##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 20-F
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
 OR
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For
the transition period fromto
 Commission
file number 0-29946
 OR
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 Date of event requiring this shell company report
 QIAO XING UNIVERSAL TELEPHONE, INC.
  QIAO XING UNIVERSAL TELEPHONE, INC.
  British Virgin Islands
 (Jurisdiction of incorporation or organization)
 Qiao Xing Science Industrial Park
Tang Quan
Huizhou City, Guangdong,
Peoples Republic of China 516023  (Address of principal executive offices)
 Aijun Jiang, CFO
011-86-752-2820-268 (telephone)  jiangaijun@qiaoxing.com.hk (email)
011-86-752-2820-268 (facsimile)
 Qiao Xing Science Industrial Park
Tang Quan
 Huizhou City, Guangdong,  Peoples Republic of China 516023
  Title of each
    
    Name of each exchangeclass
    
    on which registeredUS$.001 Par Value Common Stock
    
    NASDAQ(Common Stock)
  (Title of Class)
  (Title of Class)
    o þ
  o þ
  þ o
  o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  þ
 o   o
  o
 o
  o þ




---



TABLE OF CONTENTS  SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTSPART IITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLEITEM 3.KEY INFORMATIONITEM 4.INFORMATION ON THE COMPANYITEM 4A.UNRESOLVED STAFF COMMENTSITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTSITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSITEM 8. FINANCIAL INFORMATIONITEM 9. THE OFFER AND LISTINGITEM 10. ADDITIONAL INFORMATIONITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESPART IIITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDSITEM 15. CONTROLS AND PROCEDURESITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERTITEM 16B. CODE OF ETHICSITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICESITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSITEM 16F. CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANTITEM 16G. CORPORATE GOVERNANCEPART IIIITEM 17. FINANCIAL STATEMENTSITEM 18. FINANCIAL STATEMENTSITEM 19. EXHIBITSSIGNATURESINDEX TO EXHIBITSMemorandum of Association of the Company, as amended on January 9, 2009List of Significant Subsidiaries of the CompanyCertification of CEO Pursuant to Rule 13a-14(a)Certification of CFO Pursuant to Rule 13a-14(a)Certification of CEO Pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350Certification of CFO Pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350Consent of Grobstein, Horwath & Company LLPConsent of Crowe Horwath LLP    Table of Contents  
 SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS
   
    
    dependence upon certain customers
    
    dependence on key personnel
    
    control by principal shareholder
    
    competitive factors
    
    the operation of our business
    
    general economic conditions
    1




---



##### Table of Contents



PART I
 
 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
  
 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
  
 ITEM 3. KEY INFORMATION
 A. SELECTED FINANCIAL DATA.
  2004
    
    2005
    
    2006
    
    2007
    
    2008Rmb000
    
    Rmb000
    
    Rmb000
    
    Rmb000
    
    Rmb000
    
    US$000Net sales
    
    
    1,720,389
    
    
    
    2,635,184
    
    
    
    3,221,212
    
    
    
    3,874,107
    
    
    
    2,594,948
    
    
    
    380,352Cost of goods sold
    
    
    (1,497,177
    )
    
    
    (2,156,798
    )
    
    
    (2,651,392
    )
    
    
    (2,898,964
    )
    
    
    (1,719,024
    )
    
    
    (251,964
    )Gross profit
    
    
    223,212
    
    
    
    478,386
    
    
    
    569,820
    
    
    
    975,143
    
    
    
    875,924
    
    
    
    128,388Operating expenses:Selling expenses
    
    
    (29,065
    )
    
    
    (24,726
    )
    
    
    (28,401
    )
    
    
    (59,820
    )
    
    
    (156,985
    )
    
    
    (23,010
    )General and
administrative expensesIncluding stock-based
compensation
    
    
    (90,554
    )
    
    
    (55,341
    )
    
    
    (126,076
    )
    
    
    (131,074
    )
    
    
    (338,751
    )
    
    
    (49,652
    )Research and development
    
    
    (18,378
    )
    
    
    (20,694
    )
    
    
    (30,747
    )
    
    
    (34,452
    )
    
    
    (44,000
    )
    
    
    (6,449
    )In process research and
development
    
    
    
    
    
    
    
    
    
    
    (41,739
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of acquired
intangible assets
    
    
    (11,880
    )
    
    
    (11,880
    )
    
    
    (15,178
    )
    
    
    (32,280
    )
    
    
    (11,727
    )
    
    
    (1,719
    )Impairment of acquired
intangible asset
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,235
    )
    
    
    (3,845
    )Income from operations
    
    
    73,335
    
    
    
    365,745
    
    
    
    327,679
    
    
    
    717,517
    
    
    
    298,226
    
    
    
    43,713
 2




---



##### Table of Contents



2004
    
    2005
    
    2006
    
    2007
    
    2008Rmb000
    
    Rmb000
    
    Rmb000
    
    Rmb000
    
    Rmb000
    
    US$000Interest income
    
    
    492
    
    
    
    7,130
    
    
    
    8,108
    
    
    
    42,127
    
    
    
    71,026
    
    
    
    10,411Exchange gain (loss), net
    
    
    
    
    
    
    (2,659
    )
    
    
    3,225
    
    
    
    28,255
    
    
    
    (5,355
    )
    
    
    (785
    )Interest expense
    
    
    (27,060
    )
    
    
    (41,752
    )
    
    
    (100,432
    )
    
    
    (248,014
    )
    
    
    (341,624
    )
    
    
    (50,073
    )(Loss) gain on
re-measurement of
embedded derivatives
    
    
    
    
    
    
    
    
    
    
    (134,439
    )
    
    
    (129,084
    )
    
    
    160,036
    
    
    
    23,457Loss on extinguishment
of convertible debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (142,090
    )
    
    
    (10,634
    )
    
    
    (1,559
    )Gain on disposal of
interests in
subsidiaries
    
    
    
    
    
    
    10,307
    
    
    
    
    
    
    
    482,614
    
    
    
    2,269
    
    
    
    333Gain on sale of equity
investee
    
    
    11,397
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gain on issue/repurchase
of stocks by subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    383,965
    
    
    
    4,351
    
    
    
    638Provision for litigation
settlement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,319
    )
    
    
    
    
    
    
    Impairment of investment
at cost
    
    
    
    
    
    
    (7,348
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other income (loss), net
    
    
    1,597
    
    
    
    640
    
    
    
    4,453
    
    
    
    59,055
    
    
    
    (6,497
    )
    
    
    (952
    )Income before income tax
    
    
    59,761
    
    
    
    332,063
    
    
    
    108,594
    
    
    
    1,179,026
    
    
    
    171,798
    
    
    
    25,183Provision for income tax
    
    
    (7,397
    )
    
    
    (25,486
    )
    
    
    (58,192
    )
    
    
    (124,120
    )
    
    
    (164,187
    )
    
    
    (24,066
    )Income before minority
interests
    
    
    52,364
    
    
    
    306,577
    
    
    
    50,402
    
    
    
    1,054,906
    
    
    
    7,611
    
    
    
    1,117Minority interests
    
    
    (51,903
    )
    
    
    (99,270
    )
    
    
    (84,473
    )
    
    
    (168,554
    )
    
    
    (144,405
    )
    
    
    (21,166
    )Equity in earnings of
equity investees
    
    
    955
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss) before extraordinary gain
    
    
    1,416
    
    
    
    207,307
    
    
    
    (34,071
    )
    
    
    886,352
    
    
    
    (136,794
    )
    
    
    (20,049
    )Extraordinary gain on
acquisition of minority
interests
    
    
    
    
    
    
    37,592
    
    
    
    14,237
    
    
    
    17,596
    
    
    
    
    
    
    
    Net Income (Loss)
    
    
    1,416
    
    
    
    244,899
    
    
    
    (19,834
    )
    
    
    903,948
    
    
    
    (136,794
    )
    
    
    (20,049
    )Translation adjustments
    
    
    70
    
    
    
    1,821
    
    
    
    7,203
    
    
    
    (50,106
    )
    
    
    (33,815
    )
    
    
    (4,956
    )Comprehensive income
(loss)
    
    
    1,486
    
    
    
    246,720
    
    
    
    (12,631
    )
    
    
    853,842
    
    
    
    (170,609
    )
    
    
    (25,005
    )Basic earnings (loss)
per common shareBefore extraordinary gain
    
    
    0.09
    
    
    
    11.32
    
    
    
    (1.44
    )
    
    
    24.46
    
    
    
    (4.42
    )
    
    
    (0.65
    )Extraordinary gain
    
    
    
    
    
    
    2.05
    
    
    
    0.60
    
    
    
    0.49
    
    
    
    
    
    
    
    After extraordinary gain
    
    
    0.09
    
    
    
    13.37
    
    
    
    (0.84
    )
    
    
    24.95
    
    
    
    (4.42
    )
    
    
    (0.65
    )
 3




---



##### Table of Contents



2004
    
    2005
    
    2006
    
    2007
    
    2008Rmb000
    
    Rmb000
    
    Rmb000
    
    Rmb000
    
    Rmb000
    
    US$000Diluted earnings (loss)
per common shareBefore extraordinary gain
    
    
    0.09
    
    
    
    11.32
    
    
    
    (2.03
    )
    
    
    24.17
    
    
    
    (5.89
    )
    
    
    (0.86
    )Extraordinary gain
    
    
    
    
    
    
    2.05
    
    
    
    0.59
    
    
    
    0.48
    
    
    
    
    
    
    
    After extraordinary gain
    
    
    0.09
    
    
    
    13.37
    
    
    
    (1.44
    )
    
    
    24.65
    
    
    
    (5.89
    )
    
    
    (0.86
    )Weighted average number
of shares outstanding- Basic (2)
    
    
    16,443,000
    
    
    
    18,319,000
    
    
    
    23,712,000
    
    
    
    29,836,000
    
    
    
    30,949,000
    
    
    
    30,949,000- Diluted (2)
    
    
    16,560,000
    
    
    
    18,320,000
    
    
    
    24,016,000
    
    
    
    30,200,000
    
    
    
    30,949,000
    
    
    
    30,949,000
 2004
    
    2005
    
    2006
    
    2007
    
    2008Rmb000
    
    Rmb000
    
    Rmb000
    
    Rmb000
    
    Rmb000
    
    US$000Balance Sheet DataCash and bank deposits
    
    
    140,890
    
    
    
    391,660
    
    
    
    1,096,477
    
    
    
    3,033,010
    
    
    
    3,117,527
    
    
    
    456,948Working capital
    
    
    429,253
    
    
    
    856,839
    
    
    
    1,498,715
    
    
    
    3,946,468
    
    
    
    3,554,311
    
    
    
    520,968Property, machinery and
equipment, net
    
    
    107,162
    
    
    
    52,664
    
    
    
    209,542
    
    
    
    192,601
    
    
    
    183,137
    
    
    
    26,843Construction in progress
    
    
    50,934
    
    
    
    59,105
    
    
    
    60,295
    
    
    
    
    
    
    
    
    
    
    
    Lease prepayments, net
    
    
    178,577
    
    
    
    173,161
    
    
    
    207,206
    
    
    
    36,106
    
    
    
    35,304
    
    
    
    5,175Debt issuance cost, net
    
    
    
    
    
    
    
    
    
    
    31,845
    
    
    
    
    
    
    
    
    
    
    
    Total assets
    
    
    2,042,048
    
    
    
    2,534,547
    
    
    
    4,177,986
    
    
    
    6,378,841
    
    
    
    6,350,479
    
    
    
    930,814Short-term-debts
    
    
    700,186
    
    
    
    754,212
    
    
    
    1,155,290
    
    
    
    1,471,454
    
    
    
    1,500,855
    
    
    
    219,986Long-term-debts
    
    
    10,428
    
    
    
    7,959
    
    
    
    229,784
    
    
    
    196,854
    
    
    
    6,729
    
    
    
    986Total liabilities
    
    
    1,157,693
    
    
    
    1,316,418
    
    
    
    2,192,713
    
    
    
    2,260,956
    
    
    
    2,360,363
    
    
    
    345,967Minority interests (1)
    
    
    242,883
    
    
    
    220,832
    
    
    
    115,224
    
    
    
    1,095,917
    
    
    
    1,008,786
    
    
    
    147,862Shareholders equity
    
    
    641,471
    
    
    
    997,297
    
    
    
    1,870,049
    
    
    
    3,021,968
    
    
    
    2,981,330
    
    
    
    436,985Cash flows dataCash flows from
operating activities
    
    
    (204,036
    )
    
    
    116,682
    
    
    
    (156,840
    )
    
    
    954,654
    
    
    
    (222,889
    )
    
    
    (32,670
    )Cash flows from
investing activities
    
    
    (82,451
    )
    
    
    (3,822
    )
    
    
    (603,009
    )
    
    
    (650,317
    )
    
    
    340,322
    
    
    
    49,882Cash flows from
financing activities
    
    
    304,841
    
    
    
    136,505
    
    
    
    1,465,657
    
    
    
    1,675,920
    
    
    
    (11,557
    )
    
    
    (1,693
    )
 
 (1)
    
    Mr. Rui Lin Wu and Mr. Zhi Yang Wu own minority equity interests in certain
subsidiaries of our company.(2)
    
    Earnings per share is computed by dividing net income for 2004 by 16,443,000 shares, for 2005
by 18,319,000 shares, for 2006 by 23,712,000 shares, for 2007 by 29,836,000 shares and for
2008 by 30,949,000 shares. Diluted earnings per common share is computed by using the
weighted average number of common 4




---



##### Table of Contents



shares outstanding adjusted to include the potentially dilutive effect of outstanding stock
options, warrants and convertible debentures, to the extent such instruments were dilutive
during the period.(3)
    
    Translation of amounts from Renminbi (Rmb) into United States dollars (US$) is
for the convenience of readers and has been made at the noon buying rate in New York City for
cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve
Bank of New York on December 31, 2008 of US$1.00 = Rmb 6.8225. No representation is made that
the Renminbi amounts could have been, or could be, converted into United States dollars at
that rate or at any other rate. Exchange Rate Information
   Noon Buying Rate(1)Calendar Year
    
    Average(2)(Rmb per US$)2004
    
    8.27682005
    
    8.19362006
    
    7.97232007
    
    7.60582008
    
    6.9477
 
 (1)
    
    The noon buying rate in New York for cable transfers payable in foreign currencies as
certified for customs purposes by the Federal Reserve Bank of New York. Since April 1994, the
noon buying rate has been based on the PBOC Rate. As a result, since April 1994, the noon
buying rate and the PBOC Rate have been substantially similar.(2)
    
    Annual averages are calculated from the month-end rates. Calendar Month
    
    High
    
    Low
    
    AverageJanuary 2009
    
    
    6.8403
    
    
    
    6.8225
    
    
    
    6.8360February 2009
    
    
    6.8470
    
    
    
    6.8241
    
    
    
    6.8363March 2009
    
    
    6.8438
    
    
    
    6.8240
    
    
    
    6.8360April 2009
    
    
    6.8361
    
    
    
    6.8180
    
    
    
    6.8306May 2009
    
    
    6.8326
    
    
    
    6.8176
    
    
    
    6.8235June 2009
    
    
    6.8371
    
    
    
    6.8264
    
    
    
    6.8334
   5




---



##### Table of Contents



B. CAPITALIZATION AND INDEBTEDNESS.
  C. REASONS FOR THE OFFER AND USE OF PROCEEDS.
  D. RISK FACTORS
 The current financial crisis and economic downturn may have a material and adverse effect on our
businesses, results of operations and financial condition.
  Our future revenues and operating results are inherently unpredictable, and as a result, we may
fail to meet the expectations of securities analysts or investors, which could cause our stock
price to decline.
  
    
    the current economic environment and other developments in the telecommunications industry;
    
    the mix of our products sold, including inventory items with low product costs;
    
    our ability to control expenses;
    
    fluctuations in demand for and sales of our products, the acceptance of our
products in the marketplace, and the general level of spending in the
telecommunications industry;
    
    our ability to maintain appropriate manufacturing capacity, and particularly to
limit excess capacity commensurate with the volatile demand levels for our products;
    
    our ability to successfully complete a transition to an outsourced
manufacturing model;
    
    the ability of our outsourced manufacturers to timely produce and deliver
subcomponents, and possibly complete products in the quantity and of the quality we
require;
    
    competitive factors, including the introduction of new products and product
enhancements by competitors and potential competitors, pricing pressures, and the
competitive environment in the markets into which we sell our products, including
competitors with substantially greater resources than we have;
    
    our ability to effectively develop, introduce, manufacture, and ship new and
enhanced products in a timely manner without defects;
 6




---



##### Table of Contents




    
    the availability and cost of components for our products;
    
    new product introductions that may result in increased research and development
expenses and sales and marketing expenses that are incurred in one quarter, with
revenues, if any, that are not recognized until a subsequent or later quarter; and
    
    the unpredictability of consumer demand and difficulties in meeting such
demand.
   Our stock price is highly volatile.
  
