**SECURITIES      AND EXCHANGE COMMISSION**

**WASHINGTON,      DC 20549**

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**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 June 30, 2008**

**o      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. **

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

**12**
**th**

**      Floor, Tower B, Chaowai MEN Office Building**

**26      Chaowai Street, Chaoyang Disc.**

**Beijing,      People’s Republic Of China 100020**

**86-10-85653777**

**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                o** |
|--|------------------------|-------------------------|

**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 o**                                                                                   |  **Accelerated filer o**         |
|-----------------------------------------------------------------------------------------------------------------------|---------------------------------------|
|                                                                                                                  |                                  |
|  **Non-accelerated filer o              (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              o** | **No                x** |
|--|------------------------|-------------------------|

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

|  | **Yes                o** | **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 August 13, 2008** |
|------------------------------------------------------------|--------|---------------------------------------------------|
| **Common                Stock, $.001 par value per share** |   | **29,756,000****shares**                          |

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**PART      I - FINANCIAL INFORMATION**

**Item      1.**
**Financial      Statements.**

**Orsus      Xelent Technologies, Inc.**

**Index      to Financial Statements**

|                                                                                         | Page   |
|----------------------------------------------------------------------------------------------|--------|
|                                                                                         |   |
| Condensed                  Consolidated Statements of Operations (Unaudited)                 | 2      |
|                                                                                         |   |
| Condensed                  Consolidated Balance Sheets (Unaudited)                           | 3      |
|                                                                                         |   |
| Condensed                  Consolidated Statement of Cash Flows (Unaudited)                  | 4      |
|                                                                                         |   |
| Consolidated                  Statement of Changes in Stockholders’ Equity (Unaudited) | 5      |
|                                                                                         |   |
| Notes                  to Condensed Consolidated Financial Statements                        | 6      |

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**Orsus        Xelent Technologies, Inc.**

**Condensed        Consolidated Statements of Operations and Other Comprehensive        Income**

----

*(Dollars        in thousands except share data and per share amounts)*

|                                                                                                |   |       |   | **(Unaudited)****Three                months ended****June                30,** |   | **(Unaudited)****Six                months ended****June                30,** |   |
|-----------------------------------------------------------------------------------------------------|--------|------------|--------|---------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------|--------|
|                                                                                                |   |       |   | **2008**                                                                        |   | 2007                                                                          |   | **2008** |   | 2007 |   |
|                                                                                                |   | ***Note*** |   | ***US$’000***                                                             |   | *US$’000*                                                               |   | ***US$’000*** |   | *US$’000* |   |
|                                                                                                |   |       |   |                                                                            |   |                                                                          |   |   |   |   |   |
| **Operating                revenue - Net sales**                                                    |   |       |   |                                                                            |   | **28,894**                                                                    |   |   | 16,356 |   |   | **49,613** |   |   | 36,365 |   |
|                                                                                                |   |       |   |                                                                            |   |                                                                          |   |   |   |   |   |   |   |   |   |   |
| Cost                of operating revenue                                                            |   |       |   |                                                                            |   | **(25,728**                                                                   | **)**  |   | (13,181 | ) |   | **(43,229** | **)** |   | (29,522 | ) |
|                                                                                                |   |       |   |                                                                            |   |                                                                          |   |   |   |   |   |   |   |   |   |   |
| Gross                income                                                                         |   |       |   |                                                                            |   | **3,166**                                                                     |   |   | 3,175 |   |   | **6,384** |   |   | 6,843 |   |
|  **Operating                expenses:**                                                        |   |       |   |                                                                            |   |                                                                          |   |   |   |   |   |   |   |   |   |   |
| Sales                and marketing                                                                  |   |       |   |                                                                            |   | **(122**                                                                      | **)**  |   | (134 | ) |   | **(225** | **)** |   | (247 | ) |
| General                and administrative                                                           |   |       |   |                                                                            |   | **(1,135**                                                                    | **)**  |   | (614 | ) |   | **(1,571** | **)** |   | (1,988 | ) |
| Research                and development                                                             |   |       |   |                                                                            |   | **(26**                                                                       | **)**  |   | (243 | ) |   | **(141** | **)** |   | (296 | ) |
| Depreciation                                                                                        |   |       |   |                                                                            |   | **(24**                                                                       | **)**  |   | (35 | ) |   | **(49** | **)** |   | (87 | ) |
| Allowance                for obsolete inventories                                                   |   |       |   |                                                                            |   | **-**                                                                         |   |   | (272 | ) |   | **-** |   |   | (592 | ) |
|                                                                                                |   |       |   |                                                                            |   |                                                                          |   |   |   |   |   |   |   |   |   |   |
| Total                operating expenses                                                             |   |       |   |                                                                            |   | **(1,307**                                                                    | **)**  |   | (1,298 | ) |   | **(1,986** | **)** |   | (3,210 | ) |
|                                                                                                |   |       |   |                                                                            |   |                                                                          |   |   |   |   |   |   |   |   |   |   |
| **Operating                income**                                                                 |   |       |   |                                                                            |   | **1,859**                                                                     |   |   | 1,877 |   |   | **4,398** |   |   | 3,633 |   |
|                                                                                                |   |       |   |                                                                            |   |                                                                          |   |   |   |   |   |   |   |   |   |   |
| **Other                income (expenses)**Interest                expense                           |   |       |   |                                                                            |   | **(240**                                                                      | **)**  |   | (177 | ) |   | **(478** | **)** |   | (304 | ) |
| Other                income, net                                                                    |   |       |   |                                                                            |   | **214**                                                                       |   |   | 5 |   |   | **378** |   |   | 7 |   |
|                                                                                                |   |       |   |                                                                            |   |                                                                          |   |   |   |   |   |   |   |   |   |   |
| **Income                before income taxes**                                                       |   |       |   |                                                                            |   | **1,833**                                                                     |   |   | 1,705 |   |   | **4,298** |   |   | 3,336 |   |
|                                                                                                |   |       |   |                                                                            |   |                                                                          |   |   |   |   |   |   |   |   |   |   |
| Income                taxes                                                                         |   |       | *3*    |                                                                            |   | **(327**                                                                      | **)**  |   | (256 | ) |   | **(875** | **)** |   | (640 | ) |
|                                                                                                |   |       |   |                                                                            |   |                                                                          |   |   |   |   |   |   |   |   |   |   |
| **Net                income**                                                                       |   |       |   |                                                                            |   | **1,506**                                                                     |   |   | 1,449 |   |   | **3,423** |   |   | 2,696 |   |
|                                                                                                |   |       |   |                                                                            |   |                                                                          |   |   |   |   |   |   |   |   |   |   |
| **Other                comprehensive income**Foreign                currency translation adjustment |   |       |   |                                                                            |   | **50**                                                                        |   |   | - |   |   | **1,516** |   |   | - |   |
|                                                                                                |   |       |   |                                                                            |   |                                                                          |   |   |   |   |   |   |   |   |   |   |
| **Comprehensive                income**                                                             |   |       |   |                                                                            |   | **1,556**                                                                     |   |   | 1,449 |   |   | **4,939** |   |   | 2,696 |   |
|                                                                                                |   |       |   |                                                                            |   |                                                                          |   |   |   |   |   |   |   |   |   |   |
| **Earnings                per share:**                                                              |   |       | *2*    |                                                                            |   |                                                                          |   |   |   |   |   |   |   |   |   |   |
|                                                                                                |   |       |   |                                                                            |   |                                                                          |   |   |   |   |   |   |   |   |   |   |
| Basic                and diluted (US$)                                                              |   |       |   |                                                                            |   | **5.06cents**                                                                 |   |   | 4.87cents |   |   | **11.50cents** |   |   | 9.06cents |   |
|                                                                                                |   |       |   |                                                                            |   |                                                                          |   |   |   |   |   |   |   |   |   |   |
| Weighted                average number of common stock outstanding                                  |   |       |   |                                                                            |   | **29,756,000**                                                                |   |   | 29,756,000 |   |   | **29,756,000** |   |   | 29,756,000 |   |

