UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-Q

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

For the quarterly period ended June 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 August 14, 2006
---------------------------------------           ------------------------------
Common Stock, $.001 par value per share                 29,756,000 shares





<PAGE>
<TABLE>
<CAPTION>

                        PART I --- FINANCIAL INFORMATION

Item 1.       Financial Statements.

Orsus Xelent Technologies, Inc.

Condensed Consolidated Statements of Operations
=======================================================================================================

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

Operating revenues:                                 17,009          1,940         25,376          3,440
                                               -----------    -----------    -----------    -----------

Operating expenses:
    Cost of sales                                   14,670          1,711         21,163          2,899
    Sales and marketing                                342            407            786            701
    General and administrative                         500            307            689            569
    Research and development                            66            108            147            142
    Depreciation                                       100             49            125             75
                                               -----------    -----------    -----------    -----------
    Total operating expenses                        15,678          2,582         22,910          4,386
                                               -----------    -----------    -----------    -----------

Operating profit/(loss)                              1,331           (642)         2,466           (946)

Interest expense                                       (29)            (4)           (29)           (25)
Other income, net                                        3            122              5            452
                                               -----------    -----------    -----------    -----------

Income/(Loss) before income taxes                    1,305           (524)         2,442           (519)

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

Net income/(loss)                                    1,145           (524)         2,282           (519)
                                               ===========    ===========    ===========    ===========

Earnings/(Loss) per share:               2

Basic                                                 0.04          (0.02)          0.08          (0.02)
                                               ===========    ===========    ===========    ===========

Weighted average number of common stock
    outstanding                                 29,756,000     29,756,000     29,756,000     29,756,000
                                               ===========    ===========    ===========    ===========
</TABLE>





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



<PAGE>
<TABLE>
<CAPTION>

Orsus Xelent Technologies, Inc.

Condensed Consolidated Balance Sheets
==========================================================================================

                                                                      As of          As of
                                                                   June 30,   December 31,
                                                                       2006           2005
                                                        Note        US$'000        US$'000
                                                                (Unaudited)
<S>                                                                     <C>          <C>
ASSETS
Current assets
    Cash and cash equivalents                                           349          2,974
    Accounts receivable - Trade                                      20,141         12,034
    Inventories                                                       3,674          4,460
    Trade deposits paid                                               8,054         10,580
    Advance to third party                                              249           --
    Other current assets                                                153            182
                                                                -----------    -----------

    Total current assets                                             32,620         30,230

Property, plant and equipment, net                                      806            781
                                                                -----------    -----------

Total assets                                                         33,426         31,011
                                                                ===========    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities                                       4
    Short-term bank loans                                             2,477           --
    Accounts payable - Trade                                          9,958          7,939
    Accrued expenses and other accrued liabilities                    2,943          2,238
    Trade deposits received                                             260          5,432
    Due to directors                                      5             320            320
    Provision for warranty                                               66            122
    Taxes payable                                                       181             21
                                                                -----------    -----------

    Total current liabilities                                        16,205         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 June 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                                                    13,316         11,034
                                                                -----------    -----------

Total stockholders' equity                                           17,221         14,939
                                                                -----------    -----------

Total liabilities and stockholders' equity                           33,426         31,011
                                                                ===========    ===========
</TABLE>


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

<PAGE>
<TABLE>
<CAPTION>

Orsus Xelent Technologies, Inc.

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


                                                                               (Unaudited)
                                                                            Six months ended
                                                                                 June 30,
                                                                           ------------------
<S>                                                                        <C>        <C>
                                                                             2006       2005
                                                                           US$'000    US$'000
Cash flows from operating activities
Net income/(loss)                                                            2,282       (519)
Adjustments to reconcile net income/(loss) to net cash used in operating
    activities:
    Depreciation                                                               125         75
Changes in assets and liabilities:
    Accounts receivable -trade                                              (8,107)     2,592
    Inventories, net                                                           786        489
    Trade deposits paid                                                      2,526        376
    Other current assets                                                        29        (84)
    Trade deposits received                                                 (5,172)    (2,487)
    Accounts payable - trade                                                 2,019     (3,448)
    Provision for warranty                                                     (56)       (58)
    Accrued expenses and other accrued liabilities                             705        425
    Provision for taxation                                                     160       --
                                                                           -------    -------