    
    quarterly variations in our operating results;
    
    significant developments in the businesses of other telecommunications companies;
    
    changes in financial estimates by securities analysts;
    
    changes in market valuations or financial results of telecommunications-related companies;
    
    announcements by us or our competitors of technology innovations, new products,
or significant acquisitions, strategic partnerships or joint ventures;
    
    any deviation from projected growth rates in revenues;
    
    any loss of a major customer or a major customer order;
    
    additions or departures of key management or engineering personnel;
    
    any deviations in our net revenue or in losses from levels expected by securities analysts;
    
    activities of short sellers and risk arbitrageurs;
    
    future sales of our common stock; and
    
    volume fluctuations, which are particularly common among highly volatile
securities of telecommunications-related companies.
  We experience intense competition with respect to our products.
  7




---



##### Table of Contents



We are subject to a concentration of credit risk.
  The economy of China differs from the economies of most countries and creates significant risks.
    Our currency is not freely convertible.
  We may not maintain adequate insurance coverage for damage to our Chinese factories.
  8




---



##### Table of Contents



The discontinuation of the preferential tax treatment currently available to our PRC subsidiary,
CEC Telecom Co., Ltd., could materially adversely affect our results of operations.
    The dividends that our BVI-incorporated investment holding subsidiaries receive from their
subsidiaries in the PRC and our global income may be subject to PRC tax under the new PRC
Enterprise Income Tax Law, which would have a material adverse effect on our results of operations.
In addition, our foreign corporate holders of ordinary shares may be subject to a PRC withholding
tax upon the dividends payable by us and upon gains realized on the sale of our ordinary shares, if
we are classified as a PRC resident enterprise.
   9




---



##### Table of Contents



We depend upon certain key personnel to manage our company.
  We are controlled by one of our shareholders, whose interests may differ from other shareholders.
  Our holding company structure creates restrictions on the payment of dividends.
  As a foreign private issuer, we are not subject to certain rules promulgated by Nasdaq that other
Nasdaq-listed issuers are required to comply with.
  10




---



##### Table of Contents




    
    our independent directors do not hold regularly scheduled meetings in executive
session;
    
    the compensation of our executive officers is not determined by an independent
committee of the board or by the independent members of the board of directors, and our
CEO may be present and participate in the deliberations concerning his compensation;
    
    related party transactions are not required to be reviewed or approved by our
audit committee or other independent body of the board of directors; and
    
    we are not required to solicit shareholder approval of stock plans, including
those in which our officers or directors may participate; stock issuances that will
result in a change in control; the issuance of our stock in related party transactions
or other transactions in which we may issue 20% or more of our outstanding shares; or,
below market issuances of 20% or more of our outstanding shares to any person.
  It may be difficult to serve us with legal process or enforce judgments against us or our
management.
  
    
    judgments of United States courts against us, our directors or our officers
based on the civil liability provisions of the securities laws of the United States or
any state; or
    
    in original actions brought in the British Virgin Islands or China, liabilities
against us or non-residents based upon the securities laws of the United States or any
state.
 Some information about us may be unavailable due to exemptions under the Exchange Act for a foreign
private issuer.
  
    
    the rules under the Exchange Act requiring the filing with the Securities and
Exchange Commission of quarterly reports on Form 10-Q or current reports on Form 8-K;
    
    the provisions of Regulation FD aimed at preventing issuers from making
selective disclosures of material information;
    
    the sections of the Exchange Act regulating the solicitation of proxies,
consents or authorizations in respect of a security registered under the Exchange Act;
and
    
    the sections of the Exchange Act requiring insiders to file public reports of
their stock ownership and trading activities and establishing insider liability for
profits realized from any short-swing trading transaction.
  Since we are a British Virgin Islands company, the rights of our shareholders may be more limited
than those of shareholders of a company organized in the United States.
  11




---



##### Table of Contents



12




---



##### Table of Contents



ITEM 4. INFORMATION ON THE COMPANY
 A. HISTORY AND DEVELOPMENT OF THE COMPANY.
          Sale of US$25,000,000 Senior Convertible Notes
  13




---



##### Table of Contents



Initial Public Offering of QX Mobile Shares And Non-Competition Arrangement
   (i)
    
    making investments in businesses that result in or may result in direct or indirect
competition with QX Mobiles business;
 (ii)
    
    soliciting any business, for itself or for other persons, from any person that has business
relationships with QX Mobile;
 (iii)
    
    soliciting the employment of, or hiring, any officer, directors or employee of QX Mobile;
and
 (iv)
    
    interfering with QX Mobiles business or encouraging other persons to interfere with QX
Mobiles business.
  Recent Development  Acquisition of China Luxuriance Jade Company, Ltd. and commencement of
diversification into the resources industry
   14




---



##### Table of Contents



Recent Development  Purchase of US$30,000,000 of Convertible Notes of QX Mobile
  B. BUSINESS OVERVIEW.
   15




---



##### Table of Contents



16




---



##### Table of Contents



2006
    
    
    2007
    
    
    2008Net sales:
    
    Rmb000
    
    Rmb000
    
    Rmb000Mobile phones
    
    
    2,985,432
    
    
    
    3,636,431
    
    
    
    2,342,754Indoor phones
    
    
    235,780
    
    
    
    237,676
    
    
    
    252,1943,221,212
    
    
    
    3,874,107
    
    
    
    2,594,948
 QX Mobile and Its Subsidiary CECTs Business Overview
      17




---



##### Table of Contents



HZQXCIs Business Operations and Product Range
        (i)
    
    the design and manufacture through sub-contractors of COSUN-branded GSM mobile
phones for its own account;(ii)
    
    the development and marketing of wired and wireless telephones (indoor phones),
including telephones with special functions; and(iii)
    
    the development and sale of internet-related products and other consumer
electronics products.
    18




---



##### Table of Contents



(i)
    
    Little Smart phones with removable cards(ii)
    
    ADSL2. Compared to the first generation of ADSL, The ADSL2 upstream channel
rate and downstream channel rate are much faster(iii)
    
    Home Gateway (residential gateway). The Home Gateway is a device that acts as
a hub between the home environment and the broadband network. Under the control of the
service provider, it simplifies the user experience when utilizing broadband services.(iv)
    
    EasyPay Terminal is a type of payment terminal with common phone functions.
Wherever you are, at home, office or variety marketplace, it can act like a DTMF/FSK
caller ID phone, as well as an advanced electronic payment tool, applied to pay your
bills, query your account, transfer funds between credit or debit cards, etc.EasyPay Terminal is particularly designed for individual users. It could be used as
soon as you connect it to PSTN through a single telephone cable without spending
time on setup or installation. Secondly, it is easy for new users to operate with a
user-friendly interface. Therefore, almost everyone can learn how to use it
rapidly. Thirdly, EasyPay Terminal has high security through binding telephone
numbers, PSAM (Purchase Secure Access Module) with serial numbers of both card and
terminal. Lastly, it is affordable for most people in China and is becoming more
and more popular among individual users.
    Production Management
  Quality Assurance System
  19




---



##### Table of Contents




    
    sampling test method is used to inspect all incoming materials on a sample
basis;
    
    at each stage of production process, quality control inspectors monitor the
production flow and check the quality of the products; and
    
    finished products are checked by quality control staff on a sample basis.
  Sales and Marketing
         20




---



##### Table of Contents



Materials and Components
   Research and Development
   21




---



##### Table of Contents



Competition
  
    
    functions and designs;
    
    performance/cost ratio;
    
    brand name recognition;
    
    distribution capability;
    
    after-sale service;
    
    short lead time in product development;
    
    product quality; and
    
    capability of mass production.
  22




---



##### Table of Contents



23




---



##### Table of Contents



C. ORGANIZATIONAL STRUCTURE AS OF JULY 15, 2009:
 
 24




---



##### Table of Contents



D. PROPERTY, PLANT AND EQUIPMENT.
  
 ITEM 4A. UNRESOLVED STAFF COMMENTS
  25




---



##### Table of Contents



ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
   Fiscal 2008 compared to Fiscal 2007
  -
    
    Decrease of gross profit by Rmb99.2 million (US$14.5 million) mainly due to the decreased net sales;-
    
    Increase of provision for doubtful accounts by Rmb229.8 million (US$33.7 million);-
    
    Increase of interest expense by Rmb93.6 million (US$13.7 million);-
    
    Decrease of gain from disposal of interests in subsidiaries by Rmb480.3 million (US$70.4 million);-
    
    Decrease of gain on issue/repurchase of stocks by subsidiary by Rmb379.6 million (US$55.6 million)
    Year ended December 312008
    
    2007Rmb000
    
    
    %
    
    
    Rmb000
    
    
    %Mobile telephones
    
    
    2,342,754
    
    
    
    90
    
    
    
    3,636,431
    
    
    
    94Indoor telephones
    
    
    252,194
    
    
    
    10
    
    
    
    237,676
    
    
    
    6Total
    
    
    2,594,948
    
    
    
    100
    
    
    
    3,874,107
    
    
    
    100
    26




---



##### Table of Contents



Year ended December 312008
    
    2007Rmb000
    
    
    %
    
    
    Rmb000
    
    
    %Mobile telephones
    
    
    1,496,080
    
    
    
    87
    
    
    
    2,692,678
    
    
    
    93Indoor telephones
    
    
    222,944
    
    
    
    13
    
    
    
    206,286
    
    
    
    7Total
    
    
    1,719,024
    
    
    
    100
    
    
    
    2,898,964
    
    
    
    100
    27




---



##### Table of Contents



Year ended December 312008
    
    2007Rmb000
    
    
    %
    
    
    Rmb000
    
    
    %Mobile telephones
    
    
    846,674
    
    
    
    97
    
    
    
    943,753
    
    
    
    97Indoor telephones
    
    
    29,250
    
    
    
    3
    
    
    
    31,390
    
    
    
    3Total
    
    
    875,924
    
    
    
    100
    
    
    
    975,143
    
    
    
    100
        28




---



##### Table of Contents



29




---



##### Table of Contents



30




---



##### Table of Contents



31




---



##### Table of Contents



.
      32




---



##### Table of Contents



33




---



##### Table of Contents



Fiscal 2007 compared to Fiscal 2006
   Year ended December 312007
    
    2006Rmb000
    
    %
    
    Rmb000
    
    %Mobile telephones
    
    
    3,636,431
    
    
    
    94
    
    
    
    2,985,432
    
    
    
    93Indoor telephones
    
    
    237,676
    
    
    
    6
    
    
    
    235,780
    
    
    
    7Total
    
    
    3,874,107
    
    
    
    100
    
    
    
    3,221,212
    
    
    
    100
        34




---



##### Table of Contents



Year ended December 312007
    
    2006Rmb000
    
    %
    
    Rmb000
    
    %Mobile telephones
    
    
    2,692,678
    
    
    
    93
    
    
    
    2,457,129
    
    
    
    93Indoor telephones
    
    
    206,286
    
    
    
    7
    
    
    
    194,263
    
    
    
    7Total
    
    
    2,898,964
    
    
    
    100
    
    
    
    2,651,392
    
    
    
    100
      Year ended December 312007
    
    2006Rmb000
    
    %
    
    Rmb000
    
    %Mobile telephones
    
    
    943,753
    
    
    
    97
    
    
    
    528,303
    
    
    
    92Indoor telephones
    
    
    31,390
    
    
    
    3
    
    
    
    41,517
    
    
    
    8Total
    
    
    975,143
    
    
    
    100
    
    
    
    569,820
    
    
    
    100
    35




---



##### Table of Contents



36




---



##### Table of Contents



37




---



##### Table of Contents



38




---



##### Table of Contents



Rmb000Deemed proceeds from disposal
    
    
    721,188Less: Share of net assets relating to minority interest disposed of
    
    
    (221,659
    )Less: Goodwill relating to minority interest disposed of
    
    
    (16,915
    )Gain on disposal
    
    
    482,614
    39




---



##### Table of Contents



Rmb000Share of net assets of Qiao Xing Mobile Communication Co., Ltd. after IPO
    
    
    1,315,647Less: Share of net assets of Qiao Xing Mobile Communication Co., Ltd.
before IPO
    
    
    (915,057
    )Increase in share of net assets after IPO
    
    
    400,590Less: Goodwill relating to equity interest deemed disposed of
    
    
    (16,625
    )Gain on deemed disposal
    
    
    383,965
            40




---



##### Table of Contents



41




---



##### Table of Contents




    
    Interest expense relating to the accretion of convertible note discounts of Rmb188.2
million (US$27.6 million) which did not involve any outflow of cash;
    
    Provisions on doubtful debts at amount of Rmb232.8 million (US$34.1 million) which
did not involve any outflow of cash;
    
    Gain on re-measurement of embedded derivatives of Rmb160.0 million (US$23.5
million) which did not involve any inflow of cash;
    
    Increase in accounts and bills receivable of Rmb312.3 million (US$45.8 million);
and
    
    Increase in prepaid expenses of Rmb223.9 million (US$32.8 million).
        42




---



##### Table of Contents



Critical Accounting Policies and Estimates
  Sales recognition
    Trade accounts receivable
  Inventories
   43




---



##### Table of Contents



Product warranties
  Valuation of Long-lived Assets
  Goodwill
   Other acquired intangible assets
    44




---



##### Table of Contents



Depreciation and amortization of long-lived assets
  Stock-based compensation
  45




---



##### Table of Contents



Debt issuance costs and borrowing costs
  Income taxes
     46




---



##### Table of Contents



Recent Accounting Pronouncements
     47




---



##### Table of Contents



48




---



##### Table of Contents



49




---



##### Table of Contents



C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
  Year ended December 31, 2008
    
    Rmb 44,000,000Year ended December 31, 2007
    
    Rmb 34,452,000Year ended December 31, 2006
    
    Rmb 30,747,000
 D. TREND INFORMATION.
  E. OFF-BALANCE SHEET ARRANGEMENTS.
  F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS.
   2008Rmb000
    
    US$000Capital expenditures authorized and contracted for:- Purchase of machinery and equipment
    
    
    130
    
    
    
    19
   50




---



##### Table of Contents



AmountRmb000
    
    US$000For the years ending December 31,- 2009
    
    
    5,697
    
    
    
    835- 2010
    
    
    4,800
    
    
    
    704- 2011
    
    
    705
    
    
    
    103Total
    
    
    11,202
    
    
    
    1,642
       AmountRmb000
    
    US$000For the years ending December 31,- 2009
    
    
    567,678
    
    
    
    83,207Total
    
    
    567,678
    
    
    
    83,207
 51




---



##### Table of Contents



ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 A. DIRECTORS AND SENIOR MANAGEMENT.
  Name
    
    Age
    
    PositionRui Lin Wu
    
    
    57
    
    
    Chairman and Chief Executive OfficerZhi Yang Wu
    
    
    36
    
    
    Vice ChairmanAijun Jiang
    
    
    37
    
    
    Chief Financial OfficerRick Wenjun Xiao
    
    
    38
    
    
    Vice President and SecretaryZe Yun Mu
    
    
    43
    
    
    Non-Executive DirectorEdward Tsai
    
    
    52
    
    
    Non-Executive DirectorYi Hong Zhang
    
    
    67
    
    
    Non-Executive Director
  Mr. Rui Lin Wu
 Mr. Zhi Yang Wu
 Mr. Aijun Jiang
 Mr. Rick Wenjun Xiao
 Mr. Ze Yun Mu
 Dr. Edward Tsai
 52




---



##### Table of Contents



Mr. Yi Hong Zhang
 B. COMPENSATION.
   C. BOARD PRACTICES.
    Audit Committee
  
    
    recommend annually to our board of directors the appointment of our independent
public accountants;
    
    discuss and review the scope and the fees of the prospective annual audit and review
the results with the independent public accountants;
    
    review and approve non-audit services of the independent public accountants;
    
    review compliance with our existing accounting and financial policies;
    
    review the adequacy of our financial organization; and
    
    review our managements procedures and policies relative to the adequacy of our
internal accounting controls and compliance with U.S. federal and state laws relating
to financial reporting.
 53




---



##### Table of Contents



Nominating Committee
  
    
    assess the size and composition of the board of directors in light of our operating
requirements and existing social attitudes and trends;
    
    develop membership qualifications for the board of directors and all board
committees;
    
    monitor compliance with board of director and board committee membership criteria;
    
    review and recommend directors for continued service as required based on our
evolving needs;
    
    coordinate and assist management and the board of directors in recruiting new
members to the board of directors; and
    
    investigate suggestions for candidates for membership on the board of directors and
recommend prospective directors, as required, to provide an appropriate balance of
knowledge, experience and capability on the board of directors, including stockholder
nominations for the board of directors.
 Compensation Committee
  
    
    review and approve corporate goals and objectives relevant to the compensation of
the chief executive officer and other executive officers;
    
    evaluate the chief executive officers performance in light of such goals and
objectives at least annually and communicate the results to the chief executive officer
and the board of directors;
    
    set the chief executive officers compensation levels based on the foregoing
evaluation (including annual salary, bonus, stock options and other direct and indirect
benefits), with ratification by the independent directors of the full board of
directors; and
    
    set the other executive officers compensation levels (including annual salary,
bonus, stock options and other direct and indirect benefits).
 Nasdaq Requirements
   
    
    our independent directors do not hold regularly scheduled meetings in executive
session (Rule 5605(b)(2));
    
    the compensation of our executive officers is not determined by an independent
committee of the board or by the independent members of the board of directors, and our
CEO may be present and participate in the deliberations concerning his compensation
(Rule 5605(d));
    
    related party transactions are not required to be reviewed or approved by our audit
committee or other independent body of the board of directors (Rule 5630); and
    
    we are not required to solicit shareholder approval of stock plans, including those
in which our officers or directors may participate; stock issuances that will result in
a change in control; the issuance of our stock in related party transactions or other
transactions in which we may issue 20% or more of our
 54