----

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**Orsus      Xelent Technologies, Inc.**

**Condensed        Consolidated Balance Sheets**

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*(Dollars        in thousands except share data and per share        amounts)*

|                                                                                                                                                                                                                              |   |       |   | **As                of****June                30, 2008** |   | As                ofDecember                31, 2007 |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------|--------|----------------------------------------------------------|--------|------------------------------------------------------|--------|
|                                                                                                                                                                                                                              |   | ***Note*** |   | ***US$’000***                                      |   | *US$’000*                                      |   |
| **ASSETS**                                                                                                                                                                                                                        |   |       |   | **(Unaudited)**                                          |   |                                                 |   |
| **Current                assets**                                                                                                                                                                                                 |   |       |   |                                                     |   |                                                 |   |
| Cash                and cash equivalents                                                                                                                                                                                          |   |       |   |                                                     |   | **1,558**                                            |   |   | 2,928 |   |
| Accounts                receivable, net of allowance                                                                                                                                                                              |   |       |   |                                                     |   | **72,241**                                           |   |   | 57,743 |   |
| Inventories,                net                                                                                                                                                                                                   |   |       |   |                                                     |   | **-**                                                |   |   | 4 |   |
| Trade                deposit paid, net                                                                                                                                                                                            |   |       |   |                                                     |   | **9,428**                                            |   |   | 839 |   |
| Other                current assets                                                                                                                                                                                               |   |       | *4*    |                                                     |   | **4,448**                                            |   |   | 4,196 |   |
| Pledged                deposit                                                                                                                                                                                                    |   |       | *6*    |                                                     |   | **1,256**                                            |   |   | 1,206 |   |
|                                                                                                                                                                                                                              |   |       |   |                                                     |   |                                                 |   |   |   |   |
| Total                current assets                                                                                                                                                                                               |   |       |   |                                                     |   | **88,931**                                           |   |   | 66,916 |   |
|                                                                                                                                                                                                                              |   |       |   |                                                     |   |                                                 |   |   |   |   |
| Property,                plant and equipment, net                                                                                                                                                                                 |   |       | *5*    |                                                     |   | **281**                                              |   |   | 318 |   |
|                                                                                                                                                                                                                              |   |       |   |                                                     |   |                                                 |   |   |   |   |
| **Total                assets**                                                                                                                                                                                                   |   |       |   |                                                     |   | **89,212**                                           |   |   | 67,234 |   |
|                                                                                                                                                                                                                              |   |       |   |                                                     |   |                                                 |   |   |   |   |
| **LIABILITIES                AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                     |   |       |   |                                                     |   |                                                 |   |   |   |   |
| **Current                liabilities**                                                                                                                                                                                            |   |       |   |                                                     |   |                                                 |   |   |   |   |
| Short-term                bank loans                                                                                                                                                                                              |   |       | *6*    |                                                     |   | **9,541**                                            |   |   | 9,160 |   |
| Short-term                loan from a non-financial institution                                                                                                                                                                   |   |       | *7*    |                                                     |   | **57**                                               |   |   | - |   |
| Current                portion of mortgage loan                                                                                                                                                                                   |   |       | *8*    |                                                     |   | **45**                                               |   |   | 68 |   |
| Accounts                payable - Trade                                                                                                                                                                                           |   |       |   |                                                     |   | **24,026**                                           |   |   | 10,854 |   |
| Accrued                expenses and other accrued liabilities                                                                                                                                                                     |   |       |   |                                                     |   | **9,564**                                            |   |   | 8,048 |   |
| Trade                deposits                received                                                                                                                                                                             |   |       |   |                                                     |   | **1,907**                                            |   |   | 1,709 |   |
| Due                to directors                                                                                                                                                                                                   |   |       | *9*    |                                                     |   | **408**                                              |   |   | 323 |   |
| Provision                for warranty                                                                                                                                                                                             |   |       |   |                                                     |   | **128**                                              |   |   | 123 |   |
| Tax                payables                                                                                                                                                                                                       |   |       |   |                                                     |   | **3,975**                                            |   |   | 3,047 |   |
|                                                                                                                                                                                                                              |   |       |   |                                                     |   |                                                 |   |   |   |   |
| Total                current liabilities                                                                                                                                                                                          |   |       |   |                                                     |   | **49,651**                                           |   |   | 33,332 |   |
| **Non-current                liabilities**Mortgage                loan                                                                                                                                                            |   |       | *8*    |                                                     |   | **-**                                                |   |   | 5 |   |
|                                                                                                                                                                                                                              |   |       |   |                                                     |   |                                                 |   |   |   |   |
| **Commitments                and contingencies**                                                                                                                                                                                  |   |       | *11*   |                                                     |   | **-**                                                |   |   | - |   |
|                                                                                                                                                                                                                              |   |       |   |                                                     |   |                                                 |   |   |   |   |
| **Stockholders’                equity**                                                                                                                                                                                     |   |       |   |                                                     |   |                                                 |   |   |   |   |
| Preferred                stock, US$0.001 par value: Authorized:                100,000,000 shares, no shares issued                                                                                                               |   |       |   |                                                     |   | **-**                                                |   |   | - |   |
| Common                  stock and paid-in capital, US$0.001 par value: Authorized: 100,000,000                  shares Issued and outstanding: 29,756,000 shares as of June 30,                  2008 and as of December 31, 2007 |   |       | *12*   |                                                     |   | **30**                                               |   |   | 30 |   |
| Additional                paid-in capital                                                                                                                                                                                         |   |       |   |                                                     |   | **3,209**                                            |   |   | 2,484 |   |
| Dedicated                reserves                                                                                                                                                                                                 |   |       |   |                                                     |   | **1,042**                                            |   |   | 1,042 |   |
| Accumulated                other comprehensive income                                                                                                                                                                             |   |       |   |                                                     |   | **4,422**                                            |   |   | 2,906 |   |
| Retained                earnings                                                                                                                                                                                                  |   |       |   |                                                     |   | **30,858**                                           |   |   | 27,435 |   |
|                                                                                                                                                                                                                              |   |       |   |                                                     |   |                                                 |   |   |   |   |
| Total                stockholders’ equity                                                                                                                                                                                   |   |       |   |                                                     |   | **39,561**                                           |   |   | 33,897 |   |
|                                                                                                                                                                                                                              |   |       |   |                                                     |   |                                                 |   |   |   |   |
| **Total                liabilities and stockholders’ equity**                                                                                                                                                               |   |       |   |                                                     |   | **89,212**                                           |   |   | 67,234 |   |