Net cash used in operating activities                                       (4,703)    (2,639)
                                                                           -------    -------

Cash flows from investing activities
    Purchase of property, plant and equipment                                 (150)      (468)
    Repayment from a related company                                          --        3,319
    Advance to a director                                                     --           (6)
    Decrease in restricted cash                                               --          612
                                                                           -------    -------

Net cash (used in)/generated from investing activities                        (150)     3,457
                                                                           -------    -------

Cash flows generated from financing activities                                --
   Borrowing from bank                                                       2,477       --
   Loan to third parties                                                      (249)      --
                                                                           -------    -------

Net cash generated from financing activities                                 2,228       --
                                                                           -------    -------

Net (decrease)/increase in cash and cash equivalents                        (2,625)       818

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

Cash and cash equivalents, end of the period                                   349      1,042
                                                                           =======    =======
</TABLE>

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

<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 June 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 results of operations for the
     six-month  periods  ended  June  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.

     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.

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

<PAGE>

Orsus Xelent Technologies, Inc.

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


3.   INCOME TAXES (CONTINUED)

     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 Xelent  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)
                                                    Six months ended
                                                        June 30,
                                                    ------    ------
                                                     2006      2005
                                                        %         %

     Statutory rate                                   24.0      24.0
     Tax exemption                                   (15.7)     --
     Tax losses                                        0.6     (24.0)
                                                    ------    ------

                                                      --        --
                                                    ======    ======


4.   SHORT-TERM BANK LOANS

     The bank loans are repayable on January 29, 2007 and March 16, 2007 and are
     interest-bearing  at an interest rate of 6.696% - 7.02% per annum. The bank
     loan amounting to USD991,000 was  collateralized by personal guarantee of a
     director,  Mr. Liu Yu, and other unrelated  corporations  and the remaining
     balance was unsecured.

5.   RELATED PARTY TRANSACTIONS

     a.   Name and relationship of related parties

          Related party       Relationship with the Company as at June 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

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

<PAGE>
<TABLE>
<CAPTION>

Orsus Xelent Technologies, Inc.

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


5.   RELATED PARTY TRANSACTIONS (CONTINUED)

     b.   Summary of related party balance

                                                                                    As of            As of
                                                                                 June 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 collateralized by personal guarantee
                 of adirector
               Mr. Liu Yu                                                             991             --
                                                                             ============     ============
</TABLE>
               Note:
               -----

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














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

<PAGE>

Item 2.   Managements' Discussion and Analysis or Plan 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
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").

<PAGE>

     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. Xelent is
planning  to  introduce  into the market a series of  advanced  cellular  phones
incorporating the new 3G technology by the end of calendar year 2006.

BUSINESS REVIEW

     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.

     By the second  quarter of 2006,  most of the domestic  PRC  cellular  phone
manufacturers had adjusted to the increased competition by improving the quality
of the  products  and  accelerating  the  pace of new  product  rollouts.  These
manufacturers  are creating better  efficiency by introducing  products designed

<PAGE>

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.

     It is anticipated that both the domestic and multinational  cellular phones
manufacturers  will begin to launch  their own 3G mobile  products  into the PRC
market  by the end of 2006.  We have  commenced  the  development  of our own 3G
cellular  phone  products,  which are based in part on our 2G and 2.5G  cellular
technologies and our 3G solutions provided to chip providers for TDS-CDMA, WCDMA
and CDMA2000 technologies.  These products will include a 3G PCBA (which is a 3G
technologies  development  platform)  and 3G cellular  phone  incorporating  the
technology in the 3G PCBA. We expect to introduce  these  products by the end of
2006. We are planning to join the TDS-CDMA  Industry League later in 2006, which
is expected to increase the chances of our receiving a 3G manufacturer's license
from the PRC government in 2007.

