UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-Q/A

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

For the quarterly period ended September 30, 2006

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

For the transition period from ______ to ______.

                       Commission file number: 000-117718

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

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

                12th Floor, Tower B, Chaowai MEN Office Building
                        26 Chaowai Street, Chaoyang Disc.
                          Beijing, People's Republic Of
                       China 100020 (Address of principal
                     executive offices, including zip code)

                                 86-10-85653777
              (Registrant's telephone number, including area code)

Indicate  by check  mark  whether  the  registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                                 Yes [X] No [ ]

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act).

                                 Yes [ ] No [X]


Indicate by check mark whether the registrant is a shell  Registrant (as defined
in Rule 12b-2 of the Exchange Act).

                                 Yes [ ] No [X]


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

                 Class                          Outstanding at November 10, 2006
---------------------------------------         --------------------------------
Common Stock, $.001 par value per share                 29,756,000 shares





<PAGE>
<TABLE>
<CAPTION>

         The purpose of this Form 10-Q/A is to correct several  numerical errors
that were  discovered  subsequent to filing in the MD&A section of the Company's
original Form 10-Q for the quarter ended September 30, 2006.

                        PART I --- FINANCIAL INFORMATION

Item 1.       Financial Statements.

Orsus Xelent Technologies, Inc.

Condensed Consolidated Statements of Operations
------------------------------------------------------------------------------------------------------


                                                      (Unaudited)                   (Unaudited)
                                                  Three months ended             Nine months ended
                                                     September 30,                  September 30,
                                              --------------------------    --------------------------
                                                  2006           2005           2006           2005
<S>                                           <C>            <C>            <C>            <C>
                                        Note      US$'000        US$'000        US$'000        US$'000

Operating revenues:                                20,525         13,164         45,901         16,604
                                              -----------    -----------    -----------    -----------

Operating expenses:
    Cost of sales                                  16,716         10,358         37,879         13,257
    Sales and marketing                               140            430            926          1,131
    General and administrative                      1,194            200          1,883            769
    Research and development                           40            195            187            337
    Depreciation                                       24             89            149            164
                                              -----------    -----------    -----------    -----------
    Total operating expenses                       18,114         11,272         41,024         15,658
                                              -----------    -----------    -----------    -----------

Operating profit                                    2,411          1,892          4,877            946

Interest expense                                      (41)          --              (70)           (25)
Other income, net                                      (4)            89              1            541
                                              -----------    -----------    -----------    -----------

Income before income taxes                          2,366          1,981          4,808          1,462

Income taxes                             3           --              (23)          (160)           (23)
                                              -----------    -----------    -----------    -----------

Net income                                          2,366          1,958          4,648          1,439

Other comprehensive income                           --             --             --             --
                                              -----------    -----------    -----------    -----------

                                                    2,366          1,958          4,648          1,439
                                              ===========    ===========    ===========    ===========

Earnings per share:                      2

Basic                                                0.08           0.07           0.16           0.05
                                              ===========    ===========    ===========    ===========

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

The  accompanying  notes are an integral  part of these  condensed  consolidated
financial statements.
------------------------------------------------------------------------------------------------------
</TABLE>

                                      -1-
<PAGE>
<TABLE>
<CAPTION>

Orsus Xelent Technologies, Inc.

Condensed Consolidated Balance Sheets
-----------------------------------------------------------------------------------------------------

                                                                            As of           As of
                                                                        September 30,   December 31,
                                                                            2006            2005
                                                                 Note      US$'000         US$'000
                                                                         (Unaudited)
<S>                                                                     <C>             <C>
ASSETS
Current assets
    Cash and cash equivalents                                                      88           2,974
    Accounts receivable, net of allowance for doubtful accounts
        of $555,000 ($149,000 in 2005)                                         31,527          12,034
    Inventories                                                                 2,361           4,460
    Trade deposits paid                                                         3,112          10,580
    Advance to third party                                                        125            --
    Other current assets                                                          125             182
                                                                        -------------   -------------

    Total current assets                                                       37,338          30,230

Property, plant and equipment, net                                4               782             781
                                                                        -------------   -------------

Total assets                                                                   38,120          31,011
                                                                        =============   =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
    Short-term bank loan                                          5             2,477            --
    Accounts payable - Trade                                                   11,764           7,939
    Accrued expenses and other accrued liabilities                              3,474           2,238
    Trade deposits received                                                       260           5,432
    Due to directors                                              6               320             320
    Provision for warranty                                                         57             122
    Taxes payable                                                                 181              21
                                                                        -------------   -------------

    Total current liabilities                                                  18,533          16,072
                                                                        -------------   -------------

Commitments and contingencies

Stockholders' equity Preferred stock, US$0.001 par value:
    Authorized: 100,000,000 shares, no shares issued
Common stock and paid-in capital, US$0.001 par value:
    Authorized: 100,000,000 shares
Issued and outstanding: 29,756,000 shares as of September
    30, 2006 and as of December 31, 2005                                           30              30
Additional paid-in capital                                                      2,484           2,484
Dedicated reserves                                                              1,042           1,042
Other comprehensive income                                                        349             349
Retained earnings                                                              15,682          11,034
                                                                        -------------   -------------

Total stockholders' equity                                                     19,587          14,939
                                                                        -------------   -------------

Total liabilities and stockholders' equity                                     38,120          31,011
                                                                        =============   =============


The  accompanying  notes are an integral  part of these  condensed  consolidated
financial statements.
-----------------------------------------------------------------------------------------------------
</TABLE>

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

Orsus Xelent Technologies, Inc.

Condensed Consolidated Statements of Cash Flows
--------------------------------------------------------------------------------------


                                                                        (Unaudited)
                                                                    Nine months ended
                                                                       September 30,
                                                                    ------------------
                                                                      2006       2005
<S>                                                                 <C>        <C>
                                                                    US$'000    US$'000
Cash flows from operating activities
Net income                                                            4,648      1,462
Adjustments to reconcile net income to net cash used in operating
    activities:
    Depreciation                                                        149        164
Changes in assets and liabilities:
    Accounts receivable -trade                                      (19,493)    (1,895)
    Inventories, net                                                  2,099      1,215
    Trade deposits paid                                               7,468       (207)
    Other current assets                                                 57       (142)
    Trade deposits received                                          (5,172)       419
    Accounts payable - trade                                          3,825     (2,786)
    Provision for warranty                                              (65)       (94)
    Accrued expenses and other accrued liabilities                    1,236        930
    Provision for taxation                                              160       --
                                                                    -------    -------

Net cash used in operating activities                                (5,088)      (934)
                                                                    -------    -------

Cash flows from investing activities
    Purchase of property, plant and equipment                          (150)      (579)
    Repayment from a related company                                   --        3,319
    Advance to a director                                              --           (6)
    Decrease in restricted cash                                        --          710
    Loan to third parties                                              (125)      --
                                                                    -------    -------

Net cash (used in) / generated from investing activities               (275)     3,444
                                                                    -------    -------

Cash flows generated from financing activities
   Borrowing from bank                                                2,477       --
                                                                    -------    -------

Net cash generation from financing activities                         2,477       --
                                                                    -------    -------

Net (decrease) / increase in cash and cash equivalents               (2,886)     2,510

Cash and cash equivalents, beginning of the period                    2,974        224
                                                                    -------    -------

Cash and cash equivalents, end of the period                             88      2,734
                                                                    =======    =======

The  accompanying  notes are an integral  part of these  condensed  consolidated
financial statements.
--------------------------------------------------------------------------------------
</TABLE>

                                      -3-
<PAGE>

Orsus Xelent Technologies, Inc.

