SOURCE: Orsus Xelent Technologies, Inc.

August 14, 2008 08:45 ET

Orsus Xelent Says Record Sales of Traditional Mobile Phones Drove 77% Increase in 2008 Second Quarter Revenues to Nearly $29 Million

Non-Cash Expenses of Share-Based Compensation Plan Reduced Q2 Net Income Increase to 4%; Gain Was Approximately 27% Through First Six Months; Company Anticipates Second Half Margin Improvement With Pick Up in Higher Margin Customized Handsets Sales and Internal Manufacturing; Company to Host Investor Conference Call on Thursday, August 21 at 8:00am ET

NEW YORK, NY--(Marketwire - August 14, 2008) - Orsus Xelent Technologies, Inc. (AMEX: ORS), a designer and manufacturer of award-winning mobile phones for the Asian market, today announced that revenues in its second quarter ended June 30, 2008 grew nearly 77% to $28,894,000 compared with $16,356,000 in the same period last year. The Company said that, pending a clearer picture of the still ongoing major changes occurring in the Chinese telecom industry, as previously reported it switched its strategic focus before the start of the year to expanding its share of the traditional domestic cell phone market, and further strengthening its product visibility with ordinary consumers by focusing on sales of its feature rich, lower cost traditional mobile phones. It said the extent of its success thus far is reflected in the sale of a record 568,000 cell phone units in the first six months of 2008, which nearly equaled the total number of phones sold in all of 2007. Concomitantly, revenues in the first six months of 2008 reached a record $49,613,000, an increase of 36.43% over the comparable period in 2007.

The Company said that its decision to focus on expanding the sales of lower end traditional phones required a temporary sacrifice in gross margins, which in the 2008 second quarter were 10.96% as compared with 19.41% in the same period last year. This was a key factor in the limited, approximately 4% advance in net income in the second quarter to $1,506,000, as compared with net income of $1,449,000 in the same period last year. At the same time, through the first six months of 2008, net income grew approximately 27% to $3,423,000, compared with $2,696,000 in the 2007 first half. Further, according to the Company, the gain in the period would have been closer to 50% except for the required inclusion in the 2008 first half results of amortization costs for stock option grants to employees totaling $725,000. This, according to the Company, was a reflection of the fair value of options using a Binomial Lattice model and principles of SFAS No. 123R. Share-based compensation expenses were on a non-cash and non-operating basis and have been accounted for in General and Administrative Expenses for the quarter.

Earnings per share in the 2008 second quarter were 5.06¢, compared with 4.87¢ in the same period last year. For the six months period, earnings per share grew nearly 27% to 11.50¢, compared with 9.06¢ in the first half of 2007.

The Company said it was extremely pleased with the results in the period, especially given the still unclear industry environment which limited its opportunity to build sales of higher end, higher margin customized products, which is a key component of the Company's growth strategy. The Company expects this situation will improve in the second half and positively affect margins, together with the anticipated acquisition of a manufacturing facility. At the same time, the Company said it has expanded its market share and demonstrated its ability to swiftly and successfully respond to a changed environment.

The Company noted further that the dramatic ramp up in sales not only was a reflection of its strong marketing skills, but also its ability to quickly develop successful products that capture consumer attention in a highly competitive environment. As such, during the quarter, the traditional phones the Company designed and sold, were equipped with numerous industry leading features, such as dual simcards and functional multi-media, as well as compelling new designs and colors, despite their lower prices. Going forward, upon successful completion of the announced plan to acquire a manufacturing facility, management believes the Company will be positioned even more strongly to respond quickly and flexibly to changing market and consumer demands.

Planned Acquisition of Manufacturing Facility

After the end of the quarter, the Company announced it signed a Letter of Intent to acquire 60% of Dalian Daxian Investment Development Co. LTD. (DDID) for approximately $14 million, after terminating all discussions with Lemon Times, which it had previously sought to acquire. If the acquisition is successfully completed, the Company would obtain what it believes is an outstanding, well located manufacturing facility with which it could fulfill its goal of higher margin, internal product production. According to the Company, discussions with DDID remain on track and as key milestones in the process are achieved, it will provide updates on its progress.