     Due to the  changes  in the  Chinese  Wireless  market,  we  adopted  a new
strategy in the first half of 2006 to directly  develop  products for the mobile
telephone carriers in China. Because of the requirements of the mobile telephone
carriers,  this resulted in the expansion in the sales volume of CDMA  products.
In the second quarter,  our sales grew 80% as compared to the first quarter.  In
the second quarter, our mid-level and low-end products,  with the functions such
as MP3,  MEPG4,  camera and support outer storage card strongly  influenced  the
cellular  phone market in the PRC.  Demand for our cellular  phone  products has
increased as a result of the correct  positioning of our products for the market
as will as the overall  reduction  in the GSM  charges of PRC  telecommunication
providers,  which  caused  an  increase  in the  number  of new  cellular  phone
subscribers.

     In the oversea  market,  domestic PRC cellular phone  manufacturers  have a
significant  competitive  advantage.  Our  investment in R&D is beginning to pay
off.  In  addition,  as the  cellular  phone  industry  matures,  our supply and
production chain has become more efficient.  As a result of low production costs
in the PRC,  quick response to changing  market  conditions and better price and
quality,  the domestic PRC cellular phone products are at a competitive  edge in
the international  market,  particularly in South Asia,  Africa, the Middle East
and South  America.  50% of our  revenues  in the  second  quarter  of 2006 were
generated from the overseas customers and were a significant contribution to our
growth in the revenues in the quarter.














<PAGE>
<TABLE>
<CAPTION>

     The following  table  summarizes  our  operation  result for the six months
ended June 30, 2006 and 2005, respectively:

---------------------------- --------------------------- --------------------------- ----------------------
                              Six months ended June 30,   Six months ended June 30,        Comparison
                                          2006                        2005
---------------------------- --------------------------- --------------------------- ----------------------
<S>                          <C>                         <C>                          <C>
                                $' 000     % of revenue     $' 000     % of revenue      $'000           %
---------------------------- ---------- ---------------- ---------- ---------------- ---------- -----------
Revenues                        25,376          100.00%      3,440        100.00%ii     21,936     637.67%
---------------------------- ---------- ---------------- ---------- ---------------- ---------- -----------
Cost of sales                   21,163           83.40%      2,899           84.27%     18,264     630.01%
---------------------------- ---------- ---------------- ---------- ---------------- ---------- -----------
Sales & Marketing expenses         786            3.10%        701           20.38%         85      12.13%
---------------------------- ---------- ---------------- ---------- ---------------- ---------- -----------
General & Admin expenses           689            2.72%        569           16.54%        120      21.09%
---------------------------- ---------- ---------------- ---------- ---------------- ---------- -----------
R&D expenses                       147            0.58%        142            4.13%          5       3.52%
---------------------------- ---------- ---------------- ---------- ---------------- ---------- -----------
Depreciation & Amortization        125            0.49%         75            2.18%         50      66.67%
---------------------------- ---------- ---------------- ---------- ---------------- ---------- -----------
Interest expenses                   29            0.11%         25            0.73%          4      16.00%
---------------------------- ---------- ---------------- ---------- ---------------- ---------- -----------
Other income, net                    5            0.02%        452           13.14%       -447     -98.89%
---------------------------- ---------- ---------------- ---------- ---------------- ---------- -----------
Income (loss) before tax         2,442            9.62%      (519)          -15.09%      2,961     570.52%
---------------------------- ---------- ---------------- ---------- ---------------- ---------- -----------
Income taxes                       160            0.63%          0            0.00%        160       0.00%
---------------------------- ---------- ---------------- ---------- ---------------- ---------- -----------
Net income (loss)                2,282            8.99%      (519)          -15.09%      2,801     539.69%
---------------------------- ---------- ---------------- ---------- ---------------- ---------- -----------


     The following  table  summarizes our operation  result for the Three months
ended June 30, 2006 and 2005, respectively:

---------------------------- --------------------------- --------------------------- ----------------------
                             Three months ended June 30, Three months ended June 30,       Comparison
                                         2006                        2005
---------------------------- --------------------------- --------------------------- ----------------------
                                $' 000     % of revenue     $' 000     % of revenue      $'000           %
---------------------------- ---------- ---------------- ---------- ---------------- ---------- -----------
Revenues                        17,009          100.00%      1,940          100.00%     15,069     776.75%
---------------------------- ---------- ---------------- ---------- ---------------- ---------- -----------
Cost of sales                   14,670           86.25%      1,711           88.20%     12,959     757.39%
---------------------------- ---------- ---------------- ---------- ---------------- ---------- -----------
Sales & Marketing expenses         342            2.02%        407           20.98%        -65     -15.97%
---------------------------- ---------- ---------------- ---------- ---------------- ---------- -----------
General & Admin expenses           500            2.94%        307           15.82%        193      62.87%
---------------------------- ---------- ---------------- ---------- ---------------- ---------- -----------
R&D expenses                        66            0.39%        108            5.57%        -42     -38.89%
---------------------------- ---------- ---------------- ---------- ---------------- ---------- -----------
Depreciation & Amortization        100            0.59%         49            2.53%         51     104.08%
---------------------------- ---------- ---------------- ---------- ---------------- ---------- -----------
Interest expenses                   29            0.17%          4            0.21%         25     625.00%
---------------------------- ---------- ---------------- ---------- ---------------- ---------- -----------
Other income, net                    3            0.02%        122            6.29%       -119     -97.54%
---------------------------- ---------- ---------------- ---------- ---------------- ---------- -----------
Income (loss) before tax         1,305            7.67%      (524)           27.01%      1,829     349.05%
---------------------------- ---------- ---------------- ---------- ---------------- ---------- -----------
Income taxes                       160            0.94%                       0.00%        160       0.00%
---------------------------- ---------- ---------------- ---------- ---------------- ---------- -----------
Net income (loss)                1,145            6.73%      (524)          -27.01%      1,669     318.51%
---------------------------- ---------- ---------------- ---------- ---------------- ---------- -----------
</TABLE>


<PAGE>

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.

RESULTS OF OPERATION

Revenues

     Our  revenues  were  $25,376,000  for the six months  ended June 30,  2006,
representing a sharp increase of 637.67% as compared to the same period in 2005,
and $17,009,000 for the three months ended June 2006, represent a sharp increase
of  776.75%  as  compared  to the same  period in 2005.  After  going  through a
reformation  environment  in the cellular phone market in the first half year of
2005, we adjusted our business model, our market position and strategy, improved
our  technologies  and the  quality  of  products,  in  terms  of  function  and
appearance.  We believe  that we are not in a much better  position to deal with
the rapidly changing and competitive market for cellular phone products and that
we are better prepared to take advantage of a rejuvenated  cellular phone market
which  has  resulted   from  the   reduction  in  the  monthly  fee  charged  by
telecommunication providers in this quarter.

     Our  mid-level  and  low-end  products  come  with a number  of  attractive
features,  such as MP3,  MPEG4,  video  recording  and outer  card  storage.  In
addition to those features,  our high-end  products contain 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
seem to be just what the market wants at this time.

     We are finding  success in developing the overseas  market for our cellular
phone products.  This is evidenced by the fact that 50% of our total revenues in
the second quarter of 2006 were attributable to our overseas market,  and 32% of
our total revenues in the first half of 2006.




<PAGE>

Products Segment
----------------

----------------------------- --------------------------------------------------
                                        Six months ended June 30, 2006
                              --------------------------------------------------
                                         $'000                 % of revenue
----------------------------- --------------------------- ----------------------
X5                                       6,157                    24.26%
----------------------------- --------------------------- ----------------------
TDA6028                                  2,250                    8.87%
----------------------------- --------------------------- ----------------------
X188 (9900)                              2,504                    9.87%
----------------------------- --------------------------- ----------------------
X5+                                      2,011                    7.93%
----------------------------- --------------------------- ----------------------
X3                                       1,800                    7.09%
----------------------------- --------------------------- ----------------------
C100                                     1,887                    7.43%
----------------------------- --------------------------- ----------------------
C109                                     2,446                    9.64%
----------------------------- --------------------------- ----------------------
X718                                     1,667                    6.57%
----------------------------- --------------------------- ----------------------
Others                                   4,654                   18.34%
----------------------------- --------------------------- ----------------------