---



##### Table of Contents



outstanding shares; or, below
market issuances of 20% or more of our outstanding shares to any person (Rule 5635).
  D. EMPLOYEES
  E. SHARE OWNERSHIP.
  
    
    each person who is known by us to own beneficially more than 5% of our outstanding
common stock;
    
    each of our current executive officers and directors; and
    
    all current directors and executive officers as a group.As of July 15, 2009, we had 73,148,843 shares of our common stock issued and outstanding.
  Name of Beneficial Holder
    
    Number
    
    PercentShares Beneficially OwnedWu Holdings Limited
    
    
    6,819,000
    (1)
    
    
    9.3Rui Lin Wu
    
    
    38,819,000
    (1)
    
    
    53.1Zhi Yang Wu
    
    
    0
    
    
    
    0Aijun Jiang
    
    
    0
    
    
    
    0Rick Wenjun Xiao
    
    
    0
    
    
    
    0Ze Yun Mu
    
    
    0
    
    
    
    0Edward Tsai
    
    
    0
    
    
    
    0Yi Hong Zhang
    
    
    0
    
    
    
    0All directors and executive officers as a group (7 persons)
    
    
    38,819,000
    
    
    
    53.1Wong Ying Man
    
    
    8,000,000
    
    
    
    10.9
 
 (1)
    
    Wu Holdings Limited is a British Virgin Islands corporation which is wholly owned by the Qiao
Xing Trust . The Qiao Xing Trust is a Cook Islands trust which was formed for the primary
benefit of Zhi Jian Wu Li, the youngest son of Rui Lin Wu, our chairman. The 6,819,000 shares
of common stock owned of record and beneficially by Wu Holdings Limited may be deemed to also
be beneficially owned by Rui Lin Wu (within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934, as amended) since he may be deemed to have and/or share the power to
direct the voting and disposition of such shares. 55




---



##### Table of Contents



The 2005 Stock Compensation Plan
  
    
    encourage ownership of our common stock by our officers, directors, employees and
advisors;
    
    provide additional incentive for them to promote our success and our business; and
    
    encourage them to remain in our employ by providing them an opportunity to benefit
from any appreciation of our common stock through the issuance of stock options.
   Other Options and Warrants Outstanding
  
    
    warrants to purchase an aggregate of 375,000 shares of common stock at US$9.86 per
share at any time until February 17, 2010 which we granted to two accredited investors
and the placement agent and finders in February 2005 in connection with a stock
purchase agreement (February 2005 SPA Warrants)
    
    warrants to purchase an aggregate of 37,494 shares of common stock at US$9.86 per
share at any time until April 13, 2010 which we granted to three accredited investors
and two finders in April 2005 in connection with a stock purchase agreement (April
2005 SPA Warrants)
    
    warrants to purchase an aggregate of 400,000 shares of common stock at US$8.125 per
share at any time until January 17, 2010 which we granted to an accredited investor in
January 2006 in connection with a stock purchase agreement (January 2006 SPA
Warrants)
    
    warrants to purchase an aggregate of 35,500 shares of common stock at US$8.125 per
share at any time until January 17, 2010 which we granted to a financial consultant and
its employees and related parties in February 2006 in connection with certain corporate
finance consulting and advisory services rendered to the Company during 2005
(February 2006 Warrants)
    
    warrants to purchase an aggregate of 18,753 shares of common stock at US$7.00 per
share at any time until February 22, 2010 which we granted to an
accredited investor in February 2006 in connection with a stock purchase agreement (February 2006 SPA
Warrants)
    
    warrants to purchase an aggregate of 599,999 shares of common stock at US$14.30 per
share at any time until October 31, 2010 which we granted to two accredited investors
and the placement agent in October 2006 in connection with the sale of 2,000,000 shares
of our common stock at US$12.00 per share (October 2006 SPA Warrants)
 56




---



##### Table of Contents




    
    warrants to purchase an aggregate of 545,455 shares of common stock at US$14.30 per
share at any time until October 31, 2011 which we granted to two accredited investors
and the placement agent in October 2006 in connection with the sale of US$26,000,000 of
our senior convertible notes (October 2006 CB Warrants)
    
    warrants to purchase an aggregate of 736,016 shares of common stock at US$10.19 per
share at any time until August 17, 2012 which we granted to two accredited investors
and the placement agent in August 2007 in connection with the sale of US$25,000,000 of
our senior convertible notes (August 2007 CB Warrants)
    
    warrants to purchase an aggregate of 473,814 shares of common stock at US$13.00 per
share at any time until November 2, 2011 which we granted to an accredited investor and
a finder in November 2007 in connection with a stock purchase agreement (November 2007
SPA Warrants)
   1.
    
    February 2005 SPA Warrants  464,179 warrants at US$7.9657 per warrant2.
    
    April 2005 SPA Warrants  46,410 warrants at US$7.9657 per warrant3.
    
    January 2006 SPA Warrants  471,070 warrants at US$6.8992 per warrant4.
    
    February 2006 Warrants  41,808 warrants at US$6.8992 per warrant5.
    
    February 2006 SPA Warrants  20,730 warrants at US$6.3325 per warrant6.
    
    October 2006 SPA Warrants  4,289,993 warrants at US$2.00 per warrant7.
    
    October 2006 CB Warrants  3,900,003 warrants at US$2.00 per warrant8.
    
    August 2007 CB Warrants  3,750,002 warrants at US$2.00 per warrant9.
    
    November 2007 SPA Warrants  3,079,791 warrants at US$2.00 per warrant
 57




---



##### Table of Contents



ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 A. MAJOR SHAREHOLDERS.
      B. RELATED PARTY TRANSACTIONS.
  Name of related parties
    
    Existing relationship with the CompanyMr. Zhi Jian Wu Li
    
    Major shareholderMr. Rui Lin Wu
    
    Director and father of Mr. Zhi Jian Wu LiWu Holdings Limited
    
    Intermediate holding companyExquisite Jewel Limited
    
    Minority shareholderMetrolink Holdings Limited
    
    Minority shareholderSpecialist Consultants Limited
    
    Minority shareholderQiao Xing Group Limited (QXGL)
    
    Common director and minority shareholder
of CECT, QXCI and QXPLHuizhou Qiaoxing Famous Science
& Technology Co., Ltd. (QFST)
    
    A company 80% owned by QXGL
  2006
    
    2007
    
    2008RMB000
    
    RMB000
    
    RMB000
    
    US$000Property management fee
paid and payable to:- QXGL
    
    
    90
    
    
    
    100
    
    
    
    119
    
    
    
    17Sales to:- QFST
    
    
    69,232
    
    
    
    95,514
    
    
    
    133,611
    
    
    
    19,584
  58




---



##### Table of Contents



2007
    
    2008Rmb000
    
    Rmb000
    
    US$000Pledged of:- Bank deposits of the Group
    
    
    197,951
    
    
    
    263,800
    
    
    
    38,666- Bank deposits of a director
    
    
    36,519
    
    
    
    
    
    
    
    - Bills receivable of the Group
    
    
    50,000
    
    
    
    40,000
    
    
    
    5,863Guarantees provided by:- QXGL
    
    
    160,000
    
    
    
    190,000
    
    
    
    27,849- QXGL and directors
    
    
    570,000
    
    
    
    360,000
    
    
    
    52,767- QXGL, directors and third parties
    
    
    400,000
    
    
    
    400,000
    
    
    
    58,630- Directors
    
    
    150,000
    
    
    
    368,500
    
    
    
    54,012
  59




---



##### Table of Contents



C. INTERESTS OF EXPERTS AND COUNSEL.
  
 ITEM 8. FINANCIAL INFORMATION
 A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION.
       B. SIGNIFICANT CHANGES.
  60




---



##### Table of Contents



ITEM 9. THE OFFER AND LISTING
 A. OFFER AND LISTING DETAILS.
  Period
    
    High
    
    LowYear ended December 31, 2004
    
    US$
    14.98
    
    
    US$
    6.50Year ended December 31, 2005
    
    US$
    8.50
    
    

    US$
    5.04Year ended December 31, 2006
    
    US$
    17.09
    
    
    US$
    6.49Year ended December 31, 2007
    
    US$
    19.56
    
    
    US$
    7.16Year ended December 31, 2008
    
    US$
    8.11
    
    
    US$
    1.44Quarter ended March 31, 2007
    
    US$
    19.56
    
    
    US$
    12.58Quarter ended June 30, 2007
    
    US$
    18.40
    
    
    US$
    12.26Quarter ended September 30, 2007
    
    US$
    13.97
    
    
    US$
    7.78Quarter ended December 31, 2007
    
    US$
    12.44
    
    
    US$
    7.16Quarter ended March 31, 2008
    
    US$
    8.11
    
    
    US$
    5.18Quarter ended June 30, 2008
    
    US$
    7.52
    
    
    US$
    4.39Quarter ended September 30, 2008
    
    US$
    5.44
    
    
    US$
    2.35Quarter ended December 31, 2008
    
    US$
    2.63
    
    
    US$
    1.44Quarter ended March 31, 2009
    
    US$
    2.12
    
    
    US$
    0.93Quarter ended June 30, 2009
    
    US$
    2.46
    
    
    US$
    1.18Month ended December 31, 2008
    
    US$
    2.63
    
    
    US$
    1.53Month ended January 31, 2009
    
    US$
    2.12
    
    
    US$
    1.52Month ended February 28, 2009
    
    US$
    1.55
    
    
    US$
    1.22Month ended March 31, 2009
    
    US$
    1.52
    
    
    US$
    0.93Month ended April 30, 2009
    
    US$
    2.08
    
    
    US$
    1.18Month ended May 31, 2009
    
    US$
    2.15
    
    
    US$
    1.76Month ended June 30, 2009
    
    US$
    2.46
    
    
    US$
    1.80
 B. PLAN OF DISTRIBUTION.
  C. MARKETS.
  D. SELLING SHAREHOLDERS.
  61




---



##### Table of Contents



E. DILUTION.
  F. EXPENSES OF THE ISSUE.
  
 ITEM 10. ADDITIONAL INFORMATION
 A. SHARE CAPITAL.
  B. MEMORANDUM AND ARTICLES OF ASSOCIATION.
         62




---



##### Table of Contents



63




---



##### Table of Contents



C. MATERIAL CONTRACTS.
  D. EXCHANGE CONTROLS.
  E. TAXATION.
  United States Federal Income Taxation
  
    
    a court within the United States is able to exercise primary supervision over its
administration; and
    
    one or more United States persons have the authority to control all of its
substantial decisions.
    64




---



##### Table of Contents




    
    is a corporation or comes within other exempt categories; or
    
    provides a correct taxpayer identification number, certifies that such holder is not
subject to backup withholding and otherwise complies with the backup withholding rules.
   British Virgin Islands Taxation
    F. DIVIDENDS AND PAYING AGENTS.
  G. STATEMENT BY EXPERTS.
  H. DOCUMENTS ON DISPLAY.
  65




---



##### Table of Contents



I. SUBSIDIARY INFORMATION.
  
 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
     
 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
  
 PART II
 
 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
  
 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
  
 ITEM 15. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  66




---



##### Table of Contents



Managements Annual Report on Internal Control Over Financial Reporting.
   Internal
Control-Integrated Framework
     
 ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
  
 ITEM 16B. CODE OF ETHICS
  
 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  67




---



##### Table of Contents



(a) Audit Fees.
 (b) Audit  Related Fees.
 (c) Tax Fees.
 (d) All Other Fees.
 (e) Audit Committee Pre-Approval Policies and Procedures.
   (f).
 
 ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.
  
 ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.
 
 ITEM 16F. CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT.
  68




---



##### Table of Contents



ITEM 16G. CORPORATE GOVERNANCE.
   
    
    our independent directors do not hold regularly scheduled meetings in executive
session (Rule 5605(b)(2));
    
    the compensation of our executive officers is not determined by an independent
committee of the board or by the independent members of the board of directors, and our
CEO may be present and participate in the deliberations concerning his compensation
(Rule 5605(d));
    
    related party transactions are not required to be reviewed or approved by our audit
committee or other independent body of the board of directors (Rule 5630); and
    
    we are not required to solicit shareholder approval of stock plans, including those
in which our officers or directors may participate; stock issuances that will result in
a change in control; the issuance of our stock in related party transactions or other
transactions in which we may issue 20% or more of our outstanding shares; or, below
market issuances of 20% or more of our outstanding shares to any person (Rule 5635).
  69




---



##### Table of Contents



PART III
 
 ITEM 17. FINANCIAL STATEMENTS
  
 ITEM 18. FINANCIAL STATEMENTS
 70




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
   Internal Control
 Integrated Framework
   F-1




---



##### Table of Contents



Internal Control 
Integrated Framework
     F-2




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
         F-3




---



##### Table of Contents



Note
    
    2007
    
    2008RMB000
    
    RMB000
    
    US$000(Note 2(v))ASSETSCurrent assets:Cash and cash equivalents
    
    
    
    
    
    
    3,033,010
    
    
    
    3,117,527
    
    
    
    456,948Restricted cash
    
    
    14
    
    
    
    197,951
    
    
    
    263,800
    
    
    
    38,666Accounts receivable, net (includes
net amount receivable from a
related party of RMB179,935,000
(2007: RMB97,070,000))
    
    
    3
    
    
    
    941,518
    
    
    
    934,107
    
    
    
    136,916Bills receivable
    
    
    
    
    
    
    115,261
    
    
    
    202,174
    
    
    
    29,633Inventories
    
    
    4
    
    
    
    304,024
    
    
    
    241,310
    
    
    
    35,370Prepaid expenses
    
    
    5
    
    
    
    273,881
    
    
    
    497,766
    
    
    
    72,959Other current assets
    
    
    6
    
    
    
    1,111,408
    
    
    
    609,233
    
    
    
    89,298Due from related parties
    
    
    28
    
    
    
    27
    
    
    
    25
    
    
    
    4Deferred income taxes
    
    
    21
    
    
    
    13,350
    
    
    
    6,994
    
    
    
    1,025Deferred debt issuance costs, net
    
    
    17
    
    
    
    14,579
    
    
    
    34,689
    
    
    
    5,084Total current assets
    
    
    
    
    
    
    6,005,009
    
    
    
    5,907,625
    
    
    
    865,903Property, machinery and equipment, net
    
    
    7
    
    
    
    192,601
    
    
    
    183,137
    
    
    
    26,843Land use rights, net
    
    
    8
    
    
    
    36,106
    
    
    
    35,304
    
    
    
    5,175Investment at cost
    
    
    10
    
    
    
    7,803
    
    
    
    7,802
    
    
    
    1,144Goodwill
    
    
    12
    
    
    
    76,594
    
    
    
    82,059
    
    
    
    12,028Other non-current assets
    
    
    9
    
    
    
    
    
    
    
    111,786
    
    
    
    16,384Other acquired intangible assets, net
    
    
    13
    
    
    
    60,728
    
    
    
    22,766
    
    
    
    3,337Total assets
    
    
    
    
    
    
    6,378,841
    
    
    
    6,350,479
    
    
    
    930,814LIABILITIES, MINORITY INTERESTS
AND SHAREHOLDERS EQUITYCurrent liabilities:Short-term bank borrowings
    
    
    14
    
    
    
    1,471,454
    
    
    
    1,500,855
    
    
    
    219,986Accounts payable
    
    
    
    
    
    
    180,573
    
    
    
    112,957
    
    
    
    16,557Other payables
    
    
    15
    
    
    
    42,009
    
    
    
    14,124
    
    
    
    2,070Accrued liabilities
    
    
    16
    
    
    
    104,984
    
    
    
    87,763
    
    
    
    12,864Deposits received
    
    
    
    
    
    
    4,539
    
    
    
    3,236
    
    
    
    474Deferred revenues
    
    
    
    
    
    
    26,402
    
    
    
    58,560
    
    
    
    8,583Due to related parties
    
    
    28
    
    
    
    608
    
    
    
    905
    
    
    
    133Taxation payable
    
    
    21
    
    
    
    73,301
    
    
    
    64,238
    
    
    
    9,416Embedded derivative liability
    
    
    17
    
    
    
    19,004
    
    
    
    127,080
    
    
    
    18,627Convertible notes
    
    
    17
    
    
    
    135,667
    
    
    
    383,596
    
    
    
    56,225Total current liabilities
    
    
    
    
    
    
    2,058,541
    
    
    
    2,353,314
    
    
    