----

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**Orsus      Xelent Technologies, Inc.**

**Condensed        Consolidated Statements of Cash Flows **

----

*(Dollars        in thousands except share data and per share amounts)*

|                                                                                                        |   | **(Unaudited)**                                                |        |
|-------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------|-------------|
|                                                                                                        |   | **Six                months ended****June                30,** |        |
|                                                                                                        |   | **2008**                                                       |        | 2007 |   |
|                                                                                                        |   | ***US$’000***                                            |        | *US$’000* |   |
| **Cash                flows from operating activities**                                                     |   |                                                           |        |   |   |
| **Net                income**                                                                               |   |                                                           | **3,423**   |   |   | 2,696 |   |
| Adjustments                to reconcile net income to net cash used in operating                activities: |   |                                                           |        |   |   |   |   |
| Depreciation                                                                                                |   |                                                           | **49**      |   |   | 87 |   |
| Allowance                for obsolete inventory                                                             |   |                                                           | **-**       |   |   | 592 |   |
| Allowance                for doubtful account                                                               |   |                                                           | **-**       |   |   | 1,409 |   |
| Compensation                costs for stock options granted                                                 |   |                                                           | **725**     |   |   | - |   |
| Changes                in assets and liabilities:                                                           |   |                                                           |        |   |   |   |   |
| Accounts                receivable - trade                                                                  |   |                                                           | **(12,098** | **)** |   | (7,083 | ) |
| Inventories,                net                                                                             |   |                                                           | **4**       |   |   | 367 |   |
| Trade                deposits paid                                                                          |   |                                                           | **(8,554**  | **)** |   | (4,641 | ) |
| Other                current assets                                                                         |   |                                                           | **(78**     | **)** |   | 23 |   |
| Trade                deposits received                                                                      |   |                                                           | **127**     |   |   | 762 |   |
| Accounts                payable - trade                                                                     |   |                                                           | **12,721**  |   |   | 973 |   |
| Due                to directors                                                                             |   |                                                           | **(17**     | **)** |   | (133 | ) |
| Due                to a stockholder                                                                         |   |                                                           | **-**       |   |   | 133 |   |
| Provision                for warranty                                                                       |   |                                                           | **-**       |   |   | 62 |   |
| Accrued                expenses and other accrued liabilities                                               |   |                                                           | **1,179**   |   |   | 1,474 |   |
| Tax                payables                                                                                 |   |                                                           | **801**     |   |   | 640 |   |
|                                                                                                        |   |                                                           |        |   |   |   |   |
| **Net                cash used in operating activities**                                                    |   |                                                           | **(1,718**  | **)** |   | (2,639 | ) |
|                                                                                                        |   |                                                           |        |   |   |   |   |
| **Cash                flows from investing activities**                                                     |   |                                                           |        |   |   |   |   |
| Purchase                of property, plant and equipment                                                    |   |                                                           | **-**       |   |   | (185 | ) |
| Advance                from directors                                                                       |   |                                                           | **-**       |   |   | 127 |   |
| Repayment                of loan to third parties                                                           |   |                                                           | **-**       |   |   | 288 |   |
|                                                                                                        |   |                                                           |        |   |   |   |   |
| **Net                cash from investing activities**                                                       |   |                                                           | **-**       |   |   | 230 |   |
|                                                                                                        |   |                                                           |        |   |   |   |   |
| **Cash                flows from financing activities**                                                     |   |                                                           |        |   |   |   |   |
| Advance                from a director                                                                      |   |                                                           | **89**      |   |   | - |   |
| Proceeds                from short-term bank loan                                                           |   |                                                           | **2,563**   |   |   | 2,303 |   |
| Proceeds                from short-term loan from a non-financial institution                               |   |                                                           | **57**      |   |   | - |   |
| Repayment                of short-term loans                                                                |   |                                                           | **(2,563**  | **)** |   | - |   |
| Repayment                of mortgage loan                                                                   |   |                                                           | **(31**     | **)** |   | - |   |
|                                                                                                        |   |                                                           |        |   |   |   |   |
| **Net                cash from financing activities**                                                       |   |                                                           | **115**     |   |   | 2,303 |   |
|                                                                                                        |   |                                                           |        |   |   |   |   |
| **Net                decrease in cash and cash equivalents**                                                |   |                                                           | **(1,603**  | **)** |   | (106 | ) |
|                                                                                                        |   |                                                           |        |   |   |   |   |
| **Cash                and cash equivalents, beginning of the period**                                       |   |                                                           | **2,928**   |   |   | 2,421 |   |
|                                                                                                        |   |                                                           |        |   |   |   |   |
| Effect                on exchange rate changes                                                              |   |                                                           | **233**     |   |   | - |   |
|                                                                                                        |   |                                                           |        |   |   |   |   |
| **Cash                and cash equivalents, end of the period**                                             |   |                                                           | **1,558**   |   |   | 2,315 |   |
|                                                                                                        |   |                                                           |        |   |   |   |   |
| **Supplemental                disclosure of cash flow information**                                         |   |                                                           |        |   |   |   |   |
| Interest                paid                                                                                |   |                                                           | **478**     |   |   | 304 |   |
| Interest                received                                                                            |   |                                                           | **39**      |   |   | - |   |
| Tax                paid                                                                                     |   |                                                           | **87**      |   |   | - |   |