     The total revenues for the first half of 2006 amounted to  $25,376,000,  of
which  the  sale  of GSM  products  in the  first  half of  2006  accounted  for
$18,794,000,  or  74.06%,  of our total  income.  A large  part of the  revenues
generated  during the second quarter of 2006 were  attributable to the reduction
in the  monthly fee charged by the PRC  telecommunications  providers  and sales
orders  generated  by  overseas   customers.   The  GSM  products   included  X5
($6,157,000),  X188  ($2,504,000),  X5+  (2,011,000),  X3 ($1,887,000)  and X718
($1,667,000). The sales of CDMA products accounted for $6,582,000, or 25.94%, of
total  revenues.  The CDMA products was mainly sold in the first quarter of this
year, which included C109 ($2,446,000), TDA6028 ($2,250,000), C100 ($1,887,000).

     All of our products are purchased from three suppliers, namely Tian Feng Ju
Yuan  Technology  Company  Limited,  Fu Song  Technology &  Development  Company
Limited and China Electronic Apparatus Company. The trading products included X5
(ultra thin with MP3, MP4,  Camera,  T-Flash Card),  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). Additionally, the CDMA products C100 and C109 were developed
through the cooperation with Dalian Daxian Communication Company Limited.  Sales
of CDMA products in the second quarter of 2006 generated  revenues of $1,374,000
as compared with no sales of CDMA products in the second quarter of 2005.

     The  increase  of the  revenue  is  attributed  to: (1 ) the  launch of our
ultra-thin, slim bar models which are currently in demand by the market; (2) our
continuing  development  of overseas  customers with domestic PRC cellular phone
products  with  reasonable  quality  and low  costs;  and (3) a wide  variety of
cellular phone products that meet different levels consumer demands.




<PAGE>

Customers Segment
-----------------

------------------------------------------------- ------------------------------
                                                  Six months ended June 30, 2006
                                                  ------------------------------
                                                     $'000       % of revenue
------------------------------------------------- ----------- ------------------
Beijing Xingwang Shidai Tech & Trading Co., Ltd.     8,795          34.66%
------------------------------------------------- ----------- ------------------
CEC Cellular Limited                                 8,265          32.57%
------------------------------------------------- ----------- ------------------
Singapore ST                                         6,124          24.13%
------------------------------------------------- ----------- ------------------
Singapore CEO                                        2,000           7.88%
------------------------------------------------- ----------- ------------------

     Our revenues were primarily derived from two major domestic customers.  For
the six months ended June 30, 2006, our revenues generated from Beijing Xingwang
Shidai Tech & Trading Co., Ltd.  ("XWSD") and CEC Cellular Limited ("CECM") were
$8,795,000 and  $8,265,000,  respectively.  These two major  domestic  customers
aggregated to account for $17,060,000,  or 67.23%,  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.  Due to an  outstanding
balance of Hebei Mascot  Communication  Equipment Co., Ltd  ("MASCOT")  over our
credit limit, we have terminated the business with MASCOT until the repayment of
the  outstanding  balance.  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  attributed  from these two
companies were $8,124,000,  or 32.01%, of the total revenue. Although the profit
margin of the overseas  sales are generally  lower than the domestic  sales,  we
still believe the development of overseas customers is necessary for our further
development  in order to broaden  our  customer  base.  We  anticipate  that our
overseas  business will continue to develop  steadily in the future,  especially
since our products have a competitive advantage in term of quality and price..

Other net income

     For the six months  ended June 30,  2006,  other net income was $5,000,  or
0.02%,  of the total  revenue.  This  constituted  a 98.89%  reduction  from the
$452,000 of other net income in the same period of last year, this reduction was
attributable  to the fact that no toll free income was earned  from  cooperative
partners  in 2006  because  our  cooperative  partners  changed  their toll free
policy.