3G-TD-SCDMA Market

Particularly upon successful acquisition of a manufacturing facility, the Company remains very positive about becoming a competitive participant in the new 3G-TD-SCDMA market, which it believes will offer significant new growth opportunities when it is fully opened up and coverage of this new domestic market is extended to additional cities and provinces across the country.

Strong Growth Outlook

Looking ahead, the Company is confident with its previously issued guidance for 2008, of an anticipated increase in full year sales of more than 30% to between $120 million and $130 million, and growth in full year net income to between $14.5 million and $15.5 million, a gain of more than 50%, contingent upon completion of its planned manufacturing acquisition.

Conference Call Invitation

The Company will host a conference call to discuss its second quarter results for the period ended June 30, 2008 and its FY outlook on Thursday, August 21, 2008 at 8:00 a.m. EDT.

Interested participants should call 1-800-762-8795 when calling within the United States or 1-480-629-9572 when calling internationally. Please ask for the Orsus Xelent Conference Call, Pass Code 3912200. There will be a playback available until 08/28/2008. To listen to the playback, please call 1-800-406-7325 when calling within the United States or 1-303-590-3030 when calling internationally. Use the Pass Code 3912200 for the replay.

This call is being webcast by ViaVid Broadcasting and can be accessed by clicking on this link http://viavid.net/dce.aspx?sid=0000554E or at ViaVid's website at www.viavid.net. The webcast can be accessed through August 21, 2009.

-TABLES ATTACHED-

Orsus Xelent Technologies, Inc.
Condensed Consolidated Statements of Operations and Other Comprehensive
Income
For the 6 months ended June 30, 2008 and 2007,
(Dollars in thousands except share data and per share amounts)


                                (Unaudited)             (Unaudited)
                            Three months ended        Six months ended
                                June 30,                  June 30,
                           ----------------------  ----------------------
                              2008        2007        2008        2007
                      Note   US$'000     US$'000     US$'000     US$'000

Operating revenue -
 Net sales                     28,894      16,356      49,613      36,365
                           ----------  ----------  ----------  ----------

 Cost of operating
 revenue                      (25,728)    (13,181)    (43,229)    (29,522)
                           ----------  ----------  ----------  ----------

 Gross income                   3,166       3,175       6,384       6,843
                           ----------  ----------  ----------  ----------

 Operating expenses:
                           ----------  ----------  ----------  ----------
 Sales and marketing             (122)       (134)       (225)       (247)
 General and
  administrative               (1,135)       (614)     (1,571)     (1,988)
 Research and
  development                     (26)       (243)       (141)       (296)
 Depreciation                     (24)        (35)        (49)        (87)
 Allowance for
  obsolete
  inventories                       -        (272)          -        (592)
                           ----------  ----------  ----------  ----------

 Total operating
  expenses                     (1,307)     (1,298)     (1,986)     (3,210)
                           ----------  ----------  ----------  ----------

                      ----

Operating income                1,859       1,877       4,398       3,633
                      ----
                      ----
Other income
 (expenses)
Interest
 expense                         (240)       (177)       (478)       (304)
                      ----
Other income, net                 214           5         378           7
                      ---- ----------  ----------  ----------  ----------
                      ----
Income before income
 taxes                          1,833       1,705       4,298       3,336
                      ----

Income taxes                     (327)       (256)       (875)       (640)
                           ----------  ----------  ----------  ----------

                      ----

Net income                      1,506       1,449       3,423       2,696

Other comprehensive
 income
Foreign
 currency translation
 adjustment                        50           -       1,516           -
                           ----------  ----------  ----------  ----------

Comprehensive income            1,556       1,449       4,939       2,696
                           ==========  ==========  ==========  ==========

Earnings per share:

Basic and diluted
 (US$)                      5.06cents   4.87cents  11.50cents   9.06cents
                           ==========  ==========  ==========  ==========

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



Orsus Xelent Technologies, Inc.
Condensed Consolidated Balance Sheets
As of June 30, 2008 and December 31, 2007