----

----

|                                                                         |   | **Common                stock issued** |           |            |   |                                 |   |                      |      |                                      |   |                     |   |
|------------------------------------------------------------------------------|--------|----------------------------------------|----------------|-----------------|--------|--------------------------------------|--------|---------------------------|-----------|-------------------------------------------|--------|--------------------------|--------|
|                                                                         |   | **No.                of****shares**    |           | **Amount**      |   | **Additional****paid-in****capital** |   | **Dedicated****reserves** |      | **Other****compre-****hensive****income** |   | **Retained****earnings** |   | Total |   |
|                                                                         |   |                                   |           | *US$’000* |   | *US$’000*                      |   | *US$’000*           |      | *US$’000*                           |   | *US$’000*          |   | *US$’000* |   |
|                                                                         |   |                                   |           |            |   |                                 |   |                      |      |                                      |   |                     |   |   |   |
| Balance                as of January 1, 2007                                 |   |                                   | 29,756,000     |            |   | 30                                   |   |                      | 2,484     |                                      |   | 1,042                    |   |   | 975 |   |   | 17,752 |   |   | 22,283 |   |
|                                                                         |   |                                   |           |            |   |                                 |   |                      |      |                                      |   |                     |   |   |   |   |   |   |   |   |   |   |
| Net                income                                                    |   |                                   | -              |            |   | -                                    |   |                      | -         |                                      |   | -                        |   |   | - |   |   | 9,683 |   |   | 9,683 |   |
|                                                                         |   |                                   |           |            |   |                                 |   |                      |      |                                      |   |                     |   |   |   |   |   |   |   |   |   |   |
| Foreign                currency translation adjustment                       |   |                                   | -              |            |   | -                                    |   |                      | -         |                                      |   | -                        |   |   | 1,931 |   |   | - |   |   | 1,931 |   |
|                                                                         |   |                                   |           |            |   |                                 |   |                      |      |                                      |   |                     |   |   |   |   |   |   |   |   |   |   |
| Balance                as of January 1, 2008                                 |   |                                   | 29,756,000     |            |   | 30                                   |   |                      | 2,484     |                                      |   | 1,042                    |   |   | 2,906 |   |   | 27,435 |   |   | 33,897 |   |
|                                                                         |   |                                   |           |            |   |                                 |   |                      |      |                                      |   |                     |   |   |   |   |   |   |   |   |   |   |
| Net                income                                                    |   |                                   | -              |            |   | -                                    |   |                      | -         |                                      |   | -                        |   |   | - |   |   | 3,423 |   |   | 3,423 |   |
|                                                                         |   |                                   |           |            |   |                                 |   |                      |      |                                      |   |                     |   |   |   |   |   |   |   |   |   |   |
| Compensation                costs for stock options granted                  |   |                                   | -              |            |   | -                                    |   |                      | 725       |                                      |   | -                        |   |   | - |   |   | - |   |   | 725 |   |
|                                                                         |   |                                   |           |            |   |                                 |   |                      |      |                                      |   |                     |   |   |   |   |   |   |   |   |   |   |
| Foreign                currency translation adjustment                       |   |                                   | -              |            |   | -                                    |   |                      | -         |                                      |   | -                        |   |   | 1,516 |   |   | - |   |   | 1,516 |   |
|                                                                         |   |                                   |           |            |   |                                 |   |                      |      |                                      |   |                     |   |   |   |   |   |   |   |   |   |   |
| **Balance                as at****June                30, 2008 (Unaudited)** |   |                                   | **29,756,000** |            |   | **30**                               |   |                      | **3,209** |                                      |   | **1,042**                |   |   | **4,422** |   |   | **30,858** |   |   | **39,561** |   |

----

----

**Orsus        Xelent Technologies, Inc.**

**Notes        to Condensed Consolidated Financial **
**Statements**

----

*(Dollars        in thousands except share data and per share amounts)*

| **1.** | **BASIS                OF PRESENTATION AND                CONSOLIDATION** |
|--------|---------------------------------------------------------------------------|

**Basis      of presentation**

**Basis      of consolidation**

**Stock-based      compensation**

----

**Orsus        Xelent Technologies, Inc.**

**Notes          to Condensed Consolidated Financial **
**Statements**

----

*(Dollars          in thousands except share data and per share          amounts)*

| **2.** | **EARNINGS                PER SHARE** |
|--------|---------------------------------------|

| **3.** | **INCOME                TAXES** |
|--------|---------------------------------|

----

**Orsus      Xelent Technologies, Inc.**

**Notes        to Condensed Consolidated Financial **
**Statements**

----

*(Dollars        in thousands except share data and per share        amounts)*

| **3.** | **INCOME                TAXES (CONTINUED)** |
|--------|---------------------------------------------|

| Unified                EIT rate effective January 1, 2008 | 25% |
|-----------------------------------------------------------|-----|
| Small                scale / low profit enterprises       | 20% |
| New                / hi-tech enterprises                  | 15% |

----

**Orsus          Xelent Technologies, Inc.**

**Notes          to Condensed Consolidated Financial **
**Statements**

----

*(Dollars          in thousands except share data and per share amounts)*

| **3.** | **INCOME                TAXES (CONTINUED)** |
|--------|---------------------------------------------|

|  | (a) | Income                tax expenses comprised the                following: |
|--|-----|----------------------------------------------------------------------------|

|                         |   | **(Unaudited)****Six                months ended****June                30,** |    |
|------------------------------|--------|-------------------------------------------------------------------------------|---------|
|                         |   | **2008**                                                                      |    | 2007 |   |
|                         |   | ***US$’000***                                                           |    | *US$’000* |   |
| Current                tax   |   |                                                                          |    |   |   |   |   |
| United                States |   |                                                                          | **-**   |   |   | - |   |
| Hong                Kong     |   |                                                                          | **228** |   |   | - |   |
| PRC                          |   |                                                                          | **647** |   |   | 640 |   |
|                         |   |                                                                          | **875** |   |   | 640 |   |

|   | (b) | Reconciliation                from the expected statutory tax rate in the PRC of 25% *(2007:                24%)*                is                as follows: |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                   |   |  (**Unaudited)****Six                months ended****June                30,** |      |
|------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------|-----------|
|                                                                   |   | **2008**                                                                            |      | 2007 |   |
|                                                                   |   | **%**                                                                               |      | *%* |   |
|                                                                   |   |                                                                                |      |   |   |
| Statutory                rate - PRC                                    |   |                                                                                | **25.0**  |   |   | 24.0 |   |
| Differences                in tax rates of subsidiaries of the Company |   |                                                                                | **(2.9**  | **)** |   | - |   |
| Underprovision                for in prior period                      |   |                                                                                | **7.6**   |   |   | - |   |
| Tax                exemption                                           |   |                                                                                | **(17.1** | **)** |   | (19.8 | ) |
| Non-deductible                items                                    |   |                                                                                | **7.8**   |   |   | 15.0 |   |
|                                                                   |   |                                                                                |      |   |   |   |   |
| Effective                tax rate                                      |   |                                                                                | **20.4**  |   |   | 19.2 |   |

| **4.** | **OTHER                CURRENT ASSETS** |
|--------|-----------------------------------------|

----

**Orsus          Xelent Technologies, Inc.**

**Notes          to Condensed Consolidated Financial **
**Statements**

----

*(Dollars          in thousands except share data and per share          amounts)*

| **5.** | **PROPERTY,                PLANT AND EQUIPMENT, NET** |
|--------|-------------------------------------------------------|

|                                    |   | **(Unaudited)**                                             |     |                                                |   |
|-----------------------------------------|--------|-------------------------------------------------------------|----------|-----------------------------------------------------|--------|
|                                    |   | **As                of****June                30,****2008** |     | As                ofDecember                31,2007 |   |
|                                    |   | ***US$’000***                                         |     | *US$’000*                                     |   |
|                                    |   |                                                        |     |                                                |   |
| Moulds                                  |   |                                                        | **4**    |                                                |   | 4 |   |
| Leasehold                improvements   |   |                                                        | **128**  |                                                |   | 128 |   |
| Plant                and machinery      |   |                                                        | **19**   |                                                |   | 19 |   |
| Office                equipment         |   |                                                        | **296**  |                                                |   | 296 |   |
| Motor                vehicles           |   |                                                        | **296**  |                                                |   | 296 |   |
|                                    |   |                                                        |     |                                                |   |   |   |
|                                    |   |                                                        | **743**  |                                                |   | 743 |   |
| Accumulated                depreciation |   |                                                        | **(462** | **)**                                               |   | (425 | ) |
|                                    |   |                                                        |     |                                                |   |   |   |
|                                    |   |                                                        | **281**  |                                                |   | 318 |   |