Operating expenses

     For the six months ended June 30, 2006, our operating expenses amounting to
$22,910,000,  which was and increase of 422.34% as compared with the same period
in 2005. This increase was mainly due to the substantial increase in revenue for
the  period.  A  proportional  amount of the costs we  incurred  related  to the
increase in revenue.  The operating expenses mainly includes sales and marketing
expenses,   general  and  administrative   expenses  and  R  &  D  expenses  and
depreciation were shown as follows:




<PAGE>
<TABLE>
<CAPTION>

------------------------ --------------------------- -------------------------- ----------------------
                          Six months ended June 30,   Six months ended June 30,       Comparison
                                     2006                        2005
------------------------ --------------------------- -------------------------- ----------------------
<S>                      <C>                         <C>                        <C>
                             $'000     % of revenue     $'000     % of revenue      $'000           %
------------------------ ---------- ---------------- --------- ---------------- ---------- -----------
Cost of sales               21,163           83.40%     2,899           84.27%     18,264     630.01%
------------------------ ---------- ---------------- --------- ---------------- ---------- -----------
Sales & marketing exp.         786            3.10%       701           20.38%         85      12.13%
------------------------ ---------- ---------------- --------- ---------------- ---------- -----------
General & admin. exp.          689            2.71%       569           16.54%        120      21.09%
------------------------ ---------- ---------------- --------- ---------------- ---------- -----------
R&D                            147            0.58%       142            4.13%          5       3.52%
------------------------ ---------- ---------------- --------- ---------------- ---------- -----------
Depreciation                   125            0.49%        75            2.18%         50      66.67%
------------------------ ---------- ---------------- --------- ---------------- ---------- -----------
Total                       22,910               ii     4,386               ii     18,524     422.34%
------------------------ ---------- ---------------- --------- ---------------- ---------- -----------

     For the three months ended June 30, 2006, the operating  expenses increased
507.20%,  caused by the  substantial  increase  in  revenue,  as compared to the
second quarter of 2005.

------------------------- --------------------------- --------------------------- ----------------------
                          Three months ended June 30, Three months ended June 30,       Comparison
                                      2006                        2005
------------------------- --------------------------- --------------------------- ----------------------
                              $'000     % of revenue      $'000     % of revenue      $'000           %
------------------------- ---------- ---------------- ---------- ---------------- ---------- -----------
Cost of sales                14,670           86.25%      1,711           88.20%     12,959     757.39%
------------------------- ---------- ---------------- ---------- ---------------- ---------- -----------
Sales & marketing. exp.         342            2.01%        407           20.98%        -65     -15.97%
------------------------- ---------- ---------------- ---------- ---------------- ---------- -----------
General & admin. exp.           500            2.94%        307           15.82%        193      62.87%
------------------------- ---------- ---------------- ---------- ---------------- ---------- -----------
R&D                              66            0.39%        108            5.57%        -42     -38.89%
------------------------- ---------- ---------------- ---------- ---------------- ---------- -----------
Depreciation                    100            0.59%         49            2.53%         51     104.08%
------------------------- ---------- ---------------- ---------- ---------------- ---------- -----------
Total                        15,678                       2,582                      13,096     507.20%
------------------------- ---------- ---------------- ---------- ---------------- ---------- -----------
</TABLE>

Cost of sales
-------------

     For the six months ended June 30, 2006, our cost of sales was  $21,163,000,
or 83.40%, of revenue.  When compared to 84.27% for the corresponding  period in
2005,  this was a decrease of 0.87%.  For the three  months ended June 30, 2006,
our cost of sales increased to $14,670,000 from $1,711,000 in the second quarter
of 2005.  In the second  quarter of this year,  there was a  provision  for slow
moving  stock  amounting to  $142,000.  Other than the factor of  provision  for
stock,  the percentage of cost of sales to total  revenues  dropped to 85.41% in
the second quarter of 2006, which amounted to a 7.81% increase when comparing to
77.60%  in the  first  quarter  of  2006.  The  increase  in Cost of  Sales as a
percentage for the comparable period was caused by an increase in overseas sales
which carry smaller or lower margins as compared to our domestic  Chinese sales.
This is caused  because  overseas  sales have no after  market  sale or warranty
service provisions.