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


1.   PREPARATION OF INTERIM FINANCIAL STATEMENTS

     The accompanying  unaudited condensed  consolidated financial statements as
     of September 30, 2006 and 2005 have been prepared based upon Securities and
     Exchange  Commission  ("SEC")  rules that  permit  reduced  disclosure  for
     interim periods and include, in the opinion of management,  all adjustments
     (consisting  of  normal   recurring   adjustments  and   reclassifications)
     necessary to present fairly the financial  position,  results of operations
     and cash flows for the periods presented.

     Certain information and footnote disclosures normally included in financial
     statements  prepared in accordance  with  accounting  principles  generally
     accepted in the United  States of America  ("USA")  have been  condensed or
     omitted.  These condensed  consolidated financial statements should be read
     in  conjunction  with the audited  financial  statements  and notes thereto
     incorporated  by reference in the Company's  Form 10-KSB for the year ended
     December 31, 2005 filed on April 3, 2006.  The balance sheet as of December
     31, 2005 and the  related  notes are  derived  from the  audited  financial
     statements of the Company for the year ended December 31, 2005. The results
     of operations for the nine-month  periods ended September 30, 2006 and 2005
     are not necessarily  indicative of the operating results to be expected for
     the full year.

     The condensed  consolidated financial statements and accompanying notes are
     presented  in  United  States  dollars  and  prepared  in  conformity  with
     accounting  principles  generally  accepted  in the  USA  ("USGAAP")  which
     requires  management to make certain  estimates and assumptions that affect
     the reported amounts of assets and liabilities and disclosure of contingent
     assets and liabilities at the date of financial statements and the reported
     amounts of  revenues  and  expenses  during the  reporting  period.  Actual
     results could differ from those estimates.


2.   EARNINGS PER SHARE

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

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


3.   INCOME TAXES

     The Company is subject to income taxes on an entity basis on income arising
     in or derived from the tax  jurisdictions  in which it operates.  Provision
     for income and other related  taxes have been  provided in accordance  with
     the tax rates and laws in effect in the various countries of operations.


--------------------------------------------------------------------------------
                                      -4-
<PAGE>

Orsus Xelent Technologies, Inc.

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


3.   INCOME TAXES (CONTINUED)

     No provision for withholding or United States federal or state income taxes
     or  tax  benefits  on  the  undistributed  earnings  and/or  losses  of the
     Company's   subsidiaries  has  been  provided  as  the  earnings  of  these
     subsidiaries,  in  the  opinion  of  the  management,  will  be  reinvested
     indefinitely. Determination of the amount of unrecognized deferred taxes on
     these earnings is not practical,  however, unrecognized foreign tax credits
     would be available to reduce a portion of the tax liability.

     United First International Limited was incorporated in Hong Kong and has no
     assessable  profit for the periods  presented.  Orsus Xeleent  Trading (HK)
     Limited  ("OXTHK") was also incorporated in Hong Kong and Hong Kong Profits
     Tax has been provided at the rate of 17.5% on OXTHK's estimated  assessable
     profits for the period.  Since Beijing Orsus Xeleent Technologies & Trading
     Co., Limited has registered as a wholly-owned foreign investment enterprise
     ("WOFIE"),  it is subject to tax laws applicable to WOFIE in the PRC and is
     fully  exempt  from  the PRC  enterprise  income  tax of 24% for two  years
     followed  by a 50%  reduction  for the next three  years,  commencing  with
     fiscal year 2005.

     Reconciliation  from the expected  statutory  tax rate in PRC of 24% (2005:
     24%) is as follows:

                                                                (Unaudited)
                                                            Nine months ended
                                                               September 30,
                                                            ------------------
                                                               2006       2005
                                                                  %          %

     Statutory rate                                            24.0       24.0
     Difference in tax rates in the countries that the
        Company operates                                       (1.0)      (0.6)
     Tax exemption                                            (22.3)     (22.7)
     Others                                                     2.6        0.9
                                                            -------    -------

     Effective tax rate                                         3.3        1.6
                                                            =======    =======




--------------------------------------------------------------------------------
                                      -5-
<PAGE>

Orsus Xelent Technologies, Inc.

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


4.   PROPERTY, PLANT AND EQUIPMENT, NET

     Property, plant and equipment is summarized as follows:

                                         As of             As of
                                     September 30,      December 31,
                                         2006              2005
                                       US$'000           US$'000
                                      (Unandited)

          Moulds                              1,384             1,239
          Leasehold improvement                 112               112
          Plant and machinery                  --                  14
          Office equipment                      275               255
          Motor vehicles                         86                86
                                     --------------    --------------
                                              1,857             1,706

          Accumulated depreciation           (1,075)             (925)
                                     --------------    --------------

                                                782               781
                                     ==============    ==============


5.   SHORT-TERM BANK LOAN

     The bank loan was  guaranteed  by the  director,  Mr. Liu Yu,  repayable on
     January 29, 2007 at interest rate 6.696% - 7.02% per annum.


6.   RELATED PARTY TRANSACTIONS

     a.   Name and relationship of related parties

        Related party     Relationship with the Company as at September 30, 2006
        -------------     ------------------------------------------------------

        Mr. Wang Xin      Director and stockholder of the Company
        Mr. Liu Yu        Director and stockholder of the Company
        Mr. Wang Zhibin   Director and stockholder of the Company




--------------------------------------------------------------------------------
                                      -6-
<PAGE>
<TABLE>
<CAPTION>

Orsus Xelent Technologies, Inc.

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


6.   RELATED PARTY TRANSACTIONS (CONTINUED)

     b.   Summary of related party balances

                                                                  As of            As of
                                                              September 30,    December 31,
                                                                  2006             2005
                                                        Note     US$'000          US$'000
                                                               (Unandited)
<S>                                                           <C>              <C>

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

          Bank loan guaranteed by a director
          Mr. Liu Yu                                                    991             --
                                                              =============    =============
</TABLE>

          Note:

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











--------------------------------------------------------------------------------
                                      -7-
<PAGE>

Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations.