    344,935Convertible notes
    
    
    17
    
    
    
    189,660
    
    
    
    
    
    
    
    Shareholders loans
    
    
    18
    
    
    
    7,194
    
    
    
    6,729
    
    
    
    986Deferred income taxes
    
    
    21
    
    
    
    5,561
    
    
    
    320
    
    
    
    46Total liabilities
    
    
    
    
    
    
    2,260,956
    
    
    
    2,360,363
    
    
    
    345,967Minority interests
    
    
    
    
    
    
    1,095,917
    
    
    
    1,008,786
    
    
    
    147,862Commitments and contingencies
    
    
    25Shareholders equity:Common stock, par value RMB0.008
(equivalent of US$0.001);
authorized 50,000,000 shares;
outstanding and fully paid -
30,948,836 as of December 31, 2007
and 2008
    
    
    19
    
    
    
    251
    
    
    
    251
    
    
    
    37Additional paid-in capital
    
    
    
    
    
    
    1,737,541
    
    
    
    1,867,512
    
    
    
    273,728Retained earnings
    
    
    
    
    
    
    1,325,984
    
    
    
    1,189,190
    
    
    
    174,304Cumulative translation adjustments
    
    
    
    
    
    
    (41,808
    )
    
    
    (75,623
    )
    
    
    (11,084
    )Total shareholders equity
    
    
    
    
    
    
    3,021,968
    
    
    
    2,981,330
    
    
    
    436,985Total liabilities, minority
interests and shareholders
equity
    
    
    
    
    
    
    6,378,841
    
    
    
    6,350,479
    
    
    
    930,814
  F-4




---



##### Table of Contents



Note
    
    2006
    
    
    2007
    
    
    2008RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    US$000(Note 2(v))Net sales
    
    
    
    
    3,221,212
    
    
    
    3,874,107
    
    
    
    2,594,948
    
    
    
    380,352Cost of goods sold
    
    
    
    
    (2,651,392
    )
    
    
    (2,898,964
    )
    
    
    (1,719,024
    )
    
    
    (251,964
    )Gross profit
    
    
    
    
    569,820
    
    
    
    975,143
    
    
    
    875,924
    
    
    
    128,388Operating expenses:Selling expenses
    
    
    
    
    (28,401
    )
    
    
    (59,820
    )
    
    
    (156,985
    )
    
    
    (23,010
    )General and administrative expenses
    
    
    
    
    (126,076
    )
    
    
    (131,074
    )
    
    
    (338,751
    )
    
    
    (49,652
    )Research and development
    
    
    
    
    (30,747
    )
    
    
    (34,452
    )
    
    
    (44,000
    )
    
    
    (6,449
    )In process research and development
    
    11(b)
    
    
    (41,739
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of acquired intangible assets
    
    13
    
    
    (15,178
    )
    
    
    (32,280
    )
    
    
    (11,727
    )
    
    
    (1,719
    )Impairment of acquired intangible assets
    
    13
    
    
    
    
    
    
    
    
    
    
    (26,235
    )
    
    
    (3,845
    )Income from operations
    
    
    
    
    327,679
    
    
    
    717,517
    
    
    
    298,226
    
    
    
    43,713Interest income
    
    
    
    
    8,108
    
    
    
    42,127
    
    
    
    71,026
    
    
    
    10,411Exchange (loss) gain, net
    
    
    
    
    3,225
    
    
    
    28,255
    
    
    
    (5,355
    )
    
    
    (785
    )Interest expense
    
    30
    
    
    (100,432
    )
    
    
    (248,014
    )
    
    
    (341,624
    )
    
    
    (50,073
    )(Loss) gain on remeasurement of embedded
derivatives
    
    17
    
    
    (134,439
    )
    
    
    (129,084
    )
    
    
    160,036
    
    
    
    23,457Loss on extinguishment of convertible debts
    
    11(c)& 17(c)
    
    
    
    
    
    
    (142,090
    )
    
    
    (10,634
    )
    
    
    (1,559
    )Gain on disposal of interests
in subsidiaries
    
    11(c) & (d)
    
    
    
    
    
    
    482,614
    
    
    
    2,269
    
    
    
    333Gain on issue/repurchase of stocks by
subsidiary
    
    11(c)
    
    
    
    
    
    
    383,965
    
    
    
    4,351
    
    
    
    638Provision for litigation settlement
    
    
    
    
    
    
    
    
    (15,319
    )
    
    
    
    
    
    
    Other income (loss), net
    
    
    
    
    4,453
    
    
    
    59,055
    
    
    
    (6,497
    )
    
    
    (952
    )Income before income tax
    
    
    
    
    108,594
    
    
    
    1,179,026
    
    
    
    171,798
    
    
    
    25,183Provision for income tax
    
    21
    
    
    (58,192
    )
    
    
    (124,120
    )
    
    
    (164,187
    )
    
    
    (24,066
    )Income before minority interests
    
    
    
    
    50,402
    
    
    
    1,054,906
    
    
    
    7,611
    
    
    
    1,117Minority interests
    
    
    
    
    (84,473
    )
    
    
    (168,554
    )
    
    
    (144,405
    )
    
    
    (21,166
    )Net income (loss) before
extraordinary items
    
    
    
    
    (34,071
    )
    
    
    886,352
    
    
    
    (136,794
    )
    
    
    (20,049
    )Extraordinary items:Gains on acquisitions of minority
interests, net of nil tax
    
    11(a)
    
    
    14,237
    
    
    
    17,596
    
    
    
    
    
    
    
    Net income (loss)
    
    
    
    
    (19,834
    )
    
    
    903,948
    
    
    
    (136,794
    )
    
    
    (20,049
    )Other comprehensive income (loss) -Translation adjustments
    
    
    
    
    7,203
    
    
    
    (50,106
    )
    
    
    (33,815
    )
    
    
    (4,956
    )Comprehensive income (loss)
    
    
    
    
    (12,631
    )
    
    
    853,842
    
    
    
    (170,609
    )
    
    
    (25,005
    )Basic earnings (loss) per common share:Before extraordinary gain
    
    23
    
    RMB
    (1.44
    )
    
    RMB
    24.46
    
    
    RMB
    (4.42
    )
    
    US$
    (0.65
    )Extraordinary gain
    
    23
    
    RMB
    0.60
    
    
    RMB
    0.49
    
    
    RMB
    
    
    
    US$
    After extraordinary gain
    
    23
    
    RMB
    (0.84
    )
    
    RMB
    24.95
    
    
    RMB
    (4.42
    )
    
    US$
    (0.65
    )Diluted earnings (loss) per common share:Before extraordinary gain
    
    23
    
    RMB
    (2.03
    )
    
    RMB
    24.17
    
    
    RMB
    (5.89
    )
    
    US$
    (0.86
    )Extraordinary gain
    
    23
    
    RMB
    0.59
    
    
    RMB
    0.48
    
    
    RMB
    
    
    
    US$
    After extraordinary gain
    
    23
    
    RMB
    (1.44
    )
    
    RMB
    24.65
    
    
    RMB
    (5.89
    )
    
    US$
    (0.86
    )Weighted average number of shares
outstandingBasic
    
    23
    
    
    23,712,000
    
    
    
    29,836,000
    
    
    
    30,949,000
    
    
    
    30,949,000Diluted
    
    23
    
    
    24,016,000
    
    
    
    30,200,000
    
    
    
    30,949,000
    
    
    
    30,949,000
  F-5




---



##### Table of Contents



2006
    
    
    2007
    
    
    2008RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    US$000(Note 2(v))Cash flows from operating activities:Net income (loss)
    
    
    (19,834
    )
    
    
    903,948
    
    
    
    (136,794
    )
    
    
    (20,049
    )Adjustments to reconcile net income (loss) to net
cash flows from operating activities -Depreciation of property, machinery and
equipment
    
    
    11,124
    
    
    
    17,023
    
    
    
    16,741
    
    
    
    2,454Amortization of land use right
    
    
    4,130
    
    
    
    4,539
    
    
    
    803
    
    
    
    118Bad debt expense
    
    
    2,116
    
    
    
    2,961
    
    
    
    232,841
    
    
    
    34,128Amortization of other acquired intangible assets
    
    
    15,178
    
    
    
    32,280
    
    
    
    11,727
    
    
    
    1,719In process research and development
    
    
    41,739
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    58,707
    
    
    
    38,626
    
    
    
    14,669
    
    
    
    2,150Foreign exchange loss (gain)
    
    
    (3,225
    )
    
    
    (27,447
    )
    
    
    5,355
    
    
    
    785Interest expense on shareholders loans
    
    
    459
    
    
    
    487
    
    
    
    437
    
    
    
    64Amortization of deferred debt issuance costs
    
    
    11,339
    
    
    
    37,321
    
    
    
    24,738
    
    
    
    3,626Accretion of convertible note discounts
    
    
    36,880
    
    
    
    140,251
    
    
    
    188,201
    
    
    
    27,585Loss (gain) on remeasurement of embedded
derivatives
    
    
    134,439
    
    
    
    129,084
    
    
    
    (160,036
    )
    
    
    (23,457
    )Loss on extinguishment of convertible debts
    
    
    
    
    
    
    142,090
    
    
    
    10,634
    
    
    
    1,559Gain on disposal of interests in subsidiaries
    
    
    
    
    
    
    (482,614
    )
    
    
    (2,269
    )
    
    
    (333
    )Gain on issue/repurchase of stocks by subsidiary
    
    
    
    
    
    
    (383,965
    )
    
    
    (4,351
    )
    
    
    (638
    )Provision for litigation settlement
    
    
    
    
    
    
    15,319
    
    
    
    
    
    
    
    Net loss (gain) on disposal of property,
machinery and equipment
    
    
    8
    
    
    
    99
    
    
    
    (11
    )
    
    
    (2
    )Net gain on disposal of land use rights and
construction-in-progress
    
    
    
    
    
    
    (58,199
    )
    
    
    
    
    
    
    Deferred income tax
    
    
    (8,003
    )
    
    
    (11,938
    )
    
    
    1,115
    
    
    
    163Minority interests
    
    
    84,473
    
    
    
    168,554
    
    
    
    144,404
    
    
    
    21,166Extraordinary gains on acquisitions of minority
interests
    
    
    (14,237
    )
    
    
    (17,596
    )
    
    
    
    
    
    
    Impairment of acquired intangible assets
    
    
    
    
    
    
    
    
    
    
    26,235
    
    
    
    3,845Changes in operating assets and liabilities -Accounts receivable
    
    
    (185,469
    )
    
    
    (104,834
    )
    
    
    (225,430
    )
    
    
    (33,042
    )Bills receivable
    
    
    (2,736
    )
    
    
    306,386
    
    
    
    (86,913
    )
    
    
    (12,739
    )Inventories
    
    
    2,418
    
    
    
    (71,166
    )
    
    
    62,714
    
    
    
    9,192Prepaid expenses
    
    
    (155,906
    )
    
    
    167,402
    
    
    
    (223,885
    )
    
    
    (32,816
    )Other current assets
    
    
    9,273
    
    
    
    (19,081
    )
    
    
    (55,912
    )
    
    
    (8,195
    )Accounts payable
    
    
    (112,141
    )
    
    
    (45,066
    )
    
    
    (67,616
    )
    
    
    (9,911
    )Other payables
    
    
    (1,286
    )
    
    
    (1,907
    )
    
    
    (4,857
    )
    
    
    (712
    )Accrued liabilities
    
    
    3,074
    
    
    
    31,552
    
    
    
    (17,220
    )
    
    
    (2,524
    )Deposits received
    
    
    (8,693
    )
    
    
    2,503
    
    
    
    (1,304
    )
    
    
    (191
    )Deferred revenues
    
    
    (38,053
    )
    
    
    11,013
    
    
    
    32,158
    
    
    
    4,713Taxation payable
    
    
    (22,614
    )
    
    
    27,029
    
    
    
    (9,063
    )
    
    
    (1,328
    )Net cash provided by (used in) operating activities
    
    
    (156,840
    )
    
    
    954,654
    
    
    
    (222,889
    )
    
    
    (32,670
    )
 F-6




---



##### Table of Contents



2006
    
    
    2007
    
    
    2008RMB000
    
    
    RMB000
    
    
    RMB000
    
    
    US$000(Note 2(v))Cash flows from investing activities:Acquisitions of property, machinery and equipment
    
    
    (168,461
    )
    
    
    (8,017
    )
    
    
    (14,225
    )
    
    
    (2,085
    )Acquisition of land use right
    
    
    (39,004
    )
    
    
    
    
    
    
    
    
    
    
    Expenditures on construction-in-progress
    
    
    (1,190
    )
    
    
    
    
    
    
    
    
    
    
    Net cash outflow on disposal of subsidiaries by
QXMC (Note 11(d))
    
    
    
    
    
    
    
    
    
    
    (1,162
    )
    
    
    (170
    )Net cash outflow from acquisition of minority
interests (Note 11(a))
    
    
    (170,343
    )
    
    
    
    
    
    
    
    
    
    
    Proceeds from disposal of property, machinery and
equipment
    
    
    241
    
    
    
    209
    
    
    
    12,900
    
    
    
    1,890Proceeds from disposal of land use rights and
construction-in-progress
    
    
    
    
    
    
    180,000
    
    
    
    
    
    
    
    Interest-bearing advances to a third party
    
    
    
    
    
    
    (998,331
    )
    
    
    
    
    
    
    Refund of interest-bearing advances
    
    
    
    
    
    
    
    
    
    
    408,658
    
    
    
    59,899(Increase) decrease in restricted cash
    
    
    (224,252
    )
    
    
    175,822
    
    
    
    (65,849
    )
    
    
    (9,652
    )Net cash provided by (used in) investing activities
    
    
    (603,009
    )
    
    
    (650,317
    )
    
    
    340,322
    
    
    
    49,882Cash flows from financing activities:Increase in short-term borrowings
    
    
    403,991
    
    
    
    323,182
    
    
    
    2,611,586
    
    
    
    382,790Repayment of short-term borrowings
    
    
    
    
    
    
    
    
    
    
    (2,577,399
    )
    
    
    (377,779
    )Net proceeds from issuance of convertible notes
(Note 17 (c))
    
    
    482,041
    
    
    
    175,088
    
    
    
    125,722
    
    
    
    18,428Net proceeds from exercise of options and warrants
    
    
    259,637
    
    
    
    30,911
    
    
    
    
    
    
    
    Repayment of convertible notes
    
    
    
    
    
    
    
    
    
    
    (171,763
    )
    
    
    (25,176
    )Net proceeds from issuance of common stock by the
Company
    
    
    317,900
    
    
    
    114,534
    
    
    
    
    
    
    
    Net proceeds from IPO of common stock by a
subsidiary
    
    
    
    
    
    
    1,026,610
    
    
    
    
    
    
    
    Capital contributed by minority shareholders of a
subsidiary
    
    
    
    
    
    
    2,100
    
    
    
    
    
    
    
    Net advances from related parties
    
    
    2,088
    
    
    
    3,495
    
    
    
    297
    
    
    
    44Net cash provided (used) by financing activities
    
    
    1,465,657
    
    
    
    1,675,920
    
    
    
    (11,557
    )
    
    
    (1,693
    )Effect of translation adjustments
    
    
    (991
    )
    
    
    (43,724
    )
    
    
    (21,359
    )
    
    
    (3,130
    )Net increase in cash and cash equivalents
    
    
    704,817
    
    
    
    1,936,533
    
    
    
    84,517
    
    
    
    12,389Cash and cash equivalents, beginning of year
    
    
    391,660
    
    
    
    1,096,477
    
    
    
    3,033,010
    
    
    
    444,559Cash and cash equivalents, end of year
    
    
    1,096,477
    
    
    
    3,033,010
    
    
    
    3,117,527
    
    
    
    456,948Supplemental disclosure of cash flow information:Interest paid
    
    
    50,374
    
    
    
    60,459
    
    
    
    115,696
    
    
    
    16,958Income tax paid
    
    
    63,383
    
    
    
    103,834
    
    
    
    162,527
    
    
    
    23,822Non-cash investing and financing activities:- Consideration for acquisition of equity interest
in a subsidiary paid in the form of common stocks
    
    
    185,721
    
    
    
    
    
    
    
    
    
    
    
    - Consideration for extinguishment of convertible
notes liability paid in the form of common stocks
of a subsidiary
    
    
    
    
    
    
    721,188
    
    
    
    
    
    
    
    - Stock issuance costs paid in the form of
share-based payment
    
    
    48,631
    
    
    
    8,183`
    
    
    
    
    
    
    
    - Subsidiary repurchased ordinary shares through
the issuance of convertible notes
    
    
    
    
    
    
    
    
    
    
    338,165
    
    
    
    49,566- Subsidiary issued ordinary shares on partial
conversion of convertible notes
    
    
    
    
    
    
    
    
    
    
    55,054
    
    
    
    8,070- Warrant issuance costs paid in the form of
share-based payment
    
    
    1,936
    
    
    
    769
    
    
    
    2,500
    
    
    
    366- Convertible note issuance costs paid in the form
of share-based payment
    
    
    28,796
    
    
    