|   | Property,                plant and equipment with an aggregate net book value as of June 30,                2008                of US$175 and as of December 31, 2007 of US$177 were collateralized                for                the mortgage loan granted to a subsidiary of the Company as set out                in                note 8 to the financial statements*.* |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **6.** | **SHORT-TERM                BANK LOANS** |
|--------|------------------------------------------|

|   | All                bank loans are secured by personal guarantee provided by the director,                Mr.                Liu Yu. In addition, bank loans of US$6,978 as of June 30, 2008 and                US$6,699 as of December 31, 2007 are further secured by a pledged                deposit                of US$1,256 as of June 30, 2008 and US$1,206 as of December 31, 2007                and                guarantee provided by a guaranty company. Remaining bank loan of                US$2,563,                obtained during the period, as of June 30, 2008 and US$2,461 as of                December 31, 2007 is further secured by co-guarantees provided by                two                third party companies and a major customer of the Company. All bank                loans                are repayable within one year at interest rates ranging from 8.964%                to                10.343% per annum. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **7.** | **SHORT-TERM                LOAN FROM A NON-FINANCIAL                INSTITUTION** |
|--------|------------------------------------------------------------------------------------|

----

**Orsus      Xelent Technologies, Inc.**

**Notes          to Condensed Consolidated Financial **
**Statements**

----

*(Dollars          in thousands except share data and per share          amounts)*

| **8.** | **MORTGAGE                LOAN** |
|--------|----------------------------------|

|                               |   | **As                of****June                30,****2008** |   | As                ofDecember                31,2007 |   |
|------------------------------------|--------|-------------------------------------------------------------|--------|-----------------------------------------------------|--------|
|                               |   | ***US$’000***                                         |   | *US$’000*                                     |   |
|                               |   | **(Unaudited)**                                             |   |                                                |   |
| Current                portion     |   |                                                        | **45** |                                                |   | 68 |   |
| Non-current                portion |   |                                                        | **-**  |                                                |   | 5 |   |
|                               |   |                                                        |   |                                                |   |   |   |
|                               |   |                                                        | **45** |                                                |   | 73 |   |

| **9.** | **RELATED                PARTY TRANSACTIONS** |
|--------|-----------------------------------------------|

|  | **a.** | **Name                and relationship of related                parties** |
|--|--------|----------------------------------------------------------------------------|

|                             |                                                                                                  |
|----------------------------------|-------------------------------------------------------------------------------------------------------|
| **Related                party** | **Relationship                with the Company during the period ended June 30,                2008** |
|                             |                                                                                                  |
| Mr.                Wang Xin      | Director                and stockholder of the Company                                                |
| Mr.                Liu Yu        | Director                and stockholder of the Company                                                |

|   | **b.** | **Summary                of related party balances** |
|--------|--------|------------------------------------------------------|

|                                                      |   |       |    | **As                of****June                30,****2008** |   | As                ofDecember                31,2007 |   |
|-----------------------------------------------------------|--------|------------|---------|-------------------------------------------------------------|--------|-----------------------------------------------------|--------|
|                                                      |   | ***Note*** |    | ***US$’000***                                         |   | *US$’000*                                     |   |
|                                                      |   |       |    | **(Unaudited)**                                             |   |                                                |   |
| **Due                to directors**                       |   |       |    |                                                        |   |                                                |   |
| Mr.                Wang Xin and Mr. Liu Yu                |   |       | *(i*)** |                                                        |   | **408**                                             |   |   | 323 |   |
|                                                      |   |       |    |                                                        |   |                                                |   |   |   |   |
| **Bank                loans guaranteed by a director**    |   |       |    |                                                        |   |                                                |   |   |   |   |
| Mr.                Liu Yu                                 |   |       | *6*     |                                                        |   | **9,541**                                           |   |   | 9,160 |   |
|                                                      |   |       |    |                                                        |   |                                                |   |   |   |   |
| **Mortgage                loan guaranteed by a director** |   |       |    |                                                        |   |                                                |   |   |   |   |
| Mr.                Wang Xin                               |   |       | *8*     |                                                        |   | **45**                                              |   |   | 73 |   |

----

**Orsus        Xelent Technologies, Inc.**

**Notes          to Condensed Consolidated Financial **
**Statements**

----

*(Dollars          in thousands except share data and per share          amounts)*

| **10.** | **SEGMENT                INFORMATION** |
|---------|----------------------------------------|

| **11.** | **CONTINGENCIES** |
|---------|-------------------|

*Tax      penalty*

*Financial      guarantee contract*

----

**Orsus      Xelent Technologies, Inc.**

**Notes          to Condensed Consolidated Financial **
**Statements**

----

*(Dollars          in thousands except share data and per share          amounts)*

| **12.** | **COMMON                STOCK** |
|---------|---------------------------------|

| **13.** | **STOCK                OPTIONS** |
|---------|----------------------------------|

|                                   |   | **No.                of share****options** |        |
|----------------------------------------|--------|--------------------------------------------|-------------|
|                                   |   |                                       |        |
| As                of January 1, 2008   |   | **-**                                      |        |
| Granted                                |   |                                       | **614,000** |   |
| Exercised                              |   |                                       | **-**       |   |
| Cancelled/lapsed                       |   |                                       | **-**       |   |
|                                   |   |                                       |        |   |
| **As                of June 30, 2008** |   |                                       | **614,000** |   |

----

**Orsus          Xelent Technologies, Inc.**

**Notes          to Condensed Consolidated Financial **
**Statements**

----

*(Dollars          in thousands except share data and per share          amounts)*

| **13.** | **STOCK                OPTIONS (CONTINUED)** |
|---------|----------------------------------------------|

|                                           |   | **As                of****June                30, 2008** |                        |
|------------------------------------------------|--------|----------------------------------------------------------|-----------------------------|
|                                           |   | **(Unaudited)**                                          |                        |
| Expected                dividend yield         |   | **-**                                                    |                        |
| Expected                stock price volatility |   |                                                     | **85.07**                   | **%** |
| Rise                free interest risk         |   |                                                     | **3.61**                    | **%** |
| Expected                life of share options  |   |                                                     | **10                years** |   |

| **14.** | **RECENT                ACCOUNTING PRONOUNCEMENTS** |
|---------|-----------------------------------------------------|

*Business      Combinations*

*Noncontrolling      Interests in Consolidated Financial*
*Statements*

*Disclosures      about Derivative Instruments and Hedging*
*Activities*

----

**Orsus      Xelent Technologies, Inc.**

**Notes          to Condensed Consolidated Financial **
**Statements**

----

*(Dollars          in thousands except share data and per share amounts)*

| **14.** | **RECENT                ACCOUNTING PRONOUNCEMENTS                (CONTINUED)** |
|---------|--------------------------------------------------------------------------------|