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

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

OVERVIEW

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

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

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

         Pursuant to the  Exchange  Agreement,  Universal  Flirts  Corp.  issued
15,000,000 shares of its common stock,  $0.001 par value, to the stockholders of
UFIL, representing  approximately 50.41% of the Company's issued and outstanding
common stock,  in exchange for  20,000,000  outstanding  shares of UFIL and cash



                                      -8-
<PAGE>

payment of $50,000 from UFIL.  Immediately  after giving effect to the exchange,
the Company had 29,756,000 shares of its common stock  outstanding.  Pursuant to
the exchange,  UFIL became a wholly-owned  subsidiary of the Company and most of
the Company's business  operations are now conducted through UFIL's wholly-owned
subsidiary,   Beijing  Orsus  Xelent   Technology  &  Trading   Company  Limited
("Xelent").

         On April 19, 2005,  the  Company,  formerly  known as Universal  Flirts
Corp.,  changed its list name to Orsus Xelent  Technologies,  Inc. The Company's
OTC Bulletin Board symbol is ORXT and its CUSIP Number is 68749U106.

         In July,  2005,a wholly owned  subsidiary,  namely Orsus Xelent Trading
(HK) Company Limited  ("OXHK") was incorporated in Hong Kong. This subsidiary is
engaged  in the  trading  of  cellular  phones  and  accessories  with  overseas
customers.  In September  2005,  OXHK commenced its Hong Kong operations to sell
and distribute our cellular  phone  products and technical  support  services to
customers outside the People's Republic of China (the "PRC").

         The business  operation of UFIL are conducted  through its wholly-owned
subsidiary,  Xelent,  which is also commonly called "Orsus  Cellular" within the
cellular phone industry . Xelent has been engaged since May 2003 in the business
of designing for retail and wholesale distribution  economically priced cellular
phones.  In  February  2004,  Xelent  registered  "ORSUS"  with  the  PRC  State
Administration for Industry and Commerce as its product trademark.  The cellular
phone products produced by Xelent are customarily equipped with leading features
including  1.8-inch to 2.2-inch CSTN or TFT dual-color  display, 1 to 120-minute
video  recording,  300K to 3 million pixel  photography,  MP3,  MPEG4 and U disk
support, dual stereo speakers, e-mail messaging,  multimedia messaging, 40 to 64
ring tone  storage,  slim  bar-phone  &  flip-phone  technology  and ultra  thin
innovative lightweight design. Xelent sold approximately 240,000 cellular phones
in the PRC in 2005.

         According to a research  conducted  by the PRC Ministry of  Information
Industry,  new cellular  phone users in the PRC increased by 58 million in 2005,
with total consumers reaching 393 million during that year.  Currently,  the PRC
has the largest  number of cellular  phone users in the world.  The  penetration
rate for cellular phones in the PRC was approximately 30% in 2005. The number of
cellular  phone users is expected to reach 500 million by the year-end 2007. The
cellular  phone  market in the PRC is expected to reach $120 billion by the year
end of 2006 according to the PRC Ministry of Information Industry.

         On February 26, 2006, the TDS-CDMA  technology  standard was officially
announced as the 3G (Third Generation)  technology standard in the PRC. However,
sales of products incorporating the 3G has not developed as rapidly as generally
anticipated  (it was that 3G network  construction  and  issuance of 3G licenses
would be approved by the end of 2006).  Although the granting of 3G licenses has
been  delayed  until the  middle of 2007,  once  introduction  to the  market of
products  utilizing the 3G  technology is commenced,  Xelent should be in a good
position to take advantage of this business opportunity..  We have commenced the
development  of our owned 3G  cellular  phone  products,  including  3G PCBA (3G
technologies  platform) and cellular phones with 3G PCBA,  based on our existing
2G and 2.5G cellular technologies and cooperation with our 3G solution and chips
providers.  Additionally,  we are  planning to join into the  TDS-CDMA  Industry
League,   and  we  are  working  toward  the  granting  of  3G  cellular  phones
manufacturing licenses from the PRC government in 2007.

         The   respective   market   shares  of  domestic  PRC  cellular   phone
manufacturers  decreased in the first quarter of 2006. The primary cause of this
decrease was increased  competition  among domestic and overseas  manufacturers.
Advancements in technology  prompted  foreign  cellular phone  manufacturers  to
speed up the rollout of new products. Also, foreign cellular phone manufacturers
offered  price  reductions  to  promote  and clear  their  inventories  of older
products.  This  increase  in  competition  was  compounded  by  the  continuing
proliferation  of  counterfeit  and "black market" cell phones in the PRC, which
impacted sales of cellular phone  products by legitimate  manufacturers  such as
Xelent.



                                      -9-
<PAGE>

         By the second quarter of 2006,  most of the domestic PRC cellular phone
manufacturers  had adjusted their strategy to increase the  competition by price
cutting,  improving the quality of the products and accelerating the pace of new
product  rollouts.   These  manufacturers  are  creating  better  efficiency  by
introducing products designed for the local market and better using their supply
chain. As a result,  they have adapted to the rapidly changing market in the PRC
and regained in the second quarter of 2006 some of the market share they lost in
the first quarter. Additionally, they are beginning to make a stronger move into
the overseas market to broaden their sales and increase their revenues.

         According  to our  market  research,  the  market  of  cellular  phones
equipped with  specialized  applications  for specific  industry  users has been
developed  rapidly in the PRC. These  products are custom  designed and equipped
with specialized  applications and software to meet the special  requirements of
users in various specialized  industries.  In the third quarter of this year, we
entered  into an Intent of  Cooperation  Agreement  with a software  development
provider to assist us in meeting the need for these customized  cellular phones.
The software company  developed  specialized  software to support an application
platform called the Industry & Commerce  Law-Enforcement  Platform ("ICEP"). The
ICEP  platform  uses the CDMA 1X wireless  data networks of the PRC to integrate
commercial  and  government  information  resources.  This includes a customized
digital  administration  system for State Administration for Industry & Commerce
("SAIC")  of  the  PRC  that  provides   easy  access  by  SAIC's   professional
law-enforcement  teams.  It provides  technical  support for SAIC  officials  to
conduct mobile law-enforcement and food-safety  monitoring.  The public can also
access  business  information  through the ICEP.  We  anticipate  that  business
relating to our specialized application cellular phone devices will grow rapidly
as a consequence of our cooperation with the software  development  company, the
PRC and SAIC, and that this could provide us a considerable advantage as we look
to broaden our presence in the larger commercial markets.

BUSINESS REVIEW

         During  the  third   quarter  of  2006,   we  adopted  a  strategy   of
customization  to  meet  the  requirements  of  our  telecommunication  operator
customers.  Sales of our CDMA products  contributed  approximately  50% of total
revenues in the quarter,  compared to 25.94% of total revenues for the six moths
ended June 2006.  This  significant  increase in sales of our CDMA  products was
responsible  for a 20% growth in revenues  in this third  quarter as compared to
the second quarter.