    9,891
    
    
    
    31,451
    
    
    
    4,610
   F-7




---



##### Table of Contents



Accumulatedothercomprehensiveincome (loss) Common stock
    
    Additional
    
    
    
    
    
    cumulativeNumber of
    
    
    
    
    
    paid-in
    
    
    
    
    
    translationshares
    
    Amount
    
    capital
    
    Retained earnings
    
    adjustments
    
    TotalNote


    
    000
    
    RMB000
    
    RMB000
    
    RMB000
    
    RMB000
    
    RMB000Balance as of January 1, 2006
    
    
    
    
    
    
    18,647
    
    
    
    154
    
    
    
    554,178
    
    
    
    441,870
    
    
    
    1,095
    
    
    
    997,297Issuance of common stock
    
    
    19
    
    
    
    10,958
    
    
    
    88
    
    
    
    791,654
    
    
    
    
    
    
    
    
    
    
    
    791,742Stock issuance costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (77,115
    )
    
    
    
    
    
    
    
    
    
    
    (77,115
    )Issue of stock purchase
warrants to investors and
external consultants
    
    
    20
    (c)
    
    
    
    
    
    
    
    
    
    
    116,090
    
    
    
    
    
    
    
    
    
    
    
    116,090Warrant issuance costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,500
    )
    
    
    
    
    
    
    
    
    
    
    (4,500
    )Recognition of compensation
expense
    
    
    20
    (a)
    
    
    
    
    
    
    
    
    
    
    58,707
    
    
    
    
    
    
    
    
    
    
    
    58,707Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,834
    )
    
    
    
    
    
    
    (19,834
    )Shareholders contribution
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    459
    
    
    
    
    
    
    
    
    
    
    
    459Translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,203
    
    
    
    7,203Balance as of December 31, 2006
    
    
    
    
    
    
    29,605
    
    
    
    242
    
    
    
    1,439,473
    
    
    
    422,036
    
    
    
    8,298
    
    
    
    1,870,049Issuance of common stock
    
    
    19
    
    
    
    1,344
    
    
    
    9
    
    
    
    115,375
    
    
    
    
    
    
    
    
    
    
    
    115,384Stock issuance costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,032
    )
    
    
    
    
    
    
    
    
    
    
    (9,032
    )Issue of stock purchase
warrants to investors and
external consultants
    
    
    20
    (c)
    
    
    
    
    
    
    
    
    
    
    32,546
    
    
    
    
    
    
    
    
    
    
    
    32,546Warrant issuance costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,838
    )
    
    
    
    
    
    
    
    
    
    
    (1,838
    )Recognition of compensation
expense
    
    
    20
    (a)
    
    
    
    
    
    
    
    
    
    
    39,209
    
    
    
    
    
    
    
    
    
    
    
    39,209Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    903,948
    
    
    
    
    
    
    
    903,948Reclassification of embedded
derivative relating to 4.5%
Notes
    
    
    17
    (a)
    
    
    
    
    
    
    
    
    
    
    89,531
    
    
    
    
    
    
    
    
    
    
    
    89,531Beneficial conversion amount
relating to 5.5% Notes
    
    
    17
    (b)
    
    
    
    
    
    
    
    
    
    
    31,790
    
    
    
    
    
    
    
    
    
    
    
    31,790Shareholders contribution
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    487
    
    
    
    
    
    
    
    
    
    
    
    487Translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50,106
    )
    
    
    (50,106
    )Balance as of December 31, 2007
    
    
    
    
    
    
    30,949
    
    
    
    251
    
    
    
    1,737,541
    
    
    
    1,325,984
    
    
    
    (41,808
    )
    
    
    3,021,968Issue of stock purchase warrants
to investors and external
consultants
    
    
    20
    (c)
    
    
    
    
    
    
    
    
    
    
    48,904
    
    
    
    
    
    
    
    
    
    
    
    48,904Warrant issuance costs
    
    
    20
    (c)
    
    
    
    
    
    
    
    
    
    
    (2,907
    )
    
    
    
    
    
    
    
    
    
    
    (2,907
    )Recognition of compensation expense
    
    
    20
    (a)
    
    
    
    
    
    
    
    
    
    
    9,604
    
    
    
    
    
    
    
    
    
    
    
    9,604Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (136,794
    )
    
    
    
    
    
    
    (136,794
    )Beneficial conversion amount
relating to 5.5% Notes
    
    
    17
    (b)
    
    
    
    
    
    
    
    
    
    
    73,933
    
    
    
    
    
    
    
    
    
    
    
    73,933Shareholders contribution
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    437
    
    
    
    
    
    
    
    
    
    
    
    437Translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33,815
    )
    
    
    (33,815
    )Balance as of December 31, 2008
    
    
    
    
    
    
    30,949
    
    
    
    251
    
    
    
    1,867,512
    
    
    
    1,189,190
    
    
    
    (75,623
    )
    
    
    2,981,330Balance as of December 31, 2008
(in US$000)
    
    
    
    
    
    
    
    
    
    
    37
    
    
    
    273,728
    
    
    
    174,304
    
    
    
    (11,084
    )
    
    
    436,985
  F-8




---



##### Table of Contents



Percentage of equityinterest attributableto the Group as ofPlace of
    
    December 31,Name
    
    Note
    
    incorporation
    
    2007
    
    2008
    
    Principal activitiesQiao Xing Mobile
Communication Co.,
Ltd. (QXMC)
    
    (a)
    
    BVI
    
    
    61.3
    %
    
    
    67.6
    %
    
    Investment holdingQiao Xing
Communication
Holdings Limited
(QXCH)
    
    (b)
    
    BVI
    
    
    100.0
    %
    
    
    100.0
    %
    
    Investment holdingCEC Telecom Co.,
Ltd. (CECT)
    
    (c)
    
    PRC
    
    
    59.2
    %
    
    
    65.3
    %
    
    Manufacture and sales of mobile phones and accessoriesBeijing CECT Yitong
Technology Co., Ltd
(BCYT)
    
    (d)
    
    PRC
    
    
    39.5
    %
    
    
    Huizhou CEC Telecom Co.,
Ltd.
(HCECT)
    
    (e)
    
    PRC
    
    
    
    
    
    
    Hui Zhou Qiao Xing
Communication
Industry Limited
(QXCI)
    
    (f)
    
    PRC
    
    
    90.0
    %
    
    
    90.0
    %
    
    Manufacture and sales of mobile phones and indoor phones
 F-9




---



##### Table of Contents



Percentage of equityinterest attributableto the Group as ofPlace of
    
    December 31,Name
    
    Note
    
    incorporation
    
    2007
    
    2008
    
    Principal activitiesHui Zhou Qiao Xing
Property Limited
(QXPL)
    
    (g)
    
    PRC
    
    
    90.0
    %
    
    
    90.0
    %
    
    Property and investment holdingChifeng Sanchuan
Mining Co., Ltd.
(CSMC)
    
    (h)
    
    PRC
    
    
    90.0
    %
    
    
    90.0
    %
    
    Investment holding
         F-10




---



##### Table of Contents



Country risk
  F-11




---



##### Table of Contents



Concentration of credit risk
  Technology risk
           F-12




---



##### Table of Contents



F-13




---



##### Table of Contents



F-14




---



##### Table of Contents



Customer relationships
    
    3  5 yearsCompleted technology
    
    1.8  5  yearsCore technology
    
    4  5 yearsBacklog
    
    4  5 monthsLicenses
    
    5 years
         F-15




---



##### Table of Contents



2007
    
    2008RMB000
    
    RMB000
    
    US$000Balance at beginning of year
    
    
    9,591
    
    
    
    11,123
    
    
    
    1,630Provision
    
    
    24,603
    
    
    
    23,101
    
    
    
    3,386Utilized
    
    
    (23,071
    )
    
    
    (26,251
    )
    
    
    (3,847
    )Balance at end of year
    
    
    11,123
    
    
    
    7,973
    
    
    
    1,169
            F-16




---



##### Table of Contents



F-17




---



##### Table of Contents



F-18




---



##### Table of Contents



F-19




---



##### Table of Contents



F-20




---



##### Table of Contents



F-21




---



##### Table of Contents



2007
    
    2008RMB000
    
    RMB000
    
    US$000Trade receivables- related party (Note 28)
    
    
    97,070
    
    
    
    179,935
    
    
    
    26,374- third parties
    
    
    856,025
    
    
    
    998,590
    
    
    
    146,368953,095
    
    
    
    1,178,525
    
    
    
    172,742Less: Allowance for doubtful accounts
    
    
    (11,577
    )
    
    
    (244,418
    )
    
    
    (35,826
    )Accounts receivable, net
    
    
    941,518
    
    
    
    934,107
    
    
    
    136,916
  2007
    
    2008RMB000
    
    RMB000
    
    US$000Beginning of year
    
    
    8,616
    
    
    
    11,577
    
    
    
    1,697Bad debt expense
    
    
    3,384
    
    
    
    233,503
    
    
    
    34,226Bad debt recovery
    
    
    (423
    )
    
    
    (662
    )
    
    
    (97
    )End of year
    
    
    11,577
    
    
    
    244,418
    
    
    
    35,826
 F-22




---



##### Table of Contents



2007
    
    2008RMB000
    
    RMB000
    
    US$000Raw materials
    
    
    218,123
    
    
    
    177,960
    
    
    
    26,084Finished goods
    
    
    131,183
    
    
    
    117,873
    
    
    
    17,278349,306
    
    
    
    295,833
    
    
    
    43,362Less: Reserve for obsolescence
    
    
    (45,282
    )
    
    
    (54,523
    )
    
    
    (7,992
    )Total Inventories
    
    
    304,024
    
    
    
    241,310
    
    
    
    35,370
  2007
    
    2008RMB000
    
    RMB000
    
    US$000Beginning of year
    
    
    34,077
    
    
    
    45,282
    
    
    
    6,637Provision for obsolescence for the year
    
    
    15,512
    
    
    
    9,241
    
    
    
    1,355Provision for obsolescence recovery
    
    
    (4,307
    )
    
    
    
    
    
    
    End of year
    
    
    45,282
    
    
    
    54,523
    
    
    
    7,992
 F-23




---



##### Table of Contents



2007
    
    2008RMB000
    
    RMB000
    
    US$000Advances to suppliers
    
    
    256,826
    
    
    
    471,183
    
    
    
    69,063Prepaid design, licensing and tooling fees
    
    
    16,092
    
    
    
    25,364
    
    
    
    3,718Current portion of land use rights (Note 8)
    
    
    830
    
    
    
    829
    
    
    
    121Other
    
    
    133
    
    
    
    390
    
    
    
    57273,881
    
    
    
    497,766
    
    
    
    72,959
   2007
    
    2008RMB000
    
    RMB000
    
    US$000Advances to staff
    
    
    3,306
    
    
    
    2,648
    
    
    
    388Advances to a third party (Note (a))
    
    
    970,739
    
    
    
    547,412
    
    
    
    80,236Interest receivable on advances to a
third party (Note (a))
    
    
    17,700
    
    
    
    45,860
    
    
    
    6,722Rental and utility deposits
    
    
    826
    
    
    
    
    
    
    
    Receivable from sale of land use rights
and construction-in-progress
    
    
    108,904
    
    
    
    
    
    
    
    Deposit for acquisition of land
    
    
    8,000
    
    
    
    
    
    
    
    Other
    
    
    1,933
    
    
    
    13,313
    
    
    
    1,9521,111,408
    
    
    
    609,233
    
    
    
    89,298
   F-24




---



##### Table of Contents



2007
    
    2008RMB000
    
    RMB000
    
    US$000Buildings and improvements
    
    
    151,326
    
    
    
    151,943
    
    
    
    22,271Machinery, equipment and software
    
    
    83,384
    
    
    
    87,462
    
    
    
    12,820Furniture and office equipment
    
    
    6,231
    
    
    
    6,553
    
    
    
    960Motor vehicles
    
    
    2,149
    
    
    
    3,905
    
    
    
    572243,090
    
    
    
    249,863
    
    
    
    36,623Less: Accumulated depreciation
    
    
    (50,489
    )
    
    
    (66,726
    )
    
    
    (9,780
    )Property, machinery and equipment, net
    
    
    192,601
    
    
    
    183,137
    
    
    
    26,843
   Year ended December 31,31, 2006
    
    2007
    
    2008RMB000
    
    RMB000
    
    RMB000
    
    US$000Cost of goods sold
    
    
    8,502
    
    
    
    9,563
    
    
    
    9,533
    
    
    
    1,397Selling and distribution expenses
    
    
    447
    
    
    
    392
    
    
    
    613
    
    
    
    90General and administrative
expenses
    
    
    2,175
    
    
    
    7,068
    
    
    
    6,595
    
    
    
    967Total
    
    
    11,124
    
    
    
    17,023
    
    
    
    16,741
    
    
    
    2,454
 F-25




---



##### Table of Contents



2007
    
    2008RMB000
    
    RMB000
    
    US$000Cost
    
    
    37,806
    
    
    
    37,821
    
    
    
    5,544Less: Accumulated amortization
    
    
    (870
    )
    
    
    (1,688
    )
    
    
    (248
    )Land use rights, net
    
    
    36,936
    
    
    
    36,133
    
    
    
    5,296Amount classified as current portion
(Note 5)
    
    
    (830
    )
    
    
    (829
    )
    
    
    (121
    )Amount classified as non-current portion
    
    
    36,106
    
    
    
    35,304
    
    
    
    5,175
    2007
    
    2008RMB000
    
    RMB000
    
    US$000Note receivable on the disposal of land
and the related construction-in-progress
    
    
    
    
    
    
    111,786
    
    
    
    16,384
    
    
    
    111,786
    
    
    
    16,384
   F-26




---



##### Table of Contents



F-27




---



##### Table of Contents



July 31, 2006
    
    June 30, 2007RMB000
    
    RMB000Cash consideration
    
    
    149,600
    
    
    
    380,425Less: Ownership interest in cash
consideration
    
    
    (139,742
    )
    
    
    (367,295
    )Total net purchase consideration
    
    
    9,858
    
    
    
    13,130Fair value of net assets acquired:- Property, machinery and equipment
    
    
    1,511
    
    
    
    5,929- Land use rights
    
    
    
    
    
    
    1,222- Other tangible assets and liabilities
acquired
    
    
    27,654
    
    
    
    41,819- In-process research and development
    
    
    6,287
    
    
    
    7,981- Other intangible assets
    
    
    13,914
    
    
    
    16,009Fair value of net assets acquired
    
    
    49,366
    
    
    
    72,960Excess fair value over cost
    
    
    39,508
    
    
    
    59,830Allocation of excess fair value over cost:- Property, machinery and equipment
    
    
    (1,511
    )
    
    
    (5,929
    )- Land use rights
    
    
    
    
    
    
    (1,222
    )- In-process research and development
    
    
    (6,287
    )
    
    
    (7,981
    )- Other intangible assets
    
    
    (13,914
    )
    
    
    (16,009
    )Excess fair value over cost allocated to
fair value of long-term assets
    
    
    (21,712
    )
    
    
    (31,141
    )Extraordinary gain before minority
interests
    
    
    17,796
    
    
    
    28,689Less: Minority interests share of
extraordinary gain
    
    
    (3,559
    )
    
    
    (11,093
    )Extraordinary gain after minority
interests
    
    
    14,237
    
    
    
    17,596
 F-28




---



##### Table of Contents



RMB000Inventories
    
    
    28,530Property, machinery and equipment
    
    
    36,737Net deferred income tax liabilities
    
    
    (8,746
    )Other tangible assets and liabilities acquired
    
    
    100,048Intangible assets:- In-process research and development
    
    
    41,739- Other intangible assets
    
    
    63,656Goodwill
    
    
    94,100Fair value of net assets acquired
    
    
    356,064Satisfied by:- Cash consideration
    
    
    170,343- Fair value of the Companys share issued (1,562,348 shares @ US$15.17 each)
    
    
    185,721Total purchase consideration
    
    
    356,064
  F-29




---



##### Table of Contents



RMB000Cost of extinguishment (7,800,000 shares @ US$12.00 per share)
    
    
    721,188(Less) add: Carrying value of:- Convertible notes
    
    
    (238,325
    )- Embedded derivatives
    
    
    (365,476
    )- Deferred debt issuance costs
    
    
    24,703Loss on extinguishment
    
    
    (142,090
    )
  RMB000Deemed proceeds from disposal (7,800,000 shares @ US$12.00 per share)
    
    
    721,188Less: Share of net assets relating to minority interest disposed of
    
    
    (221,659
    )Less: Goodwill relating to minority interest disposed of (Note 12)
    
    
    (16,915
    )Gain on disposal
    
    
    482,614
 F-30




---



##### Table of Contents



RMB000Share of net assets of QXMC after IPO
    
    
    1,315,647Less: Share of net assets of QXMC before IPO
    
    
    (915,057
    )Increase in share of net assets after IPO
    
    
    400,590Less: Goodwill relating to equity interest deemed disposed of (Note 12)
    