*The      Hierarchy of Generally Accepted Accounting Principles*

----

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

**OVERVIEW**

----

**Business      Review**

----

----

**CRITICAL      ACCOUNTING POLICIES AND MANAGEMENT ESTIMATES **

**RESULTS      OF OPERATIONS**

|                                                     |   |   | **Six                months ended****June                30, 2008**  |   |   | **Six                months ended****June                30, 2007**  |   |   | **Comparison**  |   |
|----------------------------------------------------------|--------|--------|---------------------------------------------------------------------------|--------|--------|---------------------------------------------------------------------------|--------|--------|----------------------|--------|
|                                                     |   |   | **$000**                                                             |   |   | **%                of Revenue**                                      |   |   | **$000**        |   |   | **%                of Revenue**  |   |   | **$000**  |   |   | **%**  |   |
| Revenue                                                  |   |   | 49,613                                                                    |   |   | -                                                                         |   |   | 36,365               |   |   | - |   |   | 13,248 |   |   | 36.43 | % |
| Cost                of sales                             |   |   | 43,229                                                                    |   |   | 87.13                                                                     | %      |   | 29,522               |   |   | 81.18 | % |   | 13,707 |   |   | 46.43 | % |
| Sales                & marketing expenses            |   |   | 225                                                                       |   |   | 0.45                                                                      | %      |   | 247                  |   |   | 0.68 | % |   | (22 | ) |   | (8.91 | %) |
| General                & admin. expenses             |   |   | 1,571                                                                     |   |   | 3.17                                                                      | %      |   | 579                  |   |   | 1.59 | % |   | 992 |   |   | 171.33 | % |
| R&D                expenses                          |   |   | 141                                                                       |   |   | 0.28                                                                      | %      |   | 296                  |   |   | 0.81 | % |   | (155 | ) |   | (52.36 | %) |
| Depreciation                                             |   |   | 49                                                                        |   |   | 0.10                                                                      | %      |   | 87                   |   |   | 0.24 | % |   | (38 | ) |   | (43.68 | %) |
| Allowance                for obsolete inventories        |   |   | -                                                                         |   |   | -                                                                         |   |   | 592                  |   |   | 1.63 | % |   | (592 | ) |   | (100.00 | %) |
| Allowance                for trading deposit receivables |   |   | -                                                                         |   |   | -                                                                         |   |   | 1,409                |   |   | 3.87 | % |   | (1,409 | ) |   | (100.00 | %) |
| Finance                cost                              |   |   | 478                                                                       |   |   | 0.96                                                                      | %      |   | 304                  |   |   | 0.84 | % |   | 174 |   |   | 57.24 | % |
| Other                net income                          |   |   | 378                                                                       |   |   | 0.76                                                                      | %      |   | 7                    |   |   | 0.02 | % |   | 371 |   |   | 5,300.00 | % |
| Pre-tax                profit                            |   |   | 4,298                                                                     |   |   | 8.66                                                                      | %      |   | 3,336                |   |   | 9.17 | % |   | 962 |   |   | 28.84 | % |
| Income                tax                                |   |   | 875                                                                       |   |   | 1.76                                                                      | %      |   | 640                  |   |   | 1.76 | % |   | 235 |   |   | 36.72 | % |
| Profit                                                   |   |   | 3,423                                                                     |   |   | 6.90                                                                      | %      |   | 2,696                |   |   | 7.41 | % |   | 727 |   |   | 26.97 | % |

----

|                                                     |   |   | **Three                months ended****June                30, 2008**  |   |   | **Three                months ended****June                30, 2007**  |   |   | **Comparison**  |   |
|----------------------------------------------------------|--------|--------|-----------------------------------------------------------------------------|--------|--------|-----------------------------------------------------------------------------|--------|--------|----------------------|--------|
|                                                     |   |   | **$000**                                                               |   |   | **%                of Revenue**                                        |   |   | **$000**        |   |   | **%                of Revenue**  |   |   | **$000**  |   |   | **%**  |   |
| Revenue                                                  |   |   | 28,894                                                                      |   |   | -                                                                           |   |   | 16,356               |   |   | - |   |   | 12,538 |   |   | 76.66 | % |
| Cost                of sales                             |   |   | 25,728                                                                      |   |   | 89.04                                                                       | %      |   | 13,181               |   |   | 80.59 | % |   | 12,547 |   |   | 95.19 | % |
| Sales                & marketing expenses            |   |   | 122                                                                         |   |   | 0.42                                                                        | %      |   | 134                  |   |   | 0.82 | % |   | (12 | ) |   | (8.96 | %) |
| General                & admin. expenses             |   |   | 1,135                                                                       |   |   | 3.93                                                                        | %      |   | 420                  |   |   | 2.57 | % |   | 715 |   |   | 170.24 | % |
| R&D                expenses                          |   |   | 26                                                                          |   |   | 0.09                                                                        | %      |   | 243                  |   |   | 1.49 | % |   | (217 | ) |   | (89.30 | %) |
| Depreciation                                             |   |   | 24                                                                          |   |   | 0.08                                                                        | %      |   | 35                   |   |   | 0.21 | % |   | (11 | ) |   | (31.43 | %) |
| Allowance                for obsolete inventories        |   |   | -                                                                           |   |   | -                                                                           |   |   | 272                  |   |   | 1.66 | % |   | (272 | ) |   | (100.00 | %) |
| Allowance                for trading deposit receivables |   |   | -                                                                           |   |   | -                                                                           |   |   | 194                  |   |   | 1.19 | % |   | (194 | ) |   | (100.00 | %) |
| Finance                cost                              |   |   | 240                                                                         |   |   | 0.83                                                                        | %      |   | 177                  |   |   | 1.08 | % |   | 63 |   |   | 35.59 | % |
| Other                net income                          |   |   | 214                                                                         |   |   | 0.74                                                                        | %      |   | 5                    |   |   | 0.03 | % |   | 209 |   |   | 4,180.00 | % |
| Pre-tax                profit                            |   |   | 1,833                                                                       |   |   | 6.34                                                                        | %      |   | 1,705                |   |   | 10.42 | % |   | 128 |   |   | 7.51 | % |
| Income                tax                                |   |   | 327                                                                         |   |   | 1.13                                                                        | %      |   | 256                  |   |   | 1.57 | % |   | 71 |   |   | 27.73 | % |
| Profit                                                   |   |   | 1,506                                                                       |   |   | 5.21                                                                        | %      |   | 1,449                |   |   | 8.85 | % |   | 57 |   |   | 3.93 | % |

**Revenues**

----

***Products      Segment***

|                            |   |   | **Six                months ended June 30, 2008**  |   |
|---------------------------------|--------|--------|---------------------------------------------------------|--------|
|                            |   |   | $’000                                        |   |   | %                of revenue  |   |
| DX5020                          |   |   | 6,045                                                   |   |   | 12.18 | % |
| DX6018                          |   |   | 10,077                                                  |   |   | 20.31 | % |
| DX7020                          |   |   | 5,327                                                   |   |   | 10.74 | % |
| DX8028                          |   |   | 5,050                                                   |   |   | 10.18 | % |
| DX8020                          |   |   | 4,621                                                   |   |   | 9.31 | % |
| DX5010                          |   |   | 3,287                                                   |   |   | 6.63 | % |
| DX7028                          |   |   | 2,740                                                   |   |   | 5.52 | % |
| LM6688                          |   |   | 2,710                                                   |   |   | 5.46 | % |
| DX7026                          |   |   | 2,680                                                   |   |   | 5.40 | % |
| DX6028                          |   |   | 2,001                                                   |   |   | 4.03 | % |
| DX3020                          |   |   | 1,679                                                   |   |   | 3.38 | % |
| DX6030                          |   |   | 1,382                                                   |   |   | 2.79 | % |
| DX6038                          |   |   | 1,310                                                   |   |   | 2.64 | % |
| DX6010                          |   |   | 1,263                                                   |   |   | 2.55 | % |
| LG2018                          |   |   | 310                                                     |   |   | 0.63 | % |
| Discount                allowed |   |   | (869                                                    | )      |   | (1.75 | %) |
| **Total**                       |   |   | 49,613                                                  |   |   | 100.00 | % |