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

                                             As of        As of
                                              June     December
                                          30, 2008     31, 2007
                               Note   US$’000      US$’000
                                      ------------ ------------
ASSETS                                (Unaudited)
Current assets
 Cash and cash equivalents                   1,558        2,928
 Accounts receivable, net of
  allowance                                 72,241       57,743
 Inventories, net                                -            4
 Trade deposit paid, net                     9,428          839
 Other current assets             4          4,448        4,196
 Pledged deposit                  6          1,256        1,206
                                      ------------ ------------

 Total current assets                       88,931       66,916

Property, plant and equipment,
 net                              5            281          318
                                      ------------ ------------

Total assets                                89,212       67,234
                                      ============ ============
                                      ------------ ------------
LIABILITIES AND STOCKHOLDERS’
 EQUITY
                                      ------------ ------------
Current liabilities
                               ----   ------------ ------------
 Short-term bank loans            6          9,541        9,160
                               ----
 Short-term loan from a
  non-financial institution       7             57            -
                               ----
 Current portion of mortgage
  loan                            8             45           68
                               ----
 Accounts payable - Trade                   24,026       10,854
                               ----
 Accrued expenses and other
  accrued liabilities                        9,564        8,048
                               ----
 Trade deposits received                     1,907        1,709
                               ----
 Due to directors                 9            408          323
                               ----
 Provision for warranty                        128          123
 Tax payables                                3,975        3,047
                                      ------------ ------------

 Total current liabilities                  49,651       33,332
                                      ------------ ------------

 Non-current
  liabilities
Mortgage loan                     8              -            5
                                      ------------ ------------
                                      ------------ ------------

Commitments and contingencies    11              -            -
                                      ------------ ------------
                                      ------------ ------------

Stockholders’ equity                  ------------ ------------
Preferred stock, US$0.001 par
 value:
Authorized: 100,000,000 shares,
 no shares issued                                -            -
                                      ------------ ------------
Common stock and paid-in
 capital, US$0.001 par value:
Authorized: 100,000,000 shares
 Issued and outstanding:
 29,756,000 shares as of June
 30, 2008 and as of December
 31, 2007                        12             30           30
                                      ------------ ------------
Additional paid-in capital                   3,209        2,484
                                      ------------ ------------
Dedicated reserves                           1,042        1,042
                                      ------------ ------------
Accumulated other
 comprehensive income                        4,422        2,906
                                      ------------ ------------
Retained earnings                           30,858       27,435
                                      ------------ ------------

                                      ------------ ------------
Total stockholders’ equity                  39,561       33,897
                                      ------------ ------------

                                      ------------ ------------
Total liabilities and
 stockholders’ equity                       89,212       67,234
                                      ============ ============

About Orsus Xelent Technologies, Inc.

Incorporated in the State of Delaware and headquartered in Beijing, China, Orsus Xelent Technologies, Inc. is an emerging designer and manufacturer of award-winning mobile phones for the Asian market, primarily the People's Republic of China (PRC). The Company's business encompasses the design of mobile phones, related digital circuits, and software development, and it is a recognized pioneer in mobile phone integration technology. It introduced the region's first wristwatch-style cellular phone, and it continues to break new ground with state-of-the-art phones that include advanced features such as finger print recognition and touch-screen displays. Increasingly, the Company is focused on developing and marketing, under its Proxlink trademark, special application mobile phones for specialized users in a wide variety of professions in business and government. Since the Company's launch in 2004, it has established "Orsus" as a popular brand and achieved a significant share of the world's largest mobile phone market. It maintains more than 179 service call centers across the PRC, with additional offices in Shanghai, Hong Kong, Shenzhen, and Tianjin. For more information, please visit the Company's web site: www.orsus-xelent.com.

Information Regarding Forward-Looking Statements

Except for historical information contained herein, the statements in this Press Release are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties, which may cause our actual results in future periods to differ materially from forecasted results. These risks and uncertainties include, among other things, product demand, market competition, and risks inherent in our operations. These and other risks are described in our filings with the Securities and Exchange Commission.

Contact Information

  • Contact:
    Orsus Xelent Technologies, Inc.
    Xavier Xin Wang
    President & CEO

    PRC:
    Tel 010-85653777
    Fax 010-85653666

    US:
    Investors:
    Tel: 212-402-7838
    Fax: 212-425-6951

    Press:
    Tel: 212-425-5700
    Fax: 212-425-6951