XING Qiao Xing Universal Resources, Inc. (MM)

 

 

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, 2009

OR

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

For the transition period from                      to                     

Commission file number 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 RESOURCES, INC.

(Exact name of Registrant as specified in its charter)

QIAO XING UNIVERSAL RESOURCES, INC.

(Translation of Registrant’s name into English)

British Virgin Islands

(Jurisdiction of incorporation or organization)

Qiao Xing Science Industrial Park
Tang Quan
Huizhou City, Guangdong,

People’s Republic of China 516023

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

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each		Name of each exchange
class		on which registered
US$.001 Par Value Common Stock (“Common Stock”)		NASDAQ

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

82,327,993 Shares of Common Stock as of December 31, 2009

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o No þ

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes o No þ

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

Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

þ U.S. GAAP

o International Financial Reporting Standards as issued by the International Accounting Standards Board

o Other

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

o Item 17

o Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

     Not Applicable.

 

 

TABLE OF CONTENTS

SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS

     This annual report contains forward-looking statements that involve risks and uncertainties. These include statements about our expectations, plans, objectives, assumptions or future events. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “estimate,” “plans,” “potential,” “projects,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend” and similar expressions. These statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed for the reasons described in this annual report. You should not place undue reliance on these forward-looking statements.

     Forward-looking statements include all statements other than statements of historical facts, such as statements regarding anticipated mining production volumes, unit net costs of mining production, mining sales volumes, ore grades, molybdenum and other commodity prices, mine development and capital expenditures, mine production and development plans, availability of power, water, labor and equipment, environmental reclamation and closure costs and plans, environmental liabilities and expenditures, litigation liabilities and expenses, dividend payments, estimates of proven and probable reserves and other mineralized material, political, economic and social conditions in the areas of the Company’s operations and exploration efforts and results. Readers are cautioned that forward-looking statements are not guarantees of future performance and actual results may differ materially from those projected, anticipated or assumed in the forward-looking statements. Important factors that could cause the Company’s actual results to differ materially from those anticipated in the forward-looking statements include the following:

	•		Fluctuations in the market price of molybdenum could adversely affect the Company’s financial condition, results of operations and cash flows.
	•		Estimates of proven and probable mineral reserves and other mineralized material may prove to be inaccurate.
	•		The Company’s exploration activities may not result in discoveries of proven and probable reserves and commercial quantities of molybdenum.
	•		The Company’s revenues for its mining operations are primarily dependent on its production of molybdenum. The Company’s ability to sustain current molybdenum production levels or to increase molybdenum production levels depends on its ability to bring new mines into production or to expand proven and probable reserves at the existing mine.
	•		Mining operations are subject to conditions or events beyond the Company’s control which could have a material adverse effect on the Company’s financial condition, results of operations and cash flows from operations. The Company’s insurance policies may not cover all these risks and hazards adequately.
	•		The Company may not be able to acquire desirable mining assets in the future.
	•		The development of mining projects is inherently risky and may require more capital than anticipated which could adversely affect the cash flows of the Company.
	•		Intense competition in the mining industry could reduce the Company’s market share or harm its financial condition, results of operations and cash flows.
	•		The temporary shutdown of the Company’s mining operations could expose it to significant costs and adversely affect its access to skilled labor.
	•		The Company’s mining operations give rise to environmental risk.
	•		Mineral ores and mineral products, including molybdenum ore and molybdenum products, contain naturally occurring impurities and toxic substances.

	•		Reclamation and mine closure costs could adversely affect the Company’s financial position, results of operations and cash flows.
	•		Title to some of the Company’s exploration and mining rights could be challenged or defective.
	•		The Company is required to obtain government permits in order to conduct mining operations.
	•		Increased energy prices or a disruption of energy supply could adversely affect the Company’s operations.
	•		Disruption of transportation services or increased transportation costs could have a material adverse effect on the Company’s financial position, results of operations and cash flows.
	•		The Company’s mining business depends on good relations with its employees.

