





For the
three months ended March 31, 2010, total general and administrative expenses
were US$27,000, or 0.36% of total revenues, representing a decrease of
US$239,000, or 89.85% as compared to US$266,000, or 1.35% of the total revenues
for the corresponding period in 2009.





The sharp
decrease in general and administrative expenses was primarily attributable to
structural adjustment, internal management control and costs
reduction.





Interest
expenses





For the
three months ended March 31, 2010, interest expenses decrease by US$9,000
compared with same period in 2009. The decrease is mainly due to the bank loan
of $117,000 (RMB800,000) was repaid by us in February 2009.





Provision
for income taxes





For the
three months ended March 31, 2009, the Company incurred income tax expense of
US$323,000; and for the three months ended March 31, 2010, the Company had no
current income tax expense since it incurred net loss for the period, but
generated a deferred tax benefit in the amount of US$245,000 which arose from
allowance for doubtful accounts and provision for liability for possible
settlement to accounts payable.





Other
(expenses) income, net





For the
three months ended March 31, 2010, other expenses amounted to US$1,252,000,
representing a decrease of US$1,269,000 compared with other income of US$17,000
for the same period in 2009. The significant decrease is due to penalty
interests accrued for the overdue bank loan. See
Note 10 to the consolidated financial statements attached to this Form
10-Q.





Net
income





For the
three months ended March 31, 2010, our net loss was US$454,000 or a net loss
margin of 5.98%, representing a decrease of US$2,589,000, or 121.27%, as
compared to US$2,135,000, or a net profit margin of 10.82% in the same period of
2009. The decrease was mainly due to our business shrinking in the current
economic downturn.





LIQUIDITY
AND SOURCES OF CAPITAL




The
Company’s business relies on few distributors. In the current economic
environment, turnover days of accounts receivable due from these distributors
are longer. The Company has not provided certain bad debt provision to the
significant accounts receivable balance considering historical good cooperation
relationship with these distributors and we believe no provision is needed
because accounts receivable is guaranteed by Zhonghui as of March 31,
2010.




The
Company is discussing with those distributors to try to collect a portion of
account receivable in second quarter of 2010.


19





The
Company has limited cash and cash equivalents in hand for a long time and may
obtain loans from banks to finance business operation from time to time. The
Company currently has certain overdue loan from Beijing Rural Commercial Bank
and Huaxia Bank at March 31, 2010. The Company is negotiating an extension of
the term with the banks.





We
generally finance our operations from cash flow generated internally and
short-term loans from domestic banks in China.





As of
March 31, 2010, we had current assets of US$93,360,000. Current assets are
mainly comprised of accounts receivable of US$85,370,000, trade deposit paid of
US$6,658,000, cash and cash equivalents of US$10,000, restricted cash of
US$4,000, pledged deposit of US$1,290,000 and other current assets of
US$28,000.





As of
March 31, 2010, our current liabilities were US$56,041,000 and included accounts
payable of US$7,669,000, trade deposits received of US$1,883,000, short-term
bank loans of US$9,391,000, short-term loan payable of US$307,000, accrued
expenses and other accrued liabilities of US$3,616,000,other taxes payable of
US$22,502,000, liabilities for possible settlement to accounts payable of
US$4,182,000, income taxes payable of US$5,871,000 and amounts due to
shareholders of US$620,000.





We offer
two different trading terms to our customers: cash-on-delivery or credit terms
of 45-120 days.  As of March 31, 2010, our accounts receivable had
increased by US$4,240,000 to US$85,370,000, as compared to US$81,130,000 on
December 31, 2009. The increase in accounts receivables was mainly due to a
longer turn over period in the current economic recession environment. We will
pay close attention to the liquidity progress of our distributors. As previously
disclosed, in order to reduce the risks of default, we have limited terms of
credit to our major distributor in the Master Distributor Agreement and have the
third-party guarantee company to guarantee the accounts receivable due from this
major distributor.





As of
March 31, 2010, our trade deposit paid was US$6,658,000, which represented an
increase of US$783,000 as compared with US$5,875,000 as of December 31, 2009.
The increase was primarily because the bank acceptances were endorsed to the
supplier.





As of
March 31, 2010, our accounts payable were US$7,669,000, which represents an
increase of US$17,000, or 0.22%, as compared to US$7,652,000 as of December 31,
2009. The increase was mainly because raw materials purchasing occurred in the
first quarter of 2010.





As of
March 31, 2010, accrued expenses and liabilities were US$3,616,000, representing
an increase of US$203,000 or 5.95%, compared to US$3,413,000 as of December 31,
2009. The increase was mainly due to the accrual of loan interests in the amount
of US$213,000.





As of
March 31, 2010, income taxes payable was US$5,871,000, representing an increase
of US$1,000 or 0.02%, compared to US$5,870,000 as of December 31, 2009, which is
due to the change in the foreign currency exchange rate.