Demand for our cellular  phone products has increased as a result of the correct
positioning  of our  products  to meet the needs of the  mid-level  and  low-end
markets in the PRC. Our mid-level  and low-end  products are all equipped with a
number of attractive features, such as MP3, MEPG4, camera and support outer card
storage  card.   Also,  the  overall   reduction  in  the  GSM  charges  of  PRC
telecommunication  providers,  which  caused an  increase  in the  number of new
cellular  phone  subscribers,  also enhanced the demand of new cellular  phones.
After reduction of inventories by price cutting from domestic  manufacturers  in
the second quarter, the profit margin of domestic cellular phones manufacturers,
including  Xelent,  in the third quarter was comparable to profit margins in the
first quarter of 2006.  We expect this trend to continue and we are,  therefore,
optimistic with respect to our profits for the fourth quarter.











                                      -10-
<PAGE>
<TABLE>
<CAPTION>

The following  table  summarizes our operating  result for the nine months ended
September 30, 2006 and 2005, respectively:


------------------ ------------------------ ------------------------ ------------------
                   Nine months ended        Nine months ended        Comparison
                   September 30, 2006       September 30, 2005
------------------ ------------------------ ------------------------ ------------------
                    $' 000    % of revenue    $' 000   % of revenue    $'000         %
------------------ --------- -------------- --------- -------------- -------- ---------
<S>                <C>       <C>            <C>       <C>            <C>      <C>
Revenues             45,901                   16,604                  29,297   176.45%
------------------ --------- -------------- --------- -------------- -------- ---------
Cost of sales        37,879         82.52%    13,257         79.84%   24,622   185.73%
------------------ --------- -------------- --------- -------------- -------- ---------
Sales & Marketing
expenses                926          2.02%     1,131          6.81%     -205   -18.13%
------------------ --------- -------------- --------- -------------- -------- ---------
General & Admin
expenses              1,883          4.10%       769          4.63%    1,114   144.86%
------------------ --------- -------------- --------- -------------- -------- ---------
R&D expenses            187          0.41%       337          2.03%     -150   -44.51%
------------------ --------- -------------- --------- -------------- -------- ---------
Depreciation &
Amortization            149          0.32%       164          0.99%      -15    -9.15%
------------------ --------- -------------- --------- -------------- -------- ---------
Interest expenses        70          0.15%        25          0.15%       45      180%
------------------ --------- -------------- --------- -------------- -------- ---------
Other income, net         1          0.00%       541          3.26%     -540   -99.82%
------------------ --------- -------------- --------- -------------- -------- ---------
Income before tax     4,808         10.47%     1,462          8.81%    3,346   228.86%
------------------ --------- -------------- --------- -------------- -------- ---------
Income taxes            160          0.35%        23          0.14%      137   595.65%
------------------ --------- -------------- --------- -------------- -------- ---------
Net income            4,648         10.13%     1,439          8.67%    3,209   223.00%
------------------ --------- -------------- --------- -------------- -------- ---------

The following table  summarizes our operating  result for the three months ended
September 30, 2006 and 2005, respectively:

------------------ ------------------------------ ------------------ ------------------
                   Three months ended             Three months ended   Comparison
                   September 30, 2006             September 30, 2005
------------------ ------------------------ ------------------------ ------------------
                     $' 000   % of revenue    $' 000   % of revenue   $'000       %
------------------ --------- -------------- --------- -------------- -------- ---------
Revenues             20,525        100.00%    13,164        100.00%    7,361    55.92%
------------------ --------- -------------- --------- -------------- -------- ---------
Cost of sales        16,716         81.44%    10,358         78.68%    6,358    61.38%
------------------ --------- -------------- --------- -------------- -------- ---------
Sales & Marketing
expenses                140          0.68%       430          3.27%     -290   -67.44%
------------------ --------- -------------- --------- -------------- -------- ---------
General & Admin
expenses              1,194          5.82%       200          1.52%      994   497.00%
------------------ --------- -------------- --------- -------------- -------- ---------
R&D expenses             40          0.19%       195          1.48%     -155   -79.49%
------------------ --------- -------------- --------- -------------- -------- ---------
Depreciation &
Amortization             24          0.12%        89          0.68%      -65   -73.03%
------------------ --------- -------------- --------- -------------- -------- ---------
Interest expenses        41         -0.20%       -ii          0.00%       41     0.00%
------------------ --------- -------------- --------- -------------- -------- ---------
Other income, net        -4         -0.02%        89          0.68%      -93  -104.49%
------------------ --------- -------------- --------- -------------- -------- ---------
Income before tax     2,366         11.53%     1,981         15.05%      385    19.43%
------------------ --------- -------------- --------- -------------- -------- ---------
Income taxes              -          0.00%        23         -0.17%      -23  -100.00%
------------------ --------- -------------- --------- -------------- -------- ---------
Net income            2,366         11.53%     1,958         14.87%      408    20.84%
------------------ --------- -------------- --------- -------------- -------- ---------
</TABLE>

CRITICAL ACCOUNTING POLICIES AND MANAGEMENT ESTIMATES

         Our discussion  and analysis on our financial  condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues  and  expenses,   and  related  disclosure  of  contingent  assets  and
liabilities. On an on-going basis, we evaluate our estimates based on historical
experience  and various  other  assumptions  that are believed to be  reasonable
under  the  circumstances,  the  results  of which  form the  basis  for  making
judgments  about the  carrying  values of assets  and  liabilities  that are not
readily  apparent  from other  sources.  Actual  results  may differ  from these
estimates under different assumptions or conditions.



                                      -11-
<PAGE>

RESULTS OF OPERATION

Revenues

         Our revenues were  $45,901,000  for the nine months ended September 30,
2006,  representing  an  increase  of 176.45% as  compared to the same period in
2005.  After going through an  environment  of reformation in the cellular phone
market in the first half year of 2005,  we  adjusted  our  business  model,  our
market  position and our strategy and improved our technology and the quality of
our products,  in terms of both function and appearance.  We believe that we are
now in a much better position to deal with the rapidly  changing and competitive
market for cellular phone products in the PRC and that we are better prepared to
take advantage of the  rejuvenated  cellular phone market that has resulted from
the  reduction  in the  monthly fee charged by  telecommunication  providers  in
second quarter of 2006.

         We expanded the sales of our CDMA products,  which accounted for 38.73%
of our total  revenues  for the nine months  period  ended  September  30, 2006,
representing  an  increase  of  435%,  compared  to the  same  period  in  2005.
Meanwhile,  the sales of  traditional  GSM  products  have  remained  relatively
stable.

         Our  mid-level  and  low-end  products  contain a number of  attractive
features,  such as MP3,  MPEG4,  video  recording  and outer card  storage.  Our
high-end  products  contain  those same features as well as PDA, GPRS and office
software function,  special industry  applications and other attractive features
and  functions.  The  appearance of all our products are in line with the latest
trends, including being ultra slim and containing a wide use of metals, and they
have been well received by our customers. We introduced a middle-grade dual mode
cellular  phone with both GSM & CDMA  applications  in the third quarter to meet
the demand in the market for this type of product.

Products Segment


         --------- --------------------------------------
                    Nine months ended September 30, 2006
         --------- --------------------------------------
                          $'000          % of revenue
         --------- ------------------- ------------------
         X5               8,337              18.16%
         --------- ------------------- ------------------
         D8120            4,912              10.70%
         --------- ------------------- ------------------
         C300             4,155               9.05%
         --------- ------------------- ------------------
         C8000            3,705               8.07%
         --------- ------------------- ------------------
         C200             3,335               7.27%
         --------- ------------------- ------------------
         C109             2,446               5.33%
         --------- ------------------- ------------------
         TDA6028          2,250               4.90%
         --------- ------------------- ------------------
         X5+              2,011               4.38%
         --------- ------------------- ------------------
         Others          14,750              32.14%
         --------- ------------------- ------------------

         The total  revenues  for the first  nine  months  of 2006  amounted  to
$45,901,000,  of which the sale of GSM  products  in this period  accounted  for
$28,123,000,  or 61.27%, of our total revenues. The GSM products mainly included
X5 ($8,337,000),  D8120 ($4,912,000), X5+ (2,011,000), and others ($12,863,000).
The sales of CDMA was  $17,778,000,  representing  38.73% of our total revenues,
which included C300 ($4,155,000),  C8000 ($3,705,000),  C200 ($3,335,000),  C109
($2,446,000), TDA6028 ($2,250,000) and others ($1,887,000).

         Our GSM products are purchased from China Electronic  Apparatus Company
and Beijing Dong Fang Long Yu Trading Company,  which include D8120 (ultra thin,
slide PDA with MP3, MP4, Camera,  T-Flash Card,  handwriting  touch screen),  X5
(ultra thin with MP3, MP4, Camera,  T-Flash Card),  D8110 (ultra thin, slide PDA



                                      -12-
<PAGE>
<TABLE>
<CAPTION>

with MP3,  MEPG4,  Camera,  T-Flash Card).  Our CDMA products are purchased from
Tian  Feng  Ju  Yuan  Technology  Company  Limited  and  Beijing  Tian  Hong  Bo
Communication Apparatus Company Limited, and include C200 (a low-end shell phone
with colorful screen,  MP3,  Camera),  C300 (a high-end cell phone with colorful
screen,  MP3,  Camera and IM  System),  C8000 (a high-end  PDA with MP3,  MEPG4,
Camera, T-Flash Card, GSM & CDMA Simultaneous Standby Dual Mode handset).

X188 (Low-end product with MP3, MEPG4,  MINI SD support  functions),  X5+ (ultra
thin, MP3, MEPG4, Camera, T-Flash Card), TDA6028 (a high-end cellular phone with
PDA,   GPRS,   2.8-inch  TFT  LCD   handwriting   touch  screen,   finger  print
identification,  MPEG4,  extended  scanner,  RFID and WIFI  functions),  X718 (a
cellular phone with MPEG4, external memory card support function in a super-slim
case) and D9000 (a low-end  product with PDA  function).  Our CDMA products C100
and C109 were developed in cooperation with Dalian Daxian Communication  Company
Limited.


--------- ---------------------------------------
           Three months ended September 30, 2006
--------- --------------------------------------
                 $'000          % of revenue
--------- ------------------- ------------------
D8120            4,912              23.93%
--------- ------------------- ------------------
C300             4,155              20.24%
--------- ------------------- ------------------
C8000            3,705              18.05%
--------- ------------------- ------------------
C200             3,335              16.25%
--------- ------------------- ------------------
X5               2,181              10.63%
--------- ------------------- ------------------
D8110            1,426               6.95%
--------- ------------------- ------------------
Others             811               3.95%
--------- ------------------- ------------------

         In the third quarter of 2006,  sales reached  $20,525,000,  as compared
with  $13,164,000 in the same period in 2005, which represents a growth in sales
of  55.92%.Sales  of our CDMA  products in the third  quarter of 2006  generated
revenues of  $11,195,000  and  accounted  for 55% of sales in this  quarter,  as
compared to 18% in the same period of 2005.  The growth in the sales of our CDMA
products  also lead to 20.67%  increase in our revenues in the third  quarter as
compared to the second quarter of 2006.

         The increase of the revenue is primarily attributable the launch of our
ultra-thin,  slim bar modes which are currently in demand by the market; and our
cooperation with  telecommunication  operators with respect to our CDMA products
in various grades.

Customers Segment


------------------------------------------------- --------------------------------------
                                                   Nine months ended September 30, 2006
------------------------------------------------- --------------------------------------
                                                        $'000            % of revenue
------------------------------------------------- ------------------- ------------------
<S>                                               <C>                 <C>
Beijing Xingwang Shidai Tech & Trading Co., Ltd.        24,816              54.06%
------------------------------------------------- ------------------- ------------------
CEC Cellular Limited                                    12,756              27.79%
------------------------------------------------- ------------------- ------------------
Singapore ST                                             6,124              13.34%
------------------------------------------------- ------------------- ------------------
Singapore CEO                                            2,000               4.36%
------------------------------------------------- ------------------- ------------------
Others                                                     205               0.45%
------------------------------------------------- ------------------- ------------------
</TABLE>




                                      -13-
<PAGE>
<TABLE>
<CAPTION>

         Our revenues were primarily derived from two major domestic  customers.
For the nine months ended  September  30,  2006,  our  revenues  generated  from
Beijing  Xingwang  Shidai Tech & Trading  Co.,  Ltd.  ("XWSD")  and CEC Cellular
Limited ("CECM") were $24,816,000 and $12,756,000, respectively. These two major
domestic  customers  aggregated to account for $37,572,000,  or 81.85%, of total
revenue.  Both XWSD and CECM are distributors and dealers in Mainland China, and
their  sales  networks  cover most of the major  cities in the PRC.  XWSD is the
major  customer of our company,  and account for 54.06% of total  sales.  In the
overseas  market,  we have  secured two new  Singapore  customers,  which are ST
Electronics  (Info-Software  Systems) Pte Ltd. and Chartered  Electro-Optics Pte
Ltd. The revenues generated from these two companies were $8,124,000, or 17.70%,
of the total revenue.


------------------------------------------------- ---------------------------------------
                                                   Three months ended September 30, 2006
------------------------------------------------- ---------------------------------------
                                                         $'000            % of revenue
------------------------------------------------- --------------------- -----------------
<S>                                               <C>                   <C>
Beijing Xingwang Shidai Tech & Trading Co., Ltd.         16,021               78.06%
------------------------------------------------- --------------------- -----------------
CEC Cellular Limited                                      4,491               21.88%
------------------------------------------------- --------------------- -----------------
Others                                                       13                0.06%
------------------------------------------------- --------------------- -----------------
</TABLE>

         In the  third  quarter,  XWSD and CECM  were  also our  major  domestic
customers.  Our deliveries to CECM were  terminated in the second quarter due to
the fact that CECM had an  outstanding  receivable  over our credit  limit.  The
supply of our products was re-commenced after we received a substantial  payment
from CECM in the third quarter of 2006.

Other Net Income

For the nine months ended  September 30, 2006,  other net income was $1,000,  or
0.002%, of the total revenue.  There was a significant decrease as compared with
$541,000 of other net income in the same period of 2005.  The  decrease in other
income for the nine months ended  September 2006 was  attributable  primarily to
the fact that no toll free income was earned from  cooperative  partners in 2006
because our cooperative partners changed their toll fee policy.

Operating Expenses

For the nine months ended September 30, 2006, our operating expenses amounted to
$41,024,000.   The  operating  expenses  mainly  includes  sales  and  marketing
expenses,   general  and  administrative   expenses  and  R  &  D  expenses  and
depreciation were shown and compared with the same period in 2005 as follows:

<TABLE>
<CAPTION>


----------------------- ----------------------- ----------------------- ------------------
                        Nine months ended       Nine months ended         Comparison
                        September 30, 2006      September 30, 2005
----------------------- ----------------------- ----------------------- ------------------
                          $'000   % of revenue    $'000   % of revenue    $'000      %
----------------------- -------- -------------- -------- -------------- -------- ---------
<S>                     <C>      <C>            <C>      <C>            <C>      <C>
Cost of sales            37,879         82.52%   13,257         79.84%   24,622   185.73%
----------------------- -------- -------------- -------- -------------- -------- ---------
Sales & marketing exp.      926          2.02%    1,131          6.81%     -205   -18.13%
----------------------- -------- -------------- -------- -------------- -------- ---------
General & admin. exp.     1,883          4.10%      769          4.63%    1,114   144.86%
----------------------- -------- -------------- -------- -------------- -------- ---------
R&D                         187          0.41%      337          2.03%     -150   -44.51%
----------------------- -------- -------------- -------- -------------- -------- ---------
Depreciation                149          0.32%      164          0.99%      -15    -9.15%
----------------------- -------- -------------- -------- -------------- -------- ---------
Total                    41,024         89.37%   15,658         94.30%   25,366   162.00%
----------------------- -------- -------------- -------- -------------- -------- ---------
</TABLE>




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

For the three months ended September 30, 2006, our operating  expenses increased
by 51.36%, as compared to the third quarter of 2005.

------------------------ ----------------------- ----------------------- -----------------
                         Three months ended      Three months ended       Comparison
                         September 30, 2006      September 30, 2005
------------------------ ----------------------- ----------------------- -----------------
                           $'000   % of revenue    $'000   % of revenue   $'000     %
------------------------ -------- -------------- -------- -------------- ------- ---------
<S>                      <C>      <C>            <C>      <C>            <C>     <C>
Cost of sales             16,716         81.44%   10,358         78.68%   6,358    61.38%
------------------------ -------- -------------- -------- -------------- ------- ---------
Sales & marketing. exp.      140          0.68%      430          3.27%    -290   -67.44%
------------------------ -------- -------------- -------- -------------- ------- ---------
General & admin. exp.      1,194          5.82%      200          1.52%     994   497.00%
------------------------ -------- -------------- -------- -------------- ------- ---------
R&D                           40          0.19%      195          1.48%    -155   -79.49%
------------------------ -------- -------------- -------- -------------- ------- ---------
Depreciation                  24          0.12%       89          0.68%     -65   -73.03%
------------------------ -------- -------------- -------- -------------- ------- ---------
Total                     18,114             ii   11,272         85.63%   6,842    60.70%
------------------------ -------- -------------- -------- -------------- ------- ---------
</TABLE>


Cost of Sales

         For the nine months ended  September  30,  2006,  our cost of sales was
$37,879,000,  or 82.52%, of revenue. Other than the factor of provision for slow
moving  stock of $626,000,  the  percentage  of cost of sales to total  revenues
dropped  to  81.16%.   The  cost  of  sales  to  revenues  was  79.11%  for  the
corresponding  period in 2005,  resulting in an increase of 2.05%. The principal
reasons  for  this  increase  was the keen  competition  in the  cellular  phone
industry as exemplified by the price cutting  pressure in our selling price that
was greater  than the  reduction in our  purchase  cost,  and nearly half of the
sales in the  second  quarter  of 2006 were from  overseas  trade,  which  carry
smaller margins as compared to our domestic sales.

         For the three months ended  September  30, 2006,  our cost of sales was
81.44%. Other than the factor of provision for slow moving stock, the percentage
of cost of  sales  to total  revenues  was  79.08%,  which  amounted  to a 1.32%
increase  when  comparing  to 77.76% over the same period in 2005.  This however
resulted in a decrease  when  compared to 85.41% in the second  quarter of 2006,
and was the result of a higher percentage of overseas trade in second quarter of
2006.

Sales and Marketing Expenses

         Sales and marketing  expenses mainly  represent  payments made to sales
personnel,  cost of  provision  for  after-sales  services,  and  marketing  and
transportation costs.

         For the nine months  ended  September  30,  2006,  sales and  marketing
expenses  were  $926,000,  or  2.02%,  of the total  revenues,  as  compared  to
$1,131,000,  or 6.81%, of total revenues for the  corresponding  period in 2005.
This constituted a decrease of 18.13% as compared to the corresponding period in
2005. This decrease was due to the reduction in the number of personnel.

         For the three months ended  September  30,  2006,  sales and  marketing
expenses were reduced to $140,000 from $342,000,  representing a 57.49% decrease
that is  attributable  to the fact  that we laid off some  redundant  staff  and
restructured our marketing  department.  It represents a decrease of 67.44%,  as
compared with $430,000 in the third quarter of 2005.

R&D Expenses

         Our R&D expenses were $187,000 for the nine months ended  September 30,
2006,  which  represents  0.41% of total  revenue as compared  with $337,000 and
2.03%  respectively  in the same period of 2005.  This decrease of 44.51% in R&D
expenses  was  attributed  to  the   adjustment  of  strategy,   which  involves
forecasting  market demand and choosing the most popular  products in the market
for salesso that internal investment is reduced.




                                      -15-
<PAGE>

General and Administrative Expenses

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

         For  the  nine  months   ended   September   30,   2006,   general  and
administrative expenses was $1,883,000, which represents 4.10% of total revenue.
Included in general and  administrative  expenses  was a provision  for doubtful
accounts  amounting to  $1,364,000,  due  primarily to the  uncertainty  of long
outstanding account receivables and trade deposits. Except for the provision for
doubtful  accounts,  the general and administrative  expenses were $519,000,  or
1.13% of the total revenues,  which represented a $250,000, or 32.51%,  decrease
as compared to the second  quarter of 2005.  The  decrease in the  expenses  was
mainly due to the fact that we laid off  redundant  personnel.  Since the second
half year of 2005, we have adjusted our business strategy,  and this resulted in
the redundant personnel.  We incurred some one-time  compensation  expenses as a
result,  while the ordinary  staff costs,  including the wages and insurance for
personnel, decreased in relation to the decrease in the numbers of staff.

         For  the  three  months   ended   September   30,  2006,   general  and
administrative  expenses were  $1,194,000.  Except for the provision of doubtful
debts,  the expenses were only $141,000,  which decreased  $59,000,or  29.5%, as
compared  to  $200,000,  for the  corresponding  period  in  2005.  General  and
administrative expenses decreased 25.4% in the third quarter of2006, as compared
to the second quarter, which was mainly due to personnel layoff.

Gross Profit and Gross Profit Margin

         For the nine months  ended  September  30,  2006,  our gross profit was
$8,022,000,  which represented an increase of $4,675,000 or 139%, as compared to
the gross  profit of  $3,347,000  in the same period in 2005.  Our gross  profit
margin for the reporting period decreased from 20.16% in 2005 to 17.48% in 2006.
Included  in the  cost of  sales  in 2006 was a  provision  for  slowing  moving
inventory amounting to $626,000. Except for the effect of the provision for slow
moving inventory, the gross profit margin would have been 18.84%.

         The gross profit in the third quarter of 2006 is $3,809,000. Except for
the effect of the provision for slow moving  inventory,  the gross profit margin
in the  second  and third  quarter  of 2006  would  have been  14.59% and 20.92%
respectively,  representing  a 6.33%  growth.  However,  it  represents a slight
decline of 0.40%,  as  compared  with 21.32% in the third  quarter of 2005.  The
decline in our gross profit margin is attributable to:

         1. The gross  profit of overseas  trade being  relatively  low. We have
continued to develop our overseas  customers  since the second  quarter of 2006,
and the overseas  sales  accounted  for 18% of the total sales in the first nine
months of 2006. At the beginning stage of the development of overseas customers,
the price of our products was designed to be very  favorable  and  attractive to
our  customers,  and the gross  profit of  overseas is  approximately  14%. As a
result,  the gross  profit  for the  first  nine  months  was lower in 2006 when
comparing with the same period in 2005.

         2. The gross profit  margin of trade sales is relatively  low,  ranging
from  12% to 16%,  and is  continuing  to  decline  as a result  of  competitive
factors.

         3. Due to seasonal factors and price-cutting by domestic  manufacturers
in the second quarter,  our gross margin dropped to 14.59% in the second quarter
of 2006.  Along with the  recovery  of the  cellular  phone  market in the third
quarter, the profit margin increased in the third quarter.



                                      -16-
<PAGE>

Net Income

         For the nine  months  ended  September  30,  2006,  our net  income was
$4,648,000,  or 10.12%, of revenue.  Except for the provisions  described above,
our ordinary net income for the nine months  ended  September  30, 2005 and 2006
would  have been  $1,318,000  and  $6,638,000,  or 14.46% of the total  revenues
respectively,  representing an increase of 5,320,000. The improvement in our net
profit is due primarily to the fact that we have been successful in overcoming a
difficult  operating  environment in the first half year of 2005, and the growth
of sales and the  development in oversea  customers  played an important part in
the increase in our net income. Furthermore,  the sharp decline in the operating
expenses  resulting  from our cost  control  efforts is  another  reason for the
improvement in net income.

         For the three  months  ended  September  30,  2006,  our net income was
$2,366,000, which represents 51% of total net profit in the first nine months of
2006. It increased by 20.84%,  as compared to the same period of in 2005. Except
for the provisions  described above, net income increased 99.28%, as compared to
the same period in 2005. The substantial increase in net profit is due primarily
to adjustment in our marketing  strategy and  improvements in the cellular phone
market in the third quarter.

         We expect that the  competition  in the  cellular  phone market will be
remain intense in the PRC for the foreseeable future.  Fortunately,  as a result
in the change of our business strategy,  we anticipate that the market will move
towards  healthier  development  and a more favorable  environment  for domestic
legitimate  manufacturers  such as Xelent.  In the future,  we will  continue to
develop our  overseas  operations  with the  objective  of  establishing  a more
diversified  revenue base,  fostering closer cooperation with  telecommunication
providers and making an determined effort top collect our long outstanding trade
receivables and trade deposits and reduce our inventory level.

LIQUIDITY AND SOURCE OF CAPITAL

         We  generally   finance  our   operations   from  cash  flow  generated
internally.

         As of September 30, 2006, we had current assets of $37,338,000. Current
assets are mainly comprised of inventory of $2,361,000,  accounts  receivable of
$31,527,000,  trade  deposits and other  receivables  aggregated of  $3,112,000,
other current assets of $250,000, and restricted cash, cash and cash equivalents
of $88,000. Current liabilities included accounts payable of $11,764,000,  trade
deposit received of $260,000,  other accrued expenses and accrued liabilities of
$3,474,000,  short-term  bank loan of  $2,477,000,  amounts due to  directors of
$320,000, provision for warranty of $57,000 and tax payable of $181,000.

         We  offer  two  different   trading  terms  to  our   customers,   i.e.
cash-on-delivery and on credit term within 45-90 days. As of September 30, 2006,
our accounts receivable were $31,527,000,  which was an increase  $19,493,000 as
compared  to  $12,034,000  on December  31,  2005.  The  increase in our account
receivables was due primarily to trading with our two major customers,  XWSD and
CECM. As of September 30, 2006, these receivables all remain within our approved
credit  terms.  We have taken  steps to  control  credit  extended  to our major
customers and we review their outstanding balances regularly.  To reduce further
risk  exposure,  we may in the future  terminate our supply of products to those
customers if the credit limit is reached.

         As of September  30,  2006,  our  inventories  were  $2,361,000,  which
represented  a decrease of  $2,099,000  or 47.06%,  as compared to $4,460,000 on
December  30,  2005.  This  decrease  was  due in  large  part to our use of old
materials  during the  production  of our older models.  In addition,  our newly
developed products do not require us to carry large level of inventories because
the component  parts are readily  available.  We have  critically  and regularly
evaluated our inventory and a provision for  slow-moving  inventory was made. An
aggregate of $1,001,000 was taken as a provision for slow moving inventory as of
September 30, 2006.



                                      -17-
<PAGE>

         As of September 30, 2006,  our trade  deposits were  $3,112,000,  which
represented a decrease of $7,468,000 or 70.59%,  as compared to  $10,580,000  on
December 31, 2005.  This decrease was due primarily to delivery of our purchased
goods from our vendors,  which are Tian Feng Ju Yuan Technology  Company Limited
and China Electronic Apparatus Company, in the third quarter.