    
    (16,625
    )Gain on deemed disposal
    
    
    383,965
    Exercise of
    
    Repurchase ofshare options
    
    shares
    
    TotalRMB000
    
    RMB000
    
    RMB000Share of net assets of QXMC after transaction
    
    
    1,584,925
    
    
    
    1,706,718
    
    
    
    3,291,643Less: Share of net asset of QXMC before
transaction
    
    
    (1,583,087
    )
    
    
    (1,687,850
    )
    
    
    (3,270,937
    )Increase of net assets after transaction
    
    
    1,838
    
    
    
    18,868
    
    
    
    20,706Less: Goodwill relating to equity interest
deemed disposed/acquired (Note 12)
    
    
    (566
    )
    
    
    7,954
    
    
    
    7,388Gain on deemed disposal/acquisition
    
    
    1,272
    
    
    
    26,822
    
    
    
    28,094
   F-31




---



##### Table of Contents



RMB000Share of net assets of QXM after conversion
    
    
    1,838,425Less: Share of net asset of QXM before conversion
    
    
    (1,860,245
    )Decrease of net assets after transaction
    
    
    (21,820
    )Less: Goodwill relating to equity interest deemed
disposed/acquired (Note 12)
    
    
    (1,923
    )Loss on deemed disposal
    
    
    (23,743
    )
   BCYT
    
    HCECT
    
    TotalRMB000
    
    RMB000
    
    RMB000Cash
    
    
    924
    
    
    
    238
    
    
    
    1,162Other current assets
    
    
    20,866
    
    
    
    14,616
    
    
    
    35,482Property, machinery and equipment
    
    
    
    
    
    
    10,876
    
    
    
    10,876Current liabilities
    
    
    
    
    
    
    (5,808
    )
    
    
    (5,808
    )Minority interests
    
    
    (2,071
    )
    
    
    
    
    
    
    (2,071
    )Net assets disposed of
    
    
    19,719
    
    
    
    19,922
    
    
    
    39,641
  BCYT
    
    HCECT
    
    TotalRMB000
    
    RMB000
    
    RMB000Consideration
    
    
    20,000
    
    
    
    21,910
    
    
    
    41,910Net assets disposed
    
    
    (19,719
    )
    
    
    (19,922
    )
    
    
    (39,641
    )Gain on disposal
    
    
    281
    
    
    
    1,988
    
    
    
    2,269
 F-32




---



##### Table of Contents



BCYT
    
    HCECT
    
    TotalRMB000
    
    RMB000
    
    RMB000Consideration
    
    
    20,000
    
    
    
    21,910
    
    
    
    41,910Cash disposed of
    
    
    (924
    )
    
    
    (238
    )
    
    
    (1,162
    )Consideration
paid for through
set-off of
payables
    
    
    (20,000
    )
    
    
    (13,146
    )
    
    
    (33,146
    )Unpaid
consideration as
at December 31,
2008
    
    
    
    
    
    
    (8,764
    )
    
    
    (8,764
    )Net cash outflow
    
    
    (924
    )
    
    
    (238
    )
    
    
    (1,162
    )
   2007
    
    2008RMB000
    
    RMB000
    
    US$000Beginning of year
    
    
    110,134
    
    
    
    76,594
    
    
    
    11,227Amount deemed disposed of due to the
conversion of Notes by QXMC (Note
11(c))
    
    
    
    
    
    
    (1,923
    )
    
    
    (282
    )Amount increased due to repurchase of
stock by QXMC (Note 11(c)
    
    
    
    
    
    
    7,954
    
    
    
    1,166Amount disposed of due to the
disposition of minority interest in
QXMC (Note 11(c))
    
    
    (16,915
    )
    
    
    
    
    
    
    Amount deemed disposed of due to the
sale of stock by QXMC (Note 11(c))
    
    
    (16,625
    )
    
    
    (566
    )
    
    
    (83
    )End of year
    
    
    76,594
    
    
    
    82,059
    
    
    
    12,028
  F-33




---



##### Table of Contents



2007
    
    2008RMB000
    
    RMB000
    
    US$000Cost:- CECT brand
    
    
    39,835
    
    
    
    39,835
    
    
    
    5,839- Customer relationship
    
    
    5,418
    
    
    
    5,418
    
    
    
    794- Completed technology
    
    
    16,950
    
    
    
    16,950
    
    
    
    2,484- Core technology
    
    
    24,193
    
    
    
    24,193
    
    
    
    3,546- Backlog
    
    
    9,175
    
    
    
    9,175
    
    
    
    1,345- License
    
    
    1,725
    
    
    
    1,725
    
    
    
    25397,296
    
    
    
    97,296
    
    
    
    14,261Less: Accumulated impairment-CECT brand
    
    
    
    
    
    
    26,235
    
    
    
    3,845Less: Accumulated amortization- Customer relationship
    
    
    4,470
    
    
    
    5,118
    
    
    
    750- Completed technology
    
    
    10,866
    
    
    
    16,950
    
    
    
    2,484- Core technology
    
    
    10,455
    
    
    
    15,327
    
    
    
    2,247- Backlog
    
    
    9,175
    
    
    
    9,175
    
    
    
    1,345- License
    
    
    1,602
    
    
    
    1,725
    
    
    
    25336,568
    
    
    
    74,530
    
    
    
    10,924Other acquired intangible assets, net
    
    
    60,728
    
    
    
    22,766
    
    
    
    3,337
   F-34




---



##### Table of Contents



AmountRMB000
    
    US$000Year ending December 31,- 2009
    
    
    4,733
    
    
    
    694- 2010
    
    
    4,433
    
    
    
    650Total
    
    
    9,166
    
    
    
    1,344
 F-35




---



##### Table of Contents



2007
    
    2008RMB000
    
    RMB000
    
    US$000Bills payable
    
    
    264,335
    
    
    
    193,850
    
    
    
    28,414Bank loans
    
    
    1,157,119
    
    
    
    1,108,755
    
    
    
    162,514Other borrowings, secured by bills receivable
    
    
    50,000
    
    
    
    198,250
    
    
    
    29,0581,471,454
    
    
    
    1,500,855
    
    
    
    219,986
    2007
    
    2008RMB000
    
    RMB000
    
    US$000Pledged of:- Bank deposits of the Group
    
    
    197,951
    
    
    
    263,800
    
    
    
    38,666- Bank deposits of a director
    
    
    36,519
    
    
    
    
    
    
    
    - Bills receivable of the Group
    
    
    50,000
    
    
    
    40,000
    
    
    
    5,863Guarantees provided by:- QXGL
    
    
    160,000
    
    
    
    190,000
    
    
    
    27,849- QXGL and directors
    
    
    570,000
    
    
    
    360,000
    
    
    
    52,767- QXGL, directors and third parties
    
    
    400,000
    
    
    
    400,000
    
    
    
    58,630- Directors
    
    
    150,000
    
    
    
    368,500
    
    
    
    54,012
 F-36




---



##### Table of Contents



2007
    
    2008RMB000
    
    RMB000
    
    US$000Payables for purchase and construction
of property, machinery and equipment
    
    
    5,692
    
    
    
    5,941
    
    
    
    870Rental payable
    
    
    645
    
    
    
    1,243
    
    
    
    182Expenses relating to QXMCs IPO
    
    
    1,285
    
    
    
    
    
    
    
    Proceeds received from employees for the
exercise of share options
    
    
    30,911
    
    
    
    
    
    
    
    Others
    
    
    3,476
    
    
    
    6,940
    
    
    
    1,01842,009
    
    
    
    14,124
    
    
    
    2,070
   2007
    
    2008RMB000
    
    RMB000
    
    US$000Accruals for:- Design, licensing and tooling fees
    
    
    48,491
    
    
    
    41,516
    
    
    
    6,085- Salaries
    
    
    5,027
    
    
    
    5,861
    
    
    
    859- Staff benefits
    
    
    2,761
    
    
    
    3,022
    
    
    
    443- Advertising
    
    
    35
    
    
    
    35
    
    
    
    5- Warranty (Note 2(m))
    
    
    11,123
    
    
    
    7,973
    
    
    
    1,169- Interest
    
    
    10,876
    
    
    
    14,254
    
    
    
    2,089- Professional service fees
    
    
    9,756
    
    
    
    11,114
    
    
    
    1,629- Others
    
    
    1,596
    
    
    
    3,988
    
    
    
    585Provision for litigation settlement
    
    
    15,319
    
    
    
    
    
    
    
    104,984
    
    
    
    87,763
    
    
    
    12,864
 F-37




---



##### Table of Contents



2007
    
    2008RMB000
    
    RMB000
    
    US$0004.5% unsecured senior convertible notes (Note (a))
    
    
    189,660
    
    
    
    177,385
    
    
    
    26,0005.5% unsecured senior convertible notes (Note (b))
    
    
    135,667
    
    
    
    
    
    
    
    QXMC 4.0% unsecured senior convertible notes (Note (c))
    
    
    
    
    
    
    206,211
    
    
    
    30,225Total debts
    
    
    325,327
    
    
    
    383,596
    
    
    
    56,225Less: Amount classified as current liabilities
    
    
    (135,667
    )
    
    
    (383,596
    )
    
    
    (56,225
    )Amount classified as non-current liabilities
    
    
    189,660
    
    
    
    
    
    
    
    
     
    
    the notes bear interest at the rate of 4.5% per annum, payable in cash in arrears on
a calendar quarterly basis beginning December 31, 2006;
    
    the notes mature on April 30, 2009;
    
    the notes are convertible, at the investors option, into common stock of the
Company at an initial conversion price of US$14.30 per share. The conversion price for
the Companys common stock is subject to reset when the volume weighted average price
(VWAP) of the Companys common stock for the five trading days ending on each
six-month anniversary from October 31, 2006 until maturity of the Notes (each a Reset
Date) is less than US$13.00 (or such previously reset price). In the event of a
reset, the conversion price will be set equal to the greater of US$7.80 or 100% of the
VWAP of the Companys common stock for the five trading days ending on the applicable
Reset Date. As of December 31, 2008, the conversion price of the 4.5% Notes had been
reset to US$5.56 per share due to dilutive issuance adjustments related to the issuance and price reset of the 5.5% unsecured senior convertible
notes (Note(b));
    
    the notes will not be convertible to the extent that after giving effect to such
conversion, the investors (together with their affiliates) would beneficially own in
excess of 9.99% of the Companys common stock outstanding immediately after giving
effect to the conversion; and
    
    the holders of the notes have the right to require the Company to redeem the notes
after one year in an amount equal to the sum of (a) the outstanding principal of the
Notes, (b) the accrued and unpaid interest thereon, and (c) 3% on the sum of (a) and
(b). Consequently, the 4.5% Notes were classified as current liabilities on the
consolidated balance sheet as of December 31, 2006. Due to the expiration of the early
redemption option in October 2007, the 4.5% Notes were reclassified to non-current
liabilities as of December 31, 2007;
 F-38




---



##### Table of Contents




    
    the warrants have an initial exercise price of US$14.30 per share and may be
exercised at any time during a 5-year period commencing from October 31, 2006;
    
    the warrants will not be exercisable to the extent that after giving effect to such
exercise, the holder (together with its affiliates) would beneficially own in excess of
9.99% of the Companys common stock outstanding immediately after giving effect to such
exercise; and
    
    the warrants require an automatic repricing of the exercise price if the Company
makes certain sales of its common stock or common stock equivalents in a
capital-raising transaction at a price below the warrant exercise price.
  2007
    
    2008RMB000
    
    RMB000
    
    US$000Gross proceeds from 4.5% Notes
    
    
    202,475
    
    
    
    202,475
    
    
    
    29,678Discount on notes:- Equity-classified October Investor Warrants (Note (i))
    
    
    (14,534
    )
    
    
    (14,534
    )
    
    
    (2,130
    )- Liability-classified embedded derivatives (Note (ii))
    
    
    (111,341
    )
    
    
    (111,341
    )
    
    
    (16,320
    )Value of debt component at date of issue
    
    
    76,600
    
    
    
    76,600
    
    
    
    11,228Foreign currency realignment
    
    
    (10,242
    )
    
    
    (22,517
    )
    
    
    (3,300
    )Accretion of discount (Note (iii))
    
    
    123,302
    
    
    
    123,302
    
    
    
    18,072Value of debt component at end of year
    
    
    189,660
    
    
    
    177,385
    
    
    
    26,000
     F-39




---



##### Table of Contents



RMB000
    
    US$000Value on initial recognition
    
    
    111,341
    
    
    
    16,320Foreign currency realignment
    
    
    806
    
    
    
    118Gain on remeasurement included in earnings
    
    
    (29,449
    )
    
    
    (4,316
    )Balance at December 31, 2006
    
    
    82,698
    
    
    
    12,122Foreign currency realignment
    
    
    (3,318
    )
    
    
    (487
    )Gain on remeasurement included in earnings
    
    
    18,865
    
    
    
    2,765*Reclassification
    
    
    (89,531
    )
    
    
    (13,123
    )Balance at December 31, 2007
    
    
    8,714
    
    
    
    1,277Foreign currency realignment
    
    
    (468
    )
    
    
    (69
    )Gain on remeasurement included in earnings
    
    
    (5,296
    )
    
    
    (776
    )Balance at December 31, 2008
    
    
    2,950
    
    
    
    432Gain on remeasurement for the period include
in earnings attributable to the change in
unrealized gain of liabilities still
outstanding at end of year
    
    
    (5,296
    )
    
    
    (776
    )
 
 *
    
    Due to the expiration of the early redemption premium put in October 2007, the Company
reassessed the classification of the embedded conversion option of the 4.5% Notes and concluded
that all indicators for equity classification provided in EITF Issue No. 00-19 were present.
Consequently, the fair value of the embedded conversion option as of the date of expiration of the
early redemption premium put option, which amounted to approximately RMB89,531,000, was
reclassified to additional paid-in capital.    F-40




---



##### Table of Contents



2007
    
    2008RMB000
    
    RMB000
    
    US$000Amount attributed to June Agent Warrants (Note (i))
    
    
    10,529
    
    
    
    10,529
    
    
    
    1,543Other cash costs
    
    
    14,385
    
    
    
    14,385
    
    
    
    2,108Total deferred debt issuance costs on initial recognition
    
    
    24,914
    
    
    
    24,914
    
    
    
    3,651Foreign currency realignment
    
    
    (510
    )
    
    
    (510
    )
    
    
    (75
    )Accumulated amortization (Note (ii))
    
    
    (24,404
    )
    
    
    (24,404
    )
    
    
    (3,576
    )Net value at end of year
    
    
    
    
    
    
    
    
    
    
    
    F-41




---



##### Table of Contents




    
    the notes bear interest at the rate of 5.5% per annum, payable in cash in arrears on
a calendar semi-annual basis beginning December 31, 2007;
    
    the notes mature on February 17, 2010;
    
    the notes are convertible, at the investors option, into common stock of the
Company at an initial conversion price of US$10.19 per share. The conversion price for
the Companys common stock is subject to reset when the volume weighted average price
(VWAP) of the Companys common stock for the five trading days ending on each
two-month anniversary from August 17, 2007 until maturity of the Notes (each a Reset
Date) is less than US$9.26 (or such previously reset price). In the event of a reset,
the conversion price will be set equal to the greater of US$5.56 or 90% of the VWAP of
the Companys common stock for the five trading days ending on the applicable Reset
Date.
    
    the notes will not be convertible to the extent that after giving effect to such
conversion, the investors (together with their affiliates) would beneficially own in
excess of 9.99% of the Companys common stock outstanding immediately after giving
effect to the conversion; and
    
    the holders of the notes have the right to require the Company to redeem the notes
after one year in an amount equal to 100% of the sum of (a) the outstanding principal
of the Notes, (b) the accrued and unpaid interest thereon. Consequently, the 5.5% Notes
were classified as current liabilities on the consolidated balance sheet as of December
31, 2007.
  
    
    the warrants have an initial exercise price of US$10.19 per share and may be
exercised at any time during a 5-year period commencing from August 17, 2007;
    
    the warrants will not be exercisable to the extent that after giving effect to such
exercise, the holder (together with its affiliates) would beneficially own in excess of
9.99% of the Companys common stock outstanding immediately after giving effect to such
exercise; and
    
    the warrants require an automatic repricing of the exercise price if the Company
makes certain sales of its common stock or common stock equivalents in a
capital-raising transaction at a price below the warrant exercise price.
 F-42




---



##### Table of Contents



2007
    
    2008RMB000
    
    RMB000
    
    US$000Gross proceeds from 5.5% Notes
    
    
    189,900
    
    
    
    189,900
    
    
    
    27,834Discount on notes:- Equity-classified August Investor Warrants (Note (i))
    
    
    (13,703
    )
    
    
    (13,703
    )
    
    
    (2,009
    )- Equity-classified embedded derivative (Note (ii))- Liability-classified embedded derivatives (Note (ii))
    
    
    (11,064
    )
    
    
    (11,064
    )
    
    
    (1,622
    )Value of debt component at date of issue
    
    
    165,133
    
    
    
    165,133
    
    
    
    24,203Foreign currency realignment
    
    
    (6,375
    )
    
    
    (14,760
    )
    
    
    (2,187
    )Beneficial conversion amount arising on conversion
price reset (iii)
    
    
    (31,790
    )
    
    
    (104,998
    )
    
    
    (15,390
    )Accretion of discount (Note (iv))
    
    
    8,699
    
    
    
    126,388
    
    
    
    18,549Redemption of debt
    
    
    
    
    
    
    (171,763
    )
    
    
    (25,175
    )Value of debt component at end of year
    
    
    135,667
    
    
    
    
    
    
    
    Less: Amount classified as current liabilities
    
    
    (135,667
    )
    
    
    
    
    
    
    Amount classified as non-current liabilities
    
    
    
    
    
    
    
    
    
    
    
     F-43




---



##### Table of Contents



2007
    
    2008RMB000
    
    RMB000
    
    US$000Amount attributed to August Agent Warrants (Note (i))
    
    
    9,891
    
    
    
    9,891
    
    
    
    1,450Other cash costs
    
    
    13,743
    
    
    
    13,743
    
    
    
    2,014Total deferred debt issuance costs on initial recognition
    
    
    23,634
    
    
    
    23,634
    
    
    
    3,464Foreign currency realignment
    
    
    (754
    )
    
    
    (1,446
    )
    
    
    (190
    )Accumulated amortization (Note (ii))
    
    
    (8,301
    )
    
    
    (22,188
    )
    
    
    (3,274
    )Net value at end of year
    
    
    14,579
    
    
    
    
    
    
    
    
    F-44




---



##### Table of Contents




 
 
 
 
 
 
 
 
  F-45




---



##### Table of Contents




 
 
 
 
  2007
    
    2008RMB000
    
    RMB000
    
    US$000Gross proceeds from QXMC 4.0% Notes
    
    
    
    
    
    
    489,601
    
    
    
    71,763Discount on notes:- Equity-classified October QXMC Investor Warrants
(Note (i))
    
    
    
    
    
    
    (36,062
    )
    
    
    (5,286
    )- Liability-classified embedded derivatives (Note (ii))
    
    
    
    
    
    
    (304,037
    )
    
    
    (44,564
    )Value of debt component at date of issue
    
    
    
    
    
    
    149,502
    
    
    
    21,913Foreign currency realignment
    
    
    
    
    
    
    7,484
    
    
    
    1,097Accretion of discount (Note (iii))
    
    
    
    
    
    
    70,512
    
    
    
    10,335Partial conversion of Notes into ordinary shares
    
    
    
    
    
    
    (21,287
    )
    
    
    (3,120
    )Value of debt component at end of year
    
    
    
    
    
    
    206,211
    
    
    
    30,225
     F-46




---



##### Table of Contents



RMB000
    
    US$000Value on initial recognition
    
    
    304,037
    
    
    
    44,564Foreign currency realignment
    
    
    (6,551
    )
    
    
    (961
    )Gain on remeasurement included in earnings
    
    
    (144,939
    )
    
    
    (21,244
    )Settled on conversion of Notes
    
    
    (28,417
    )
    
    
    (4,165
    )Net value at end of year
    
    
    124,130
    
    
    
    18,194Gain on remeasurement for the period include in
earnings attributable to the change in unrealized
gain of liabilities still outstanding at end of
year
    
    
    (138,206
    )
    
    
    (20,257
    )
    2007
    
    2008RMB000
    
    RMB000
    
    US$000Amount attributed to August Agent Warrants (Note (i))
    
    
    
    
    
    
    31,451
    
    
    
    4,610Other cash costs
    
    
    
    
    
    
    20,887
    
    
    
    3,061Total deferred debt issuance costs on initial recognition
    
    
    
    
    
    
    52,338
    
    
    
    7,671Foreign currency realignment
    
    
    
    
    
    
    (1,198
    )
    
    
    (176
    )Accumulated amortization (Note (ii))
    
    
    
    
    
    
    (10,851
    )
    
    
    (1,590
    )Written-off conversion of QXMC 4% Notes
    
    
    
    
    
    
    (5,600
    )
    
    
    (821
    )Net value at end of year
    
    
    
    
    
    
    34,689
    
    
    
    5,084
    F-47




---



##### Table of Contents



RMB000
    
    US$000Fair value of ordinary shares issued (@
US$5.31 per share)
    
    
    55,054
    
    
    
    8,069(Less) add: Carrying amount of:- Notes
    
    
    (21,287
    )
    
    
    (3,120
    )- Accrued interest
    
    
    (316
    )
    
    
    (46
    )- Embedded derivatives
    
    
    (28,417
    )
    
    
    (4,165
    )- Deferred debt issuance costs
    
    
    5,600
    
    
    
    821Loss on extinguishment of convertible debts
    
    
    10,634
    
    
    
    1,559
 F-48




---



##### Table of Contents



WeightedNumber of
    
    average issueshares
    
    priceUS$Balance as of December 31, 2005
    
    
    18,646,676Issuance of shares to private investors
    
    
    5,000,000
    
    
    
    8.70Issuance of shares to option holders (Note 20(a))
    
    
    2,000,000
    
    
    
    7.00Issuance of shares to warrant holders (Note 20(c))
    
    
    2,395,979
    
    
    
    7.83Issuance of shares as part consideration for the
acquisition of the remaining 20% interest in QXMC
(Note 11(b))
    
    
    1,562,348
    
    
    
    15.17Balance of December 31, 2006
    
    
    29,605,003Issuance of shares to private investors
    
    
    1,300,000
    
    
    
    11.80Issuance of shares to warrant holders (Note 20(c))
    
    
    43,833
    
    
    
    4.54Balance of December 31, 2007
    
    
    30,948,836Balance of December 31, 2008
    
    
    30,948,836
  F-49




---



##### Table of Contents



Risk-free interest rate
    
    
    4.63
    %Expected dividend yield
    
    
    0.00
    %Expected term
    
    
    5 yearsExpected stock price volatility
    
    
    55.20
    %
    F-50




---



##### Table of Contents



Weighted
    
    Weightedaverage
    
    averageShares
    
    exercise
    
    remaining
    
    AggregateUnderlying
    
    price
    
    contractual
    
    intrinsicOptions
    
    per share
    
    term
    
    ValueUS$
    
    
    
    
    
    US$000Balance as of January 1, 2007
    
    
    
    
    
    
    Granted on March 19, 2007:- To a director and employees (Note (i))
    
    
    2,716,520
    
    
    
    7.50
    
    
    
    
    
    
    
    - To a consultant (Note (ii))
    
    
    1,200,000
    
    
    
    18.00
    
    
    
    
    
    
    
    Balance as of December 31, 2007
    
    
    3,916,520
    
    
    
    10.72Exercised
    
    
    (565,000
    )
    
    
    7.5
    
    
    
    
    
    
    
    Forfeited
    
    
    (140,000
    )
    
    
    7.5
    
    
    
    
    
    
    
    Balance as of December 31, 2008
    
    
    3,211,520
    
    
    
    11.42
    
    
    3.1 years
    
    
    Vested and expected to vest as of
December 31, 2008
    
    
    3,211,520
    
    
    
    11.42
    
    
    3.1 years
    
    
    Exercisable as of December 31, 2008
    
    
    1,847,680
    
    
    
    14.32
    
    
    2.3 years
    
    
    
    Fair value of underlying ordinary shares on grant date
    
    US$
    10.43Expected share price volatility
    
    
    47.50
    %Expected dividend yield
    
    
    0.0
    %Expected term (in years)
    
    
    3.5Risk-free interest rate
    
    
    5.0
    %
    F-51




---



##### Table of Contents



Fair value of QXMCs underlying ordinary share on grant date
    
    
    US$10.43Risk-free interest rate
    
    
    5.10
    %Expected dividend yield
    
    
    0.00
    %Expected term
    
    
    2.0 yearsExpected stock price volatility
    
    
    48.90
    %
 F-52




---



##### Table of Contents



WeightedNumber of
    
    averagestock
    
    exercisewarrants
    
    priceUS$Outstanding, as of December 31, 2005
    
    
    535,000
    
    
    
    9.784Issued:- To share investors and placement agents (Note (i))
    
    
    1,350,000
    
    
    
    10.578- To 3.5% Notes investors and placement agent
    
    
    1,844,955
    
    
    
    8.027- To 4.5% Notes investors and placement agent (Note 17(a))
    
    
    545,455
    
    
    
    14.300- To a consultant as settlement of outstanding accounts payable (Note (ii))
    
    
    150,000
    
    
    
    8.125Repricing adjustment (Note (iii))
    
    
    128,703
    
    
    
    Exercised
    
    
    (2,395,979
    )
    
    
    7.835Outstanding as of December 31, 2006
    
    
    2,158,134
    
    
    
    11.385Issued:- To share investors and placement agents (Note (iv))
    
    
    473,814
    
    
    
    13.000- To 5.5% Notes investors and placement agent (Note 17(b))
    
    
    736,016
    
    
    
    10.190Repricing adjustment (Note (v))
    
    
    1,555,191
    
    
    
    Exercised (Note (vi))
    
    
    (56,877
    )
    
    
    7.983Outstanding as of December 31, 2007
    
    
    4,866,278
    
    
    
    7.763Repricing adjustment (Note (vii))
    
    
    333,793
    
    
    
    Outstanding as of December 31, 2008
    
    
    5,200,071
    
    
    
    7.265Exercisable as of December 31, 2008
    
    
    5,200,071
    
    
    
    7.265Exercisable as of December 31, 2007
    
    
    4,866,278
    
    
    
    7.763
       F-53




---



##### Table of Contents



Weighted-averageNumber of
    
    remainingoutstanding
    
    contractual lifeExercise price (US$)
    
    warrants
    
    (years)5.560
    
    2,946,044
    
    2.316.333
    
    20,730
    
    1.156.899
    
    512,878
    
    1.057.966
    
    510,589
    
    1.1510.190
    
    736,016
    
    3.6313.000
    
    473,814
    
    2.845,200,071
    
    2.30
  2006
    
    2007
    
    2008Weighted average fair value
    
    US$
    4.17
    
    
    US$
    4.54
    
    
    
    Risk-free interest rate
    
    
    4.76
    %
    
    
    4.00
    %
    
    
    Expected dividend yield
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    Expected term
    

    3.05 years
    
    

    2.30 years
    
    
    
    Expected stock price volatility
    
    
    57.41
    %
    
    
    62.07
    %
    
    
    
 F-54




---



##### Table of Contents



Weighted
    
    Weightedaverage
    
    averageexercise
    
    remainingNumber of
    
    price
    
    contractualwarrants
    
    per share
    
    termUS$Investor Warrants
    
    
    1,648,721
    
    
    
    8.91
    
    
    4.4 yearsAgent Warrants
    
    
    942,127
    
    
    
    8.91
    
    
    4.4 yearsTotal
    
    
    2,590,848
    
    
    
    8.91
    
    
    4.4 yearsExercisable as of December 31, 2008
    
    
    2,590,848
    
    
    
    8.91
    
    
    4.4 years
  Stock price of underlying ordinary share on grant date
    
    US$
    7.45Risk-free interest rate
    
    
    4.3
    %Expected dividend yield
    
    
    0
    %Expected term
    
    5 yearsExpected stock price volatility
    
    
    65.38
    %
 F-55




---



##### Table of Contents



F-56




---



##### Table of Contents



2006
    
    2007
    
    2008RMB000
    
    RMB000
    
    RMB000
    
    US$000PRC income tax on current years profit- current
    
    
    62,904
    
    
    
    136,058
    
    
    
    163,072
    
    
    
    23,902- deferred
    
    
    (8,003
    )
    
    
    (11,938
    )
    
    
    1,115
    
    
    
    164Under provision of current income tax
in respect of prior years
    
    
    3,291
    
    
    
    
    
    
    
    
    
    
    
    58,192
    
    
    
    124,120
    
    
    
    164,187
    
    
    
    24,066
  2006
    
    2007
    
    2008PRC statutory income tax rate
    
    
    33.0
    %
    
    
    33.0
    %
    
    
    25.0
    %Tax effect of preferential tax rates
    
    
    (71.1
    %)
    
    
    (11.8
    %)
    
    
    Losses (gains) of BVI companies not subject to tax
    
    
    78.5
    %
    
    
    (11.0
    %)
    
    
    11.8
    %Non-deductible activities
    
    
    16.2
    %
    
    
    0.9
    %
    
    
    6.3
    %Changes in valuation allowance
    
    
    (6.0
    %)
    
    
    (0.2
    %)
    
    
    50.3
    %Effect of changes in expected future tax rates
    
    
    
    
    
    
    (0.4
    %)
    
    
    2.2
    %Effective income tax rate
    
    
    50.6
    %
    
    
    10.5
    %
    
    
    95.6
    %
  F-57




---



##### Table of Contents



Deferred tax assets  current portion
 2007
    
    2008RMB000
    
    RMB000
    
    US$000Allowance for doubtful accounts
    
    
    2,405
    
    
    
    60,627
    
    
    
    8,887Write-off of obsolete and slow-moving inventories
    
    
    8,974
    
    
    
    11,018
    
    
    
    1,615Provision for product warranties
    
    
    1,971
    
    
    
    1,490
    
    
    
    218Provision for advances to suppliers
    
    
    
    
    
    
    3,309
    
    
    
    485Tax losses carried forward
    
    
    
    
    
    
    16,947
    
    
    
    2,48413,350
    
    
    
    93,391
    
    
    
    13,689Valuation allowance
    
    
    
    
    
    
    (86,397
    )
    
    
    (12,664
    )Deferred income tax assets
    
    
    13,350
    
    
    
    6,994
    
    
    
    1,025
  Deferred tax liabilities  non-current portion
 2007
    
    2008RMB000
    
    RMB000
    
    US$000Property, machinery and equipment
    
    
    3,268
    
    
    
    3,110
    
    
    
    456Land use rights
    
    
    281
    
    
    
    275
    
    
    
    40Other acquired intangible assets
    
    
    (9,110
    )
    
    
    (3,705
    )
    
    
    (542
    )Deferred income tax liabilities
    
    
    (5,561
    )
    
    
    (320
    )
    
    
    (46
    )
  2007
    
    2008RMB000
    
    RMB000
    
    US$000Beginning of year
    
    
    2,451
    
    
    
    
    
    
    
    Increase in valuation allowance
    
    
    
    
    
    
    86,397
    
    
    
    12,664Release of valuation allowance
    
    
    (2,451
    )
    
    
    
    
    
    
    End of year
    
    
    
    
    
    
    86,397
    
    
    
    12,664
 F-58




---



##### Table of Contents



2007
    
    2008RMB000
    
    RMB000
    
    US$000PRC enterprise income tax
    
    
    64,566
    
    
    
    66,197
    
    
    
    9,703PRC value-added tax
    
    
    7,990
    
    
    
    (2,212
    )
    
    
    (324
    )PRC other taxes
    
    
    745
    
    
    
    253
    
    
    
    3773,301
    
    
    
    64,238
    
    
    
    9,416
     F-59




---



##### Table of Contents



23.
    
    EARNINGS (LOSS) PER COMMON SHARE
  2006
    
    2007
    
    2008RMB
    
    RMB
    
    RMB
    
    US$Net income (loss) before extraordinary items
    
    
    (34,071,000
    )
    
    
    886,352,000
    
    
    
    (136,794,000
    )
    
    
    (20,049,000
    )Amount allocated to participating convertible notes
    
    
    
    
    
    
    (156,417,000
    )
    
    
    
    
    
    
    Net income (loss) before extraordinary items
attributable to common stockholders
    
    
    (34,071,000
    )
    
    
    729,935,000
    
    
    
    (136,794,000
    )
    
    
    (20,049,000
    )Extraordinary items
    
    
    14,237,000
    
    
    
    17,596,000
    
    
    
    
    
    
    
    Amount allocated to participating convertible notes
    
    
    
    
    
    
    (3,105,000
    )
    
    
    
    
    
    
    Extraordinary items attributable to common stockholders
    
    
    14,237,000
    
    
    
    14,491,000
    
    
    
    
    
    
    
    Net income (loss) after extraordinary items
attributable to common stockholders
    
    
    (19,834,000
    )
    
    
    744,426,000
    
    
    
    (136,794,000
    )
    
    
    (20,049,000
    )Net income (loss) before extraordinary items
attributable to common stockholders
    
    
    (34,071,000
    )
    
    
    729,935,000
    
    
    
    (136,794,000
    )
    
    
    (20,049,000
    )Add: Interest on 4.5% Notes
    
    
    14,636,000
    
    
    
    
    
    
    
    
    
    
    
    Less: Gain on remeasurement of embedded derivatives
relating to 4.5% Notes
    
    
    (29,449,000
    )
    
    
    
    
    
    
    
    
    
    
    Fully diluted net income (loss) before extraordinary
items attributable to common stockholders
    
    
    (48,884,000
    )
    
    
    729,935,000
    
    
    
    (136,794,000
    )
    
    
    (20,049,000
    )Extraordinary items attributable to common stockholders
    
    
    14,237,000
    
    
    
    14,491,000
    
    
    
    
    
    
    
    Fully diluted net income (loss) after extraordinary
items attributable to common stockholders
    
    
    (34,647,000
    )
    
    
    744,426,000
    
    
    
    (136,794,000
    )
    
    
    (20,049,000
    )Weighted average common shares basic
    
    
    23,712,000
    
    
    
    29,836,000
    
    
    
    30,949,000
    
    
    
    30,949,000Effect of dilutive stock options, warrants and
convertible notes
    
    
    304,000
    
    
    
    364,000
    
    
    
    
    
    
    
    Weighted average common shares diluted
    
    
    24,016,000
    
    
    
    30,200,000
    
    
    
    30,949,000
    
    
    
    30,949,000Basic earnings (loss) per common share:Before extraordinary items
    
    
    (1.44
    )
    
    
    24.46
    
    
    
    (4.42
    )
    
    
    (0.65
    )Extraordinary items
    
    
    0.60
    
    
    
    0.49
    
    
    
    
    
    
    
    After extraordinary items
    
    
    (0.84
    )
    
    
    24.95
    
    
    
    (4.42
    )
    
    
    (0.65
    )Diluted earnings(loss) per common share:Before extraordinary items
    
    
    (2.03
    )
    
    
    24.17
    
    
    
    (5.89
    )
    
    
    (0.86
    )
 F-60




---



##### Table of Contents



2006
    
    2007
    
    2008RMB
    
    RMB
    
    RMB
    
    US$Extraordinary items
    
    
    0.59
    
    
    
    0.48
    
    
    
    
    
    
    
    After extraordinary items
    
    
    (1.44
    )
    
    
    24.65
    
    
    
    (5.89
    )
    
    
    (0.86
    )
      F-61




---



##### Table of Contents



25.
    