----

|                            |   |                **Three                months ended June 30, 2008** |              |
|---------------------------------|--------|-------------------------------------------------------------------------|-------------------|
|                            |   |                                                                    | $’000  |   |   | %                of revenue  |   |
| DX5020                          |   |                                                                    | 6,045             |   |   | 20.92 | % |
| DX6018                          |   |                                                                    | 6,087             |   |   | 21.07 | % |
| DX7020                          |   |                                                                    | 3,868             |   |   | 13.39 | % |
| DX5010                          |   |                                                                    | 3,287             |   |   | 11.38 | % |
| DX8028                          |   |                                                                    | 2,716             |   |   | 9.40 | % |
| LM6688                          |   |                                                                    | 2,710             |   |   | 9.38 | % |
| DX8020                          |   |                                                                    | 2,358             |   |   | 8.16 | % |
| DX6030                          |   |                                                                    | 1,382             |   |   | 4.78 | % |
| DX6038                          |   |                                                                    | 1,310             |   |   | 4.53 | % |
| Discount                allowed |   |                                                                    | (869              | ) |   | (3.01 | %) |
| **Total**                       |   |                                                                    | 28,894            |   |   | 100.00 | % |

**Customer      Segments**

|                                                                |   |                **Six                months ended June 30, 2008** |                  |
|---------------------------------------------------------------------|--------|-----------------------------------------------------------------------|-----------------------|
|                                                                |   |                                                                  | **$’000**  |   |   | **%                of revenue**  |   |
| Beijing                Xingwang Shidai Tech & Trading Co., Ltd. |   |                                                                  | 49,613                |   |   | 100 | % |

**Other      net income**

----

**Operating      expenses**

|                                                     |   |   | **Six                months ended****June                30, 2008**  |   |   | **Six                months ended****June                30, 2007**  |   |   | **Comparison**  |   |
|----------------------------------------------------------|--------|--------|---------------------------------------------------------------------------|--------|--------|---------------------------------------------------------------------------|--------|--------|----------------------|--------|
|                                                     |   |   | $’000                                                          |   |   | %                of revenue                                          |   |   | $’000     |   |   | %                of revenue  |   |   | $’000  |   |   | %  |   |
| Sales                & marketing                     |   |   | 225                                                                       |   |   | 0.45                                                                      | %      |   | 247                  |   |   | 0.68 | % |   | (22 | ) |   | (8.91 | %) |
| General                & admin                       |   |   | 1,571                                                                     |   |   | 3.17                                                                      | %      |   | 579                  |   |   | 1.59 | % |   | 992 |   |   | 171.33 | % |
| R&D                                                  |   |   | 141                                                                       |   |   | 0.28                                                                      | %      |   | 296                  |   |   | 0.81 | % |   | (155 | ) |   | (52.36 | %) |
| Depreciation                                             |   |   | 49                                                                        |   |   | 0.10                                                                      | %      |   | 87                   |   |   | 0.24 | % |   | (38 | ) |   | (43.68 | %) |
| Allowance                for obsolete inventories        |   |   | -                                                                         |   |   | -                                                                         |   |   | 592                  |   |   | 1.63 | % |   | (592 | ) |   | (100.00 | %) |
| Allowance                for trading deposit receivables |   |   | -                                                                         |   |   | -                                                                         |   |   | 1,409                |   |   | 3.87 | % |   | (1,409 | ) |   | (100.00 | %) |
| Total                                                    |   |   | 1,986                                                                     |   |   | 4.00                                                                      | %      |   | 3,210                |   |   | 8.83 | % |   | (1,224 | ) |   | (38.13 | %) |

|                                                     |   |   | **Three                months ended****June                30, 2008**  |   |   | **Three                months ended****June                30, 2007**  |   |   | **Comparison**  |   |
|----------------------------------------------------------|--------|--------|-----------------------------------------------------------------------------|--------|--------|-----------------------------------------------------------------------------|--------|--------|----------------------|--------|
|                                                     |   |   | $’000                                                            |   |   | %                of revenue                                            |   |   | $’000     |   |   | %                of revenue  |   |   | $’000  |   |   | %  |   |
| Sales                & marketing                     |   |   | 122                                                                         |   |   | 0.42                                                                        | %      |   | 134                  |   |   | 0.82 | % |   | (12 | ) |   | (8.96 | %) |
| General                & admin                       |   |   | 1,135                                                                       |   |   | 3.93                                                                        | %      |   | 420                  |   |   | 2.57 | % |   | 715 |   |   | 170.24 | % |
| R&D                                                  |   |   | 26                                                                          |   |   | 0.09                                                                        | %      |   | 243                  |   |   | 1.49 | % |   | (217 | ) |   | (89.30 | %) |
| Depreciation                                             |   |   | 24                                                                          |   |   | 0.08                                                                        | %      |   | 35                   |   |   | 0.21 | % |   | (11 | ) |   | (31.43 | %) |
| Allowance                for obsolete inventories        |   |   | -                                                                           |   |   | -                                                                           |   |   | 272                  |   |   | 1.66 | % |   | (272 | ) |   | (100.00 | %) |
| Allowance                for trading deposit receivables |   |   | -                                                                           |   |   | -                                                                           |   |   | 194                  |   |   | 1.19 | % |   | (194 | ) |   | (100.00 | %) |
| Total                                                    |   |   | 1,307                                                                       |   |   | 4.52                                                                        | %      |   | 1,298                |   |   | 7.94 | % |   | 9 |   |   | 0.69 | % |

**Sales      and marketing expenses**

**R&D      expense**

----

**General      and administrative expenses**

**Gross      Profit and Gross Profit Margin**

|   | 1. | intensified                competition in the domestic market and a decline in the gross margin                of                products sold during the period. When competing with foreign brands                in the                market, domestic brands usually focus on sales of low-priced products                as a                strategy to increase their market presence and secure originally-owned                distribution to create conditions for future development, but this                results                in higher sales of low-margin products; |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 2. | the                pending structural adjustment of operators. In the first quarter                of 2008,                there were few high-margin customized orders generated from the operators                sector while the operators were focused on their                restructuring. |
|--|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Net      income**