As of
March 31, 2010, cash and bank balances were mainly denominated in Renminbi
(“RMB”). Our revenue and expenses, assets and liabilities are mainly denominated
in RMB and U.S. Dollars (“USD”). The Company operations are mainly denominated
in RMB.





It seems
that the global financial crisis has made it difficult for companies to raise
capital through equity financing. In order to ensure its liquidity, the Company
will attempt to recover accounts receivable due from customers and to raise
funds, as necessary, through loans from Chinese domestic banks.





CASH
FLOWS




As of
March 31, 2010, we had cash and cash equivalents of US$10,000. This represented
a decrease of US$364,000 when compared with US$374,000 as of December 31, 2009.
During the three months ended March 31, 2010, we had a fast moving cash flow to
ensure desirable goods supplies. We made timely payments to our suppliers so
that we had shortened goods supply terms to deal with the fierce competition in
the cell phone market.  The two above mentioned loans have been
overdue as of March 31, 2010, and management is discussing with the bank for a
new extension, please refer to Note 10.


20





As of
March 31, 2010, our aggregate short term loans were US$9,698,000, which were
comprised of US$2,516,000 from Huaxia Bank, US$6,875,000 from Beijing Rural and
Commercial Bank and US$307,000 from a third party company.





OFF
BALANCE SHEET ARRANGEMENTS





As of March 31, 2010, we had no
off-balance sheet arrangements.





Item 3.                   Quantitative
and Qualitative Disclosures About Market Risk.





Market
risk is the sensitivity of income to changes in interest rates, foreign
exchanges, commodity prices, equity prices and other market-driven rates or
prices. The Company, in the normal course of doing business, is exposed to
market risk through changes in interest rates with respect to bank loans.
Aggregate bank loans as of March 31, 2010, were US$9,391,000. The interest rate
for the three months ended March 31, 2010 was charged at 6.372% to 10.080% per
annum.





Item
4T.                Controls
and Procedures.




Evaluation
of Disclosure Controls and Procedures




Disclosure
Controls and Procedures




The
Company maintains disclosure controls and procedures that are designed to ensure
that information required to be disclosed in reports filed by the Company under
the Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission’s rules and regulations and that such information is
accumulated and communicated to our management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow for timely
decisions regarding required disclosure. Our Chief Executive Officer and Chief
Financial Officer evaluated, with the participation of other members of
management, the effectiveness of our disclosure controls and procedures (as
defined in Exchange Act Rule 15d-15(e)), as of the end of the period covered by
this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that the Company’s
disclosure controls and procedures were effective.




Although
the management of our Company, including the Chief Executive Officer and the
Chief Financial Officer, believes that our disclosure controls and internal
controls currently provide reasonable assurance that our desired control
objectives have been met, management does not expect that our disclosure
controls or internal controls will prevent all error and all fraud. A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative
to their costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within our Company have been detected. These
inherent limitations include the realities that judgments in decision-making can
be faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
controls. The design of any system of controls is also based in part upon
certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions.




Changes
in Internal Controls over Financial Reporting




There
were no significant changes in our internal controls over financial reporting
identified in connection with this evaluation that occurred during our last
fiscal quarter that have materially affected, or are reasonably likely to
materially affect, the Company’s internal controls over financial
reporting.


21




PART
II – OTHER INFORMATION





Item
      1.
            Legal
      Proceedings.




There are
two legal disputes with two suppliers of BOXT. Shenzhen Songding Industry Ltd.,
(“Songding”) provides battery chargers and Beijing Baoxin Packing Materials Co.,
Ltd. (“Baoxin”) provides packing materials to BOXT. The legal disputes with
abovementioned suppliers arose because the Company did not accept accessories
and materials supplied by Songding and Baoxin due to quality issues. The
management of BOXT determined to cease payment to Songding and Baoxin
accordingly.




The
dispute between Baoxin and BOXT commenced in arbitration initiated by Baoxin on
October 2006 which was arbitrated by the Beijing Arbitration Commission on
October 24, 2006. BOXT is obligated to pay Baoxin US$246,000. Currently, BOXT
and Baoxin are in the process of the final negotiation based on the arbitration
result. As such, Baoxin applied to the court for property preservation and one
of BOXT’s bank accounts has been blocked accordingly. BOXT has recorded the
arbitration result as an account payable to the supplier after the arbitration.
The balance of account payable to Baoxin as of March 31, 2010 is
US$36,000.





The
dispute between Songding and BOXT is still pending for final arbitration.
Songding has argued for BOXT to pay the amount of US$281,000 by. BOXT recorded
an account payable to the supplier in the amount of US$200,000 as of December
31, 2008. Songding prepared the arbitration application on December 28, 2009 and
applied to the court for property preservation to block the bank account of
BOXT. The application was formally accepted by the Beijing arbitration
commission on January 12, 2010. Since Songding applied for the property
preservation to the court, one of BOXT’s bank accounts is blocked accordingly.
The balance of account payable to Songding as of March 31, 2010 is
US$54,000.





Item
      1A.
            Risk
      Factors.





Not
required.