         As of September 30, 2006, our accounts payable were $11,764,000,  which
represented  an increase of $3,825,000  or 48.18%,  as compared to $7,939,000 on
December 31, 2005. The increase in accounts payable was  attributable  mainly to
unpaid products from our vendor China Electronic Apparatus Company.

         As of  September  30,  2006,  our cash and bank  balances  were  mainly
denominated in Renminbi ("RMB") and Hong Kong Dollar.  Our revenue and expenses,
assets and liabilities are mainly denominated in RMB. Our activities, assets and
liabilities are mainly denominated in RMB, any further possible inflation of RMB
would  be   beneficial  to  us.  We  consider  that  the  exposure  to  exchange
fluctuations  is relatively low and therefore we have not engaged in any hedging
activity.

CASH FLOWS

         As of September  30,  2006,  we have the cash and cash  equivalents  of
$88,000,  as compared to  $2,974,000  on December 31, 2005.  This  represented a
decrease of $2,886,000,  or 97.04%. This decrease was mainly due to the increase
in the  account  receivables  resulting  from the growth in the  revenues in the
third quarter of 2006 and long collection  period.  As of September 30, 2006, we
had  account  receivables  of  $31,527,000,  as compared  to  $12,034,000  as of
December 31, 2005. This represented an increase of $19,493,000, which was due to
the trade with XWSD and CECM in the third  quarter  that  increased  the account
receivables. As a result, the cash coming to us was slower.

         Our gearing  ratio,  calculated as total debts over total  assets,  was
48.62% as of September 30, 2006, as compared to 51.83% as of December 31, 2005.

CONTINGENT LIABILITIES

         As of  September  30,  2006,  we had not  entered  into  any  guarantee
contracts nor non-disclosed  contracts which will affect stockholders' equity or
share structure.

OFF BALANCE SHEET ARRANGEMENTS

         As of September 30, 2006, we had no off balance sheet arrangements.












                                      -18-
<PAGE>
<TABLE>
<CAPTION>

CONTRACTUAL COMMITMENTS

We are  obligated to make future  payments  under various  contracts,  including
purchase and operating  leases.  The Company does not have any long-term debt or
capital  lease  obligations.   The  following  table  summarized  the  Company's
contractual   obligations  at  September  30,  2006,  reported  by  maturity  of
obligation.

                                                              Payments due by period
                                            ---------------------------------------------------------
Contractual Obligations                                 Less than                           More than
-----------------------                       Total       1 year    1-3 years   3-5 years    5 years
                                            ---------   ---------   ---------   ---------   ---------
                                              $'000       $'000       $'000       $'000       $'000
<S>                                         <C>         <C>         <C>         <C>         <C>
Long-term Debt Obligations                      2,477       2,477        --          --          --

Capital Lease Obligations                        --          --          --          --          --

Operating Lease Obligations                        31          11          20        --          --

Purchase Obligations                               82          82        --                      --

Other long-term liabilities reflected on the
   registrant's balance sheet under GAAP         --          --          --          --          --
                                            ---------   ---------   ---------   ---------   ---------
Total                                           2,590       2,570          20        --          --
                                            =========   =========   =========   =========   =========
</TABLE>


Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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

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

         Transactions  in currencies  other than the functional  currency during
the period are translated into the functional  currency at the applicable  rates
of exchange  prevailing  at the time of the  transactions.  Monetary  assets and
liabilities  denominated  in  currencies  other  than  functional  currency  are
translated  into  functional  currency  at the  applicable  rates of exchange in
effect at the balance sheet date.  Exchange gains and losses are recorded in the
combined statements of operations.

         For translation of financial  statements  into the reporting  currency,
assets and  liabilities are translated at the exchange rate at the balance sheet
date, equity accounts are translated at historical exchange rates, and revenues,
expenses,  gains and losses are  translated  at the  weighted  average  rates of
exchange prevailing during the period.



                                      -19-
<PAGE>

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

Item 4. Controls and Procedures.

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

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

         During the period,  there were no  significant  changes in our internal
controls  over  financial  reporting  that  have  materially  affected,  or  are
reasonably  likely to materially  affect our internal  controls  over  financial
reporting.


                          PART II --- OTHER INFORMATION

Item 1.  Legal Proceedings.

         There is no litigation  pending or threatened  against the  Registrant,
other than certain legal proceedings arising in the ordinary course of business,
none of  which  are  expected  to have a  material  impact  on the  Registrant's
financial condition, operating results or liquidity.

Item 1A. Risk Factors.

         None

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

         (a) None.

         (b) None.

         (c) None.

Item 3.  Defaults Upon Senior Securities.

         (a) None.

         (b) None.

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

         None




                                      -20-
<PAGE>

Item 5.  Other Information.

         None

Exhibits.

         Exhibits:
         ---------

         31.1     Certification  pursuant to 18 U.S.C.  Section 1350, as adopted
                  pursuant  to  Section  302 of the  Sarbanes-Oxley  Act of 2002
                  (Chief Executive Officer).

         31.2     Certification  pursuant to 18 U.S.C.  Section 1350, as adopted
                  pursuant  to  Section  302 of the  Sarbanes-Oxley  Act of 2002
                  (Chief Accounting Officer).

         32.1     Certification  pursuant to 18 U.S.C.  Section 1350, as adopted
                  pursuant  to  Section  906 of the  Sarbanes-Oxley  Act of 2002
                  (Chief Executive Officer).

         32.2     Certification  pursuant to 18 U.S.C.  Section 1350, as adopted
                  pursuant  to  Section  906 of the  Sarbanes-Oxley  Act of 2002
                  (Chief Accounting Officer).





















                                      -21-
<PAGE>

                                   SIGNATURES

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

                                                 ORSUS XELENT TECHNOLOGIES, INC.


                                                 By: /s/ Wang Xin
                                                    ----------------------------
                                                    Wang Xin
                                                    Chief Executive Officer

DATED:  November 28, 2006





















                                      -22-
<PAGE>

Exhibit
Number                              Description of Document
----------------  --------------------------------------------------------------

31.1              Certification  pursuant to 18 U.S.C.  Section 1350, as adopted
                  pursuant  to  Section  302 of the  Sarbanes-Oxley  Act of 2002
                  (Chief Executive Officer). *

31.2              Certification  pursuant to 18 U.S.C.  Section 1350, as adopted
                  pursuant  to  Section  302 of the  Sarbanes-Oxley  Act of 2002
                  (Chief Financial Officer). *

32.1              Certification  pursuant to 18 U.S.C.  Section 1350, as adopted
                  pursuant  to  Section  906 of the  Sarbanes-Oxley  Act of 2002
                  (Chief Executive Officer). *

32.2              Certification  pursuant to 18 U.S.C.  Section 1350, as adopted
                  pursuant  to  Section  906 of the  Sarbanes-Oxley  Act of 2002
                  (Chief Financial Officer). *

----------------
* filed herewith
















                                      -23-