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 six months ended June 30, 2006,  sales and marketing  expenses were
$786,000,  or 3.10%, of the total revenues,  as compared to $701,000, or 20.38%,
of total revenues for the corresponding  period in 2005, the sales and marketing
expenses  had an  increase  of 12.13% for the six months  ended June 2006.  This

<PAGE>

constituted  a decrease  of 17.28% as compared  to the  corresponding  period in
2005.  This  decrease  was due to the sharp  increase  in our total  revenues of
637.67%.  A large portion of sales and marketing  expenses were fixed  expenses,
such as payments made to sales personnel, which did not fluctuate in relation to
our  revenues.  For the three months ended June 30,  2006,  sales and  marketing
expenses were reduced to $342,000 from $407,000, representing a 15.97% decrease.
In the second quarter of 2006, we laid off some  redundant  staff as a result of
the changes in our business  strategies.  The  reduction in the payments made to
personnel was slightly offset by increased  marketing  expenses for the overseas
sales incurred in the second quarter of 2006.

R&D expenses
------------

     Our R&D  expenses  were  $147,000  for the six months  ended June 30, 2006,
which  represents  0.58% of total  revenue as compared  with  $142,000 and 4.13%
respectively  in the same  period  of  2005.  This  decrease  of 3.52% is due in
substantial  part to an  increase in our sales  revenues in 2006.  In fact there
have been no material  changes in the total amount of the R&D expenses  incurred
in both 2006 and 2005.

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 three  months  ended  June 30,  2006,  general  and  administrative
expenses  increased to $500,000  from  $307,000 in the same period of last year.
Included in general and  administrative  expenses in the second quarter of 2006,
was a provision for doubtful  accounts  amounting to $310,000,  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 $190,000,  which  represented a 38.11% 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 six months ended June 30, 2006, general and administrative expenses
were $689,000,  or 2.72%, of total revenues, as compared to $569,000, or 16.54%,
of  total  revenues  for  the   corresponding   period  in  2005.   General  and
administrative  expenses  increased by $120,000 due mainly to the  provision for
doubtful accounts amounting to $310,000.  If the provision for doubtful accounts
is excluded, the ordinary general and administrative  expenses were $379,000, or
a decrease of 33.39% as compared  to the same  period in 2005.  This  decline in
expenses was mainly due to personnel layoffs.

Gross profit and gross profit margin

     For the three months ended June 30, 2006, our gross profit was  $2,339,000,
which  represented  an 900% increase as compared to the gross profit of $229,000
in the same period in 2005.  Our gross profit  margin for the  reporting  period
increased  from 11.80% in 2005 to 13.75% in 2006.  Included in the cost of sales
in 2006 was a provision  for slowing  moving  inventory  amounting  to $142,000.
Other than the factors of provision for slow moving inventory,  the gross profit

<PAGE>

margin would have been 14.59% in the second  quarter of 2006. For the six months
ended June 30,  2006,  our gross  profit was  $4,213,000,  representing  an 700%
increase as compared  to $541,000 in the same period in 2005.  Our gross  profit
margin  for the first  half of 2006  increased  to 16.60%  from  15.73% in 2005.
Except for the provision  for slowing  moving stock  amounting to $142,000,  the
gross  profit  margin  would have been  17.16% in the first  half of 2006.  This
slight  increase in the gross  profit  margin was caused by  economies  of scale
because  of the large  increase  in revenue  and cost of sales.  We were able to
create  efficiencies and to decrease  component costs with suppliers  because of
the  large  increases  in  purchases  to meet the  increased  demand  in 2006 as
compared to 2005.

     Except for the effect of the provision for slow moving inventory, the gross
profit margin would have been 14.59% in the second  quarter of 2006, as compared
to  22.40% in the first  quarter  of 2006,  representing  a 7.81%  decline.  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 more than 50% of the total sales in the second
     quarter 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,  Also,  there  is no more  after  sales  and
     warranty  service  meaning the margin of the overseas  sales  generally was
     lower than domestic sales;

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;
     and

3.   More low-end  products at low gross profit margin were sold out in domestic
     market.

Net income

     For the three months ended June 30, 2006, our net income was $1,145,000, as
compared  with net loss of  $524,000  in the same  period  of 2005.  For the six
months ended June 30, 2006, our net income was $2,282,000,  or 8.99%, of revenue
as compared  with a net loss of $519,000 for the  corresponding  period in 2005.
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. In the second quarter of 2006,  provisions  for doubtful  accounts
and slow moving  inventory  amounted to  $452,000 in the  aggregate.  Except for
these provisions,  our ordinary net income was 2,734,000,  or 10.77%, of the net
income for the six months period and 1,597,000,  or 9.39%,  of net income in the
second  quarter  of 2006.  The  growth of sales and the  development  in oversea
customers played an important part in the increase in our net income.