Item
      2.
            Unregistered
      Sales of Equity Securities and Use of
Proceeds.





(a)           None.





(b)           Not
applicable.





(c)           None.





Item
      3.
            Defaults
      Upon Senior Securities.





None.





Item
      4.
            Removed
      and Reserved.





Item
      5.
            Other
      Information.





(a)           None.





(b)          
There were no material changes to the procedures by which security holders may
recommend nominees to the registrant's board of directors during the fiscal
quarter ended March 31, 2010.





Item
      6.
            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:


22





Exhibit Number
                                    
                                    Exhibit Description3.1
                                    
                                    Certificate
      of Incorporation of Orsus Xelent Technologies, Inc. (incorporated by
      reference from Exhibit 3.1 to the Registration Statement on Form SB-2
      filed with the Securities and Exchange Commission on July 28, 2004 as
      amended by that Plan of Merger and Agreement of Merger attached as Exhibit
      2.1 to the Current Report on Form 8-K filed with the SEC on April 20,
      2005)3.2
                                    
                                    Amended
      and Restated Bylaws of the Registrant (incorporated by reference from
      Exhibit 3.2 to the Current Report on Form 8-K filed with the Securities
      and Exchange Commission on February 7, 2007, as amended by the Current
      Report on Form 8-K filed with the SEC on March 5, 2007)4.1
                                    
                                    Specimen
      Certificate of Common Stock (incorporated by reference to Exhibit 4.1 to
      Amendment 2 to the Registration Statement on Form SB-2/A filed with the
      Securities and Exchange Commission on October 19, 2004)10.1
                                    
                                    2007
      Omnibus Long-Term Incentive Plan (incorporated by reference from Exhibit
      10.1 to the Current Report on Form 8-K filed with the Securities and
      Exchange Commission on January 11, 2008)10.2
                                    
                                    Master
      Distributor Agreement, dated as of August 7, 2008, by and between Beijing
      Orsus Xelent Technology & Trading Company Limited and Beijing Xingwang
      Shidai Commerce Co., Ltd. (incorporated by reference from Exhibit 10.1 to
      the Current Report on Form 8-K filed with the Securities and Exchange
      Commission on August 20, 2008)31.1
                                    
                                    Certification
      of Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act
      of 2002 *31.2
                                    
                                    Certification
      of Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act
      of 2002 *32.1
                                    
                                    Certification
      of Principal Executive Officer under Section 906 of the Sarbanes-Oxley Act
      of 2002 *32.2
                                    
                                    Certification
      of Principal Financial Officer under Section 906 of the Sarbanes-Oxley Act
      of 2002
*




*       Filed
herewith


23


SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.





ORSUS
      XELENT TECHNOLOGIES, INC.By:
                        /s/ Guoji LiuGuoji
      LiuChief
      Executive OfficerBy:
                        /s/ Hua ChenHua
      ChenChief
      Financial
Officer





DATED:  May
24, 2010


24


INDEX
TO EXHIBITS





Exhibit Number
                              
                              Exhibit Description3.1
                              
                              Certificate
      of Incorporation of Orsus Xelent Technologies, Inc. (incorporated by
      reference from Exhibit 3.1 to the Registration Statement on Form SB-2
      filed with the Securities and Exchange Commission on July 28, 2004 as
      amended by that Plan of Merger and Agreement of Merger attached as Exhibit
      2.1 to the Current Report on Form 8-K filed with the SEC on April 20,
      2005)3.2
                              
                              Amended
      and Restated Bylaws of the Registrant (incorporated by reference from
      Exhibit 3.2 to the Current Report on Form 8-K filed with the Securities
      and Exchange Commission on February 7, 2007, as amended by the Current
      Report on Form 8-K filed with the SEC on March 5, 2007)4.1
                              
                              Specimen
      Certificate of Common Stock (incorporated by reference to Exhibit 4.1 to
      Amendment 2 to the Registration Statement on Form SB-2/A filed with the
      Securities and Exchange Commission on October 19, 2004)10.1
                              
                              2007
      Omnibus Long-Term Incentive Plan (incorporated by reference from Exhibit
      10.1 to the Current Report on Form 8-K filed with the Securities and
      Exchange Commission on January 11, 2008)10.2
                              
                              Master
      Distributor Agreement, dated as of August 7, 2008, by and between Beijing
      Orsus Xelent Technology & Trading Company Limited and Beijing Xingwang
      Shidai Commerce Co., Ltd. (incorporated by reference from Exhibit 10.1 to
      the Current Report on Form 8-K filed with the Securities and Exchange
      Commission on August 20, 2008)31.1
                              
                              Certification
      of Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act
      of 2002 *31.2
                              
                              Certification
      of Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act
      of 2002 *32.1
                              
                              Certification
      of Principal Executive Officer under Section 906 of the Sarbanes-Oxley Act
      of 2002 *32.2
                              
                              Certification
      of Principal Financial Officer under Section 906 of the Sarbanes-Oxley Act
      of 2002
*





*       Filed
herewith




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