**LIQUIDITY      AND SOURCE OF CAPITAL**

----

**CASH      FLOWS**

----

**CONTINGENT      LIABILITIES **

**OFF      BALANCE SHEET ARRANGEMENTS**

**CONTRACTUAL      COMMITMENTS**

|                                       |   | **Payments due by period** |   |
|--------------------------------------------|--------|-------------------------------------------|--------|
| **Contractual Obligations**           |   | **Total**                                 |   | **Less than****1 year** |   | **1-3 years** |   | **3-5 years** |   | **More than****5 years** |   |
|                                       |   | $                                         | 000    |   | $ | 000 |   | $ | 000 |   | $ | 000 |   | $ | 000 |   |
|                                       |   |                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating                Lease Obligations |   |                                      | 117    |   |   | 112 |   |   | 5 |   |   | - |   |   | - |   |
| Purchase                Obligations        |   |                                      | 820    |   |   | 820 |   |   | - |   |   | - |   |   | - |   |
|                                       |   |                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                      |   |                                      | 937    |   |   | 932 |   |   | 5 |   |   | -- |   |   | -- |   |

**Item 3.**
**Quantitative      and Qualitative Disclosures About Market Risk.**

**Item      4.**
**Controls      and Procedures.**

----

**PART      II - OTHER INFORMATION**

**Item      1.**
**Legal      Proceedings.**

| **Item              1A.** | **Risk                Factors.** |
|---------------------------|----------------------------------|

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

|  | (a) | None. |
|--|-----|-------|

|  | (b) | None. |
|--|-----|-------|

|  | (c) | None. |
|--|-----|-------|

----

**Item      3.**
**Defaults      Upon Senior Securities.**

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

**Item      5.**
**Other      Information.**

|  | (a) | None. |
|--|-----|-------|

**Item      6.**
**Exhibits.**

| **Exhibit                Number** |   | **Exhibit                Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|-----------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1                               |   | Certificate                of Incorporation of Orsus Xelent Technologies, Inc. (incorporated                by                reference from Exhibit 3.1 to the Registration Statement on Form                SB-2                filed with the Securities and Exchange Commission on July 28, 2004                as                amended by that Plan of Merger and Agreement of Merger attached as                Exhibit                2.1 to the Current Report on Form 8-K filed with the SEC on April                20,                2005) |
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 3.2                               |   | Amended                and Restated Bylaws of the Registrant (incorporated by reference                from                Exhibit 3.2 to the Current Report on Form 8-K filed with the Securities                and Exchange Commission on February 7, 2007, as amended by the Current                Report on Form 8-K filed with the SEC on March 5, 2007)                                                                                                                                                                                          |
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 4.1                               |   | Specimen                Certificate of Common Stock (incorporated by reference to Exhibit                4.1 to                Amendment 2 to the Registration Statement on Form SB-2/A filed with                the                Securities and Exchange Commission on October 19, 2004)                                                                                                                                                                                                                                                             |
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.1                              |   | Contract                of Suretyship, dated June 20, 2007, between Yayuncun Branch of Beijing                Rural Commercial Bank and Beijing Orsus Xelent Technology & Trading                Company Limited (incorporated by reference from Exhibit 10.1 to the                Current Report on Form 8-K filed with the Securities and Exchange                Commission on September 12, 2007)                                                                                                                                               |
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.2                              |   | X180                Mobile Terminal Purchase Contract, dated May 31, 2007, among Unicom                Huasheng Telecommunication Technology Co., Ltd., Dalian Daxian                Distribution Company and Beijing Orsus Xelent Technology & Trading                Company Limited (incorporated by reference from Exhibit 10.1 to the                Current Report on Form 8-K filed with the Securities and Exchange                Commission on June 6, 2007)                                                                               |

----

| **Exhibit                Number** |   | **Exhibit                Description** |
|-----------------------------------|--------|----------------------------------------|

| 10.3   |   | 2007                Omnibus Long-Term Incentive Plan (incorporated by reference from                Exhibit                10.1 to the Current Report on Form 8-K filed with the Securities                and                Exchange Commission on January 11, 2008) |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                   |
| 14.1   |   | Code                of Business Conduct and Ethics (incorporated by reference from Exhibit                14                to the Current Report on Form 8-K filed with the Securities and Exchange                Commission on February 7, 2007)                    |
|   |   |                                                                                                                                                                                                                                                                   |
| 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 |
|--|---|-------------------------------|

----

**SIGNATURES**

|         |                                                          |                           |
|--------------|---------------------------------------------------------------|--------------------------------|
|         | **ORSUS              XELENT TECHNOLOGIES, INC.**              |
|    |                                                     |                      |
|         | By:                                                 | /s/ Wang              Xin |
|         | Wang                XinChief                Executive Officer |

|        |                                                                  |                               |
|--------|-----------------------------------------------------------------------|------------------------------------|
|   | By:                                                         | /s/ Zhao              Hongwei |
|   | Zhao                  HongweiChief                  Financial Officer |

----

**INDEX      TO EXHIBITS**

| **Exhibit                Number** |   | **Exhibit                Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|-----------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1                               |   | Certificate                of Incorporation of Orsus Xelent Technologies, Inc. (incorporated                by                reference from Exhibit 3.1 to the Registration Statement on Form                SB-2                filed with the Securities and Exchange Commission on July 28, 2004                as                amended by that Plan of Merger and Agreement of Merger attached as                Exhibit                2.1 to the Current Report on Form 8-K filed with the SEC on April                20,                2005) |
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 3.2                               |   | Amended                and Restated Bylaws of the Registrant (incorporated by reference                from                Exhibit 3.2 to the Current Report on Form 8-K filed with the Securities                and Exchange Commission on February 7, 2007, as amended by the Current                Report on Form 8-K filed with the SEC on March 5, 2007)                                                                                                                                                                                          |
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 4.1                               |   | Specimen                Certificate of Common Stock (incorporated by reference to Exhibit                4.1 to                Amendment 2 to the Registration Statement on Form SB-2/A filed with                the                Securities and Exchange Commission on October 19, 2004)                                                                                                                                                                                                                                                             |
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.1                              |   | Contract                of Suretyship, dated June 20, 2007, between Yayuncun Branch of Beijing                Rural Commercial Bank and Beijing Orsus Xelent Technology & Trading                Company Limited (incorporated by reference from Exhibit 10.1 to the                Current Report on Form 8-K filed with the Securities and Exchange                Commission on September 12, 2007)                                                                                                                                               |
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.2                              |   | X180                Mobile Terminal Purchase Contract, dated May 31, 2007, among Unicom                Huasheng Telecommunication Technology Co., Ltd., Dalian Daxian                Distribution Company and Beijing Orsus Xelent Technology & Trading                Company Limited (incorporated by reference from Exhibit 10.1 to the                Current Report on Form 8-K filed with the Securities and Exchange                Commission on June 6, 2007)                                                                               |
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.3                              |   | 2007                Omnibus Long-Term Incentive Plan (incorporated by reference from                Exhibit                10.1 to the Current Report on Form 8-K filed with the Securities                and                Exchange Commission on January 11, 2008)                                                                                                                                                                                                                                                                                   |
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 14.1                              |   | Code                of Business Conduct and Ethics (incorporated by reference from Exhibit                14                to the Current Report on Form 8-K filed with the Securities and Exchange                Commission on February 7, 2007)                                                                                                                                                                                                                                                                                                      |
|                              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 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 *                                                                                                                                                                                                                                                                                                                                                                                                          |

----