    COMMITMENTS AND CONTINGENCIES
   2007
    
    2008RMB000
    
    RMB000
    
    US$000Capital expenditures authorized and
contracted for:- Purchase of machinery and equipment
    
    
    130
    
    
    
    130
    
    
    
    19130
    
    
    
    130
    
    
    
    19
   AmountRMB000
    
    US$000For the years ending December 31,- 2009
    
    
    5,697
    
    
    
    835- 2010
    
    
    4,800
    
    
    
    704- 2011
    
    
    705
    
    
    
    103Total
    
    
    11,202
    
    
    
    1,642
  F-62




---



##### Table of Contents



a)
    
    A qualitative description of the factors that make up the goodwill.b)
    
    The amounts recognized as of the acquisition date for each major class
of assets acquired and liabilities assumed.c)
    
    The total amount of goodwill that is expected to be deductible for tax
purposes.
 F-63




---



##### Table of Contents



China Luxuriance Jade Company Ltd and its Subsidiaries
Condensed Consolidated Balance Sheet as April 6,2009
 RMB000
    
    US$000(unaudited)
    
    (unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    
    1,646
    
    
    
    241Inventories
    
    
    1,304
    
    
    
    191Prepaid expenses
    
    
    200
    
    
    
    29Other receivables
    
    
    3,345
    
    
    
    491Due from related parties
    
    
    41,328
    
    
    
    6,058Total current assets
    
    
    47,823
    
    
    
    7,010Non-current assets
    
    
    
    
    
    
    Fixed assets, net
    
    
    66,521
    
    
    
    9,750Construction-in-progress
    
    
    59,690
    
    
    
    8,749Intangible assets
    
    
    78,200
    
    
    
    11,462Total non-current assets
    
    
    204,411
    
    
    
    29,961Total assets
    
    
    252,234
    
    
    
    36,971LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS EQUITYCurrent liabilitiesOther payables
    
    
    76,908
    
    
    
    11,272Accrued liabilities
    
    
    304
    
    
    
    45Due to related parties
    
    
    46,604
    
    
    
    6,831Total current liabilities
    
    
    123,816
    
    
    
    18,148Total liabilities
    
    
    123,816
    
    
    
    18,148Shareholders equityShare capital
    
    
    131,248
    
    
    
    19,238Cumulative translation adjustments
    
    
    30
    
    
    
    4Deficits
    
    
    (2,860
    )
    
    
    (419
    )Total shareholders equity
    
    
    128,418
    
    
    
    18,823Total liability and shareholders equity
    
    
    252,234
    
    
    
    36,971
 F-64




---



##### Table of Contents



RMB000
    
    US$000Aggregate purchase price
    
    
    163,740
    
    
    
    24,000Less: Carrying amount of:- Notes
    
    
    (120,775
    )
    
    
    (17,703
    )- Accrued interest
    
    
    (2,019
    )
    
    
    (296
    )- Embedded derivatives
    
    
    (39,869
    )
    
    
    (5,844
    )- Deferred debt issuance costs
    
    
    (13,685
    )
    
    
    (2,006
    )Gain on extinguishment of convertible debts
    
    
    (12,608
    )
    
    
    (1,849
    )
       F-65




---



##### Table of Contents



28.
    
    RELATED PARTY TRANSACTIONS
  Name of related parties
    
    Existing relationship with the CompanyMr. Zhi Jian Wu Li
    
    Major shareholderMr. Rui Lin Wu
    
    Director and father of Mr. Zhi Jian Wu LiWu Holdings Limited
    
    Intermediate holding companyExquisite Jewel Limited
    
    Minority shareholderMetrolink Holdings Limited
    
    Minority shareholderSpecialist Consultants Limited
    
    Minority shareholderQiao Xing Group Limited (QXGL)
    
    Common director and minority shareholder
of CECT, QXCI and QXPLHuizhou Qiaoxing Famous Science
& Technology Co., Ltd. (QFST)
    
    A company 80% owned by QXGL
  2006
    
    2007
    
    2008RMB000
    
    RMB000
    
    RMB000
    
    US$000Property management fee paid or payable to:- QXGL
    
    
    90
    
    
    
    100
    
    
    
    119
    
    
    
    17Sales to:- QFST
    
    
    69,232
    
    
    
    95,514
    
    
    
    133,611
    
    
    
    19,584
  F-66




---



##### Table of Contents



2007
    
    2008RMB000
    
    RMB000
    
    US$000Due from:- Exquisite Jewel Limited
    
    
    5
    
    
    
    5
    
    
    
    1- Wu Holdings Limited
    
    
    22
    
    
    
    20
    
    
    
    327
    
    
    
    25
    
    
    
    4Due to:- Mr. Rui Lin Wu
    
    
    608
    
    
    
    905
    
    
    
    133Accounts receivable from:- QFST
    
    
    97,070
    
    
    
    179,935
    
    
    
    26,374
  F-67




---



##### Table of Contents



29.
    
    SEGMENT ANALYSIS
  Mobile Phones
    
    Indoor Phones
    
    Corporate
    
    TotalRMB000
    
    RMB000
    
    RMB000
    
    RMB0002006Revenue
    
    
    2,985,432
    
    
    
    235,780
    
    
    
    
    
    
    
    3,221,212Gross margin
    
    
    528,303
    
    
    
    41,517
    
    
    
    
    
    
    
    569,820Inventories
    
    
    213,688
    
    
    
    18,668
    
    
    
    
    
    
    
    232,356Property, machinery and equipment
    
    
    207,887
    
    
    
    1,645
    
    
    
    10
    
    
    
    209,542Expenditures for long-lived assets
    
    
    207,379
    
    
    
    109
    
    
    
    1,200
    
    
    
    208,6882007Revenue
    
    
    3,636,431
    
    
    
    237,676
    
    
    
    
    
    
    
    3,874,107Gross margin
    
    
    943,753
    
    
    
    31,390
    
    
    
    
    
    
    
    975,143Inventories
    
    
    289,937
    
    
    
    14,087
    
    
    
    
    
    
    
    304,024Property, machinery and equipment
    
    
    190,785
    
    
    
    1,709
    
    
    
    107
    
    
    
    192,601Expenditures for long-lived assets
    
    
    5,842
    
    
    
    549
    
    
    
    645
    
    
    
    7,0362008Revenue
    
    
    2,342,754
    
    
    
    252,194
    
    
    
    
    
    
    
    2,594,948Gross margin
    
    
    846,674
    
    
    
    29,250
    
    
    
    
    
    
    
    875,924Inventories
    
    
    232,340
    
    
    
    8,970
    
    
    
    
    
    
    
    241,310Property, machinery and equipment
    
    
    180,585
    
    
    
    2,420
    
    
    
    132
    
    
    
    183,137Expenditures for long-lived assets
    
    
    18,839
    
    
    
    1,273
    
    
    
    49
    
    
    
    20,161
 F-68




---



##### Table of Contents



2006
    
    2007
    
    2008Beijing U-life International Technology
Co., Ltd.
    
    
    
    
    
    
    
    
    
    
    53
    %Beijing Jiasheng Ruitong Electronics
Co., Ltd
    
    
    
    
    
    
    
    
    
    
    12
    %Beijing Beidou Communication & Equipment
Co., Ltd.
    
    
    
    
    
    
    11
    %
    
    
    Shenzhen Laidi Technical Co., Ltd.
    
    
    24
    %
    
    
    10
    %
    
    
    Shenzhen Siecom Communication Technology
Development Co., Ltd.
    
    
    10
    %
    
    
    10
    %
    
    
    Beijing Ho.COM Electronic Co., Ltd.
    
    
    12
    %
    
    
    
    
    
    
    Beijing Jiusheng Technology Co., Ltd.
    
    
    14
    %
    
    
    
    
    
    
    
   2006
    
    2007
    
    2008QFST (Note 28)
    
    
    26
    %
    
    
    40
    %
    
    
    53
    %
 F-69




---



##### Table of Contents



30.
    
    OTHER ADDITIONAL INFORMATION
  2006
    
    2007
    
    2008RMB000
    
    RMB000
    
    RMB000
    
    US$000Interest expense:- bank loans
    
    
    33,801
    
    
    
    46,408
    
    
    
    93,147
    
    
    
    13,654- other bank borrowings
    
    
    10,261
    
    
    
    8,142
    
    
    
    9,329
    
    
    
    1,367- convertible notes
    
    
    7,692
    
    
    
    15,405
    
    
    
    25,772
    
    
    
    3,777- accretion of discounts on
convertible notes (Note 17)
    
    
    36,880
    
    
    
    140,251
    
    
    
    188,201
    
    
    
    27,585- amortization of deferred
debt issuance costs (Note
17)
    
    
    11,339
    
    
    
    37,321
    
    
    
    24,738
    
    
    
    3,626- shareholders loans
(imputed interest) (Note
18)
    
    
    459
    
    
    
    487
    
    
    
    437
    
    
    
    64Total interest expense
    
    
    100,432
    
    
    
    248,014
    
    
    
    341,624
    
    
    
    50,073Advertising expenses
    
    
    13,886
    
    
    
    41,316
    
    
    
    143,034
    
    
    
    20,965Shipping and handling costs
    
    
    10,862
    
    
    
    19,011
    
    
    
    16,173
    
    
    
    2,371
 F-70




---



##### Table of Contents



ITEM 19. EXHIBITS
  
  Exhibit 1.1
    
    Memorandum of Association of the Company  incorporated by reference to the Exhibits to our Registration Statement
on Form F-1, SEC File No. 333-9274, declared effective on February 16, 1999.Exhibit 1.2
    
    Articles of Association of the Company  incorporated by reference to the Exhibits to our Registration Statement
on Form F-1, SEC File No. 333-9274, declared effective on February 16, 1999.Exhibit 1.3
    
    Memorandum of Association of the Company, as amended on January 9, 2009Exhibit 4.1
    
    Securities Purchase Agreement dated as of August 17, 2007 covering the sale of US$25,000,000 of our 5.5% senior
convertible notes and common stock purchase warrants*Exhibit 4.2
    
    Form of 5.5% Senior Convertible Note issued pursuant to the Securities Purchase Agreement dated as of August 17,
2007*Exhibit 4.3
    
    Form of Warrant issued pursuant to the Securities Purchase Agreement dated as of August 17, 2007*Exhibit 4.4
    
    Non-competition Agreement, dated April 12, 2007, among Qiao Xing Universal Telephone, Inc., Huizhou Qiao Xing
Communication Industry, Ltd., Mr. Rui Lin Wu and Qiao Xing Mobile Communication Co., Ltd.**Exhibit 4.5
    
    Share Purchase Agreement By and Among the Company, China Luxuriance Jade Company, Ltd. and The China Luxuriance
Jade Company, Ltd. Sole Shareholder dated March 24, 2009  incorporated by reference to Exhibit 99.2 to the Report
on Form 6-K dated April 6, 2009, SEC File No. 0-29946.Exhibit 4.6
    
    Sale and Purchase Agreement By and Among the Company, DKR SoundShore Oasis Holding Fund Ltd., CEDAR DKR Holding
Fund Ltd. and Chestnut Fund Ltd. dated March 31, 2009  incorporated by reference to Exhibit 99.2 to the Report on
Form 6-K dated April 6, 2009, SEC File No. 0-29946.Exhibit 8.1
    
    List of Significant Subsidiaries of the CompanyExhibit 11.1
    
    Code of Ethics***Exhibit 12.1
    
    Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)Exhibit 12.2
    
    Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)Exhibit 13.1
    
    Certification of Chief Executive Officer Pursuant to Rule 13a-14(b) and 18 U.S.C. Section1350
 71




---



##### Table of Contents



Exhibit 13.2
    
    Certification of Chief Financial Officer Pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350Exhibit 15.1
    
    Consent of Grobstein, Horwath & Company LLPExhibit 15.2
    
    Consent of Crowe Horwath LLP
 
 *
    
    - incorporated by reference to the Exhibits to our Report on Form 6-K filed with the SEC on
August 21, 2007, SEC File No. 000-29946.**
    
    - incorporated by reference to the Exhibits to our annual report on Form 20-F for the fiscal
year ended December 31, 2006.***
    
    - incorporated by reference to the Exhibits to our annual report on Form 20-F for the fiscal
year ended December 31, 2003. 72




---



##### Table of Contents



SIGNATURES
  QIAO XING UNIVERSAL TELEPHONE, INC.
(Registrant)Date:  July 15, 2009
    
    By:
    /s/ RUI LIN WURui Lin WuChairman 73




---



##### Table of Contents



INDEX TO EXHIBITS
 DESCRIPTION
 Exhibit 1.1
    
    Memorandum of Association of the Company  incorporated by reference to the Exhibits to our Registration Statement
on Form F-1, SEC File No. 333-9274, declared effective on February 16, 1999.Exhibit 1.2
    
    Articles of Association of the Company  incorporated by reference to the Exhibits to our Registration Statement
on Form F-1, SEC File No. 333-9274, declared effective on February 16, 1999.Exhibit 1.3
    
    Memorandum of Association of the Company, as amended on January 9, 2009Exhibit 4.1
    
    Securities Purchase Agreement dated as of August 17, 2007 covering the sale of US$25,000,000 of our 5.5% senior
convertible notes and common stock purchase warrants*Exhibit 4.2
    
    Form of 5.5% Senior Convertible Note issued pursuant to the Securities Purchase Agreement dated as of August 17,
2007*Exhibit 4.3
    
    Form of Warrant issued pursuant to the Securities Purchase Agreement dated as of August 17, 2007*Exhibit 4.4
    
    Non-competition Agreement, dated April 12, 2007, among Qiao Xing Universal Telephone, Inc., Huizhou Qiao Xing
Communication Industry, Ltd., Mr. Rui Lin Wu and Qiao Xing Mobile Communication Co., Ltd.**Exhibit 4.5
    
    Share Purchase Agreement By and Among the Company, China Luxuriance Jade Company, Ltd. and The China Luxuriance
Jade Company, Ltd. Sole Shareholder dated March 24, 2009  incorporated by reference to Exhibit 99.2 to the Report
on Form 6-K dated April 6, 2009, SEC File No. 0-29946.Exhibit 4.6
    
    Sale and Purchase Agreement By and Among the Company, DKR SoundShore Oasis Holding Fund Ltd., CEDAR DKR Holding
Fund Ltd. and Chestnut Fund Ltd. dated March 31, 2009  incorporated by reference to Exhibit 99.2 to the Report on
Form 6-K dated April 6, 2009, SEC File No. 0-29946.Exhibit 8.1
    
    List of Significant Subsidiaries of the CompanyExhibit 11.1
    
    Code of Ethics***Exhibit 12.1
    
    Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)Exhibit 12.2
    
    Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)Exhibit 13.1
    
    Certification of Chief Executive Officer Pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350Exhibit 13.2
    
    Certification of Chief Financial Officer Pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350Exhibit 15.1
    
    Consent of Grobstein, Horwath & Company LLPExhibit 15.2
    
    Consent of Crowe Horwath LLP
 
 *
    
    - incorporated by reference to the Exhibits to our Report on Form 6-K filed with the SEC on
August 21, 2007, SEC File No. 000-29946.




---



##### Table of Contents



**
    
    - incorporated by reference to the Exhibits to our annual report on Form 20-F for the fiscal
year ended December 31, 2006***
    
    - incorporated by reference to the Exhibits to our annual report on Form 20-F for the fiscal
year ended December 31, 2003