     Although  our net income has  increased  in this  quarter,  the increase is
still slightly below our expectation.  The reason, even excluding the provisions
to doubtful debts and  inventories  amounting to $452,000 in the  aggregate,  is
mainly due to the increase in marketing expenses incurred in connection with the
development of our overseas marketing  operation in this quarter. We believe the
development  of an overseas  market will be beneficial to us in long-term and we
expect that marketing  expenses incurred in developing that market will continue
to increase during the remainder of 2006.

     We expect that the  competition in the cellular phone market will be remain
intense in the PRC for the foreseeable furture.  Fortunately, as a result in the

<PAGE>

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 June 30, 2006, we had current assets of  $32,620,000.  Current assets
are  mainly  comprised  of  inventory  of  $3,674,000,  accounts  receivable  of
$20,141,000,  trade  deposits and other  receivables  aggregated of  $8,054,000,
other current assets of $402,000, and restricted cash, cash and cash equivalents
of $349,000. Current liabilities included accounts payable of $9,958,000,  trade
deposit received of $260,000,  other accrued expenses and accrued liabilities of
$2,943,000,  short-term  bank loan of  $2,477,000,  amounts due to  directors of
$320,000, provision for warranty of $66,000 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 90 days.  As of June 30,  2006,  our
accounts  receivable  was  $17,009,000  and  grew  to  67.37%,  as  compared  to
$12,034,000  as of  December  31,  2005,  which was  caused  by the  substantial
increase  in revenue  for the  comparable  period.  As of June 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 June 30,  2006,  our  inventories  were  $3,674,000,  representing  a
decrease of 17.62%,  as  compared to  $4,460,000  as of December  31,  2005.This
decrease was due in large part to our use of old materials during the production
of our older models, particularly in the overseas market. In addition, our newly
developed  products do not require us to carry  larger  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. A
total of  $518,000  was made in the first half of 2006 as a  provision  for slow
moving inventory, of which $142,000 was made in the second quarter of 2006.











<PAGE>

     As of June 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 Renminbi,  any further possible inflation
of Renminbi 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 June 30, 2006, we have the cash and cash  equivalents  of $349,000 as
compared to  $2,974,000  as of December  31,  2005,  representing  a decrease of
$2,625,000, or 88.26%. This decrease is mainly due to $8,107,000 increase in the
account  receivables  resulting  from the growth in the  revenues  in the second
quarter of 2006. Additional current capital will be required for the development
of new business, such as overseas customers.

     Our gearing ratio,  calculated as total debts over total assets, was 48.48%
as of June 30, 2006, as compared to 51.83% as of December 31, 2005.

CONTINGENT LIABILITIES

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














<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 June 30, 2006, reported by maturity of obligation.


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

Long-term Debt Obligations
                                                   2,477      2,477       --         --         --
Capital Lease Obligations
                                                    --         --         --         --         --
Operating Lease Obligations
                                                      42         37          5       --         --
Purchase Obligations
                                                     124        124                  --         --
Other long-term liabilities reflected on the
   registrant's balance sheet under GAAP            --         --         --         --         --
                                               ---------  ---------  ---------  ---------  ---------

Total
                                                   2,643      2,638          5       --         --
                                               =========  =========  =========  =========  =========
</TABLE>















<PAGE>

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,

<PAGE>

expenses,  gains and losses are  translated  at the  weighted  average  rates of
exchange prevailing during the period.

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

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.

<PAGE>

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

     None

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).














<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:  August 21, 2006



















<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
               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). *

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