     You should also consider carefully the statements under “Risk Factors” and other sections of this annual report, which address additional factors that could cause our actual results to differ from those set forth in the forward-looking statements and could materially and adversely affect our business, operating results and financial condition. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the applicable cautionary statements.

     The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we do not intend, and we undertake no obligation, to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

     We may use data and industry forecasts in this annual report which we have obtained from internal surveys, market research, publicly available information and industry publications. Industry publications generally state that the information they provide has been obtained from sources believed to be reliable but that the accuracy and completeness of such information is not guaranteed. Similarly, we believe that the surveys and market research we or others have performed are reliable, but we have not independently verified this information.

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

     Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

     Not applicable.

ITEM 3. KEY INFORMATION

A. SELECTED FINANCIAL DATA.

     We prepare our consolidated financial statements in accordance with United States Generally Accepted Accounting Principles (“US GAAP”). The following summary consolidated statements of operations data for the years ended December 31, 2007, 2008 and 2009 and the consolidated balance sheet data as of December 31, 2008 and 2009 were derived from our audited financial statements included elsewhere in this annual report and should be read in conjunction with such financial statements. The following summary consolidated statements of operations data for the years ended December 31, 2005 and 2006 and the consolidated balance sheet data as of December 31, 2005, 2006 and 2007 were derived from our audited financial statements not included elsewhere in this annual report and have been prepared in accordance with US GAAP. The following summary financial data should be read in conjunction with Item 5. Operating and Financial Review and Prospects and the consolidated financial statements and the notes thereto included elsewhere in this annual report.

		2005				2006				2007				2008				2009
		Rmb’000				Rmb’000				Rmb’000				Rmb’000				Rmb’000				US$’000
Net sales			2,635,184				3,221,212				3,141,094				2,153,873				1,826,799				267,628
Cost of goods sold			(2,156,798	)			(2,651,392	)			(2,255,844	)			(1,287,096	)			(1,474,930	)			(216,078	)
Gross profit			478,386				569,820				885,250				866,777				351,869				51,550
Operating expenses:
Selling expenses			(24,726	)			(28,401	)			(36,322	)			(146,551	)			(110,444	)			(16,180	)
General and administrative expenses Including stock-based compensation			(55,341	)			(126,076	)			(86,479	)			(59,794	)			(114,807	)			(16,819	)
Research and development			(20,694	)			(30,747	)			(18,599	)			(29,242	)			(36,404	)			(5,334	)
In process research and development			—				(41,739	)			—				—				—				—
Amortization of acquired intangible assets			(11,880	)			(15,178	)			(32,281	)			(11,727	)			(4,733	)			(693	)
Impairment of acquired intangible asset			—				—				—				(26,235	)			(13,600	)			(1,992	)
Impairment of assets held for sale			—				—				—				—				(5,957	)			(873	)
Income from operations			365,745				327,679				711,569				593,228				65,924				9,659
Interest income			7,130				8,108				28,441				54,821				28,641				4,196

		2005				2006				2007				2008				2009
		Rmb’000				Rmb’000				Rmb’000				Rmb’000				Rmb’000				US$’000
Exchange gain (loss), net			(2,659	)			3,225				15,168				(16,971	)			406				60
Interest expense			(41,752	)			(100,432	)			(240,498	)			(311,710	)			(222,804	)			(32,641	)
(Loss) gain on re-measurement of embedded derivatives			—				(134,439	)			(129,084	)			160,036				(8,258	)			(1,210	)
Loss on extinguishment of convertible debt			—				—				(142,090	)			(10,634	)			(15,261	)			(2,236	)
Gain on disposal of interests in subsidiaries			10,307				—				482,614				2,269				—				—
Gain on issue/repurchase of stocks by subsidiary			—				—				383,965				4,351				—				—
Provision for litigation settlement			—				—				(15,319	)			—				—				—
Impairment of investment at cost			(7,348	)			—				—				—				(2,802	)			(411	)
Unrealized (loss) on derivatives			—				—				—				—				(4,673	)			(685	)
Other income (loss), net			640				4,453				6,462				(3,700	)			166				24
Income before income tax			332,063				108,594				1,101,228				471,690				(158,661	)			(23,244	)
Provision for income tax			(25,486	)			(58,192	)			(113,377	)			(155,717	)			(43,939	)			(6,437	)
Income after income tax			306,577				50,402				987,851				315,973				(202,600	)			(29,681	)
Discontinued operations, net of tax			—				—				63,033				(290,953	)			(139,782	)			(20,478	)
Extraordinary gain on acquisition of minority interests			37,592				14,237				28,689				—				—				—
Net income (loss) for the year			344,169				64,639				1,079,573				25,020				(342,382	)			(50,159	)
Net income (loss) attributable to noncontrolling interest			(99,270	)			(84,473	)			(175,625	)			(161,814	)			82,486				12,084
Net Income (Loss)			244,899				(19,834	)			903,948				(136,794	)			(259,896	)			(38,075	)
Translation adjustments			1,821				7,203				(50,106	)			(33,815	)			(85,883	)			(12,582	)
Comprehensive income (loss)			246,720				(12,631	)			853,842				(170,609	)			(345,779	)			(50,657	)
Basic earnings (loss) per common share
Continuing operations			11.32				(1.44	)			22.73				4.98				(1.91	)			(0.28	)
Discontinuing operations			—				—				1.73				(9.40	)			(2.22	)			(0.33	)
Extraordinary gain			2.05				0.60				0.49				—				—				—
Total			13.37				(0.84	)			24.95				(4.42	)			(4.13	)			(0.61	)
Diluted earnings (loss) per common share
Continuing operations			11.32				(2.03	)			22.45				3.51				(1.91	)			(0.28	)
Discontinuing operations			—				—				1.72				(9.40	)			(2.22	)			(0.33	)
Extraordinary gain			2.05				0.59				0.48				—				—				—

		2005				2006				2007				2008				2009
		Rmb’000				Rmb’000				Rmb’000				Rmb’000				Rmb’000				US$’000
After extraordinary gain			13.37				(1.44	)			24.65				(5.89	)			(4.13	)			(0.61	)
Weighted average number of shares outstanding
- Basic (2)			18,319,000				23,712,000				29,836,000				30,949,000				62,837,000				62,837,000
- Diluted (2)			18,320,000				24,016,000				30,200,000				30,949,000				62,837,000				62,837,000

		2005				2006				2007				2008				2009
		Rmb’000				Rmb’000				Rmb’000				Rmb’000				Rmb’000				US$’000
Balance Sheet Data
Cash and bank deposits			391,660				1,096,477				3,033,010				2,908,343				3,709,503				543,445
Working capital			856,839				1,498,715				3,946,468				3,552,070				3,400,841				498,226
Property, machinery and equipment, net			52,664				209,542				192,601				167,366				170,485				24,976
Proven and probable reserves			—				—				—				—				712,121				104,326
Construction in progress			59,105				60,295				—				—				86,591				12,685
Lease prepayments, net			173,161				207,206				36,106				35,305				—				—
Value beyond proven and probable reserves			—				—				—				—				67,295				9,859
Debt issuance cost, net			—				31,845				—				34,689				—				—
Total assets			2,534,547				4,177,986				6,378,841				7,081,088				5,910,631				865,912
Short-term-debts			754,212				1,155,290				1,471,454				3,086,163				1,381,807				202,436
Long-term-debts			7,959				229,784				196,854				7,049				330,934				48,482
Total liabilities			1,316,418				2,192,713				2,260,956				3,093,212				1,712,741				250,918
Noncontrolling interests (1)			220,832				115,224				1,095,917				1,006,546				1,156,086				169,368
XING’s equity			997,297				1,870,049				3,021,968				2,981,330				3,041,804				445,626
Cash flows data
Cash flows from operating activities			116,682				(156,840	)			954,654				(222,888	)			872,578				127,833
Cash flows from investing activities			(3,822	)			(603,009	)			(650,317	)			340,322				(597,861	)			(87,587	)
Cash flows from financing activities			136,505				1,465,657				1,675,920				(11,557	)			310,058				45,424

Exchange Rate Information

     We have prepared our consolidated financial statements in accordance with United States Generally Accepted Accounting Principles consistently applied and publish such statements in Renminbi, the functional currency of our subsidiaries and the legal tender currency of China. All references to “Renminbi” or “Rmb” are to Renminbi. All references to “U.S. Dollars,” “dollars,” “US$” or “$” are to United States dollars.

     The following table sets forth certain information concerning exchange rates between Renminbi and U.S. dollars for the periods indicated:

		Noon Buying Rate(1)
Calendar Year		Average(2)
		(Rmb per US$)
2005			8.1936
2006			7.9723
2007			7.6058
2008			6.9477
2009			6.8307

Calendar Month		High				Low				Average
January 2010			6.8295				6.8258				6.8269
February 2010			6.8330				6.8258				6.8285
March 2010			6.8270				6.8254				6.8262
April 2010			6.8275				6.8229				6.8256
May 2010			6.8310				6.8245				6.8275
June 2010			6.8323				6.7815				6.8184

     As of July 9, 2010, being the latest practicable date, the exchange rate was US$1.00 = Rmb6.7720.

     This annual report contains translations of Renminbi amounts into U.S. dollars at specified rates solely for the convenience of the reader. Unless otherwise noted, all translations from Renminbi to U.S. dollars were made at the noon buying rate in the City of New York for cable transfers in Renminbi per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York as of December 31, 2009, which was Rmb6.8259 to US$1.00. No representation is made that the Renminbi amounts referred to in this annual report could have been or could be converted into U.S. dollars at any particular rate or at all.

     The People’s Bank of China, or PBOC, issued a public notice on July 21, 2005 increasing the exchange rate

of the Renminbi against the U.S. dollar by approximately 2% to Rmb8.11 per US$1.00. Further to this notice, the PRC government has reformed its exchange rate regime by adopting a managed floating exchange rate regime based on market supply and demand with reference to a portfolio of currencies. Under this new regime, the Renminbi is no longer pegged to the U.S. dollar. This change in policy has resulted in a more than 15.4% appreciation of the Renminbi against the U.S. dollar. The PRC government may decide to adopt an even more flexible currency policy in the future, which could result in a further and more significant appreciation of the Renminbi against the U.S. dollar.

B. CAPITALIZATION AND INDEBTEDNESS.

     Not applicable.

C. REASONS FOR THE OFFER AND USE OF PROCEEDS.

     Not applicable.

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.

     The current global financial crisis and economic downturn have adversely affected economies and businesses around the world, including in China. Due to the global economical downturn and a decrease in consumer demand, the economic situation in China has been quite severe since the second half of 2008. This change in the macro-economic conditions has and is expected to continue to have an adverse impact on our business and operations. The financial and economic situation may also have a negative impact on third parties with whom we do, or may do, business. As a result, our results of operations, financial condition and liquidity could be materially and adversely affected.

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.

     Our revenues and operating results have fluctuated significantly from quarter-to-quarter in the past, and may continue to fluctuate significantly in the future. Factors that are likely to cause these fluctuations, some of which are outside of our control, include, without limitation, the following:

	•		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;
	•		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.

     A high percentage of our expenses, including those related to manufacturing, engineering, sales and marketing, research and development, and general and administrative functions, is fixed in the short term. As a result, if we experience delays in generating and recognizing revenue, our quarterly operating results are likely to be seriously harmed.

     Due to these and other factors, we believe that quarter-to-quarter comparisons of our operating results may not be meaningful. Our results for one quarter should not be relied upon as any indication of our future performance. It is possible that in future quarters our operating results may be below the expectations of public market analysts or investors. If this occurs, the price of our common stock would likely decrease.

Our stock price is highly volatile.

     The trading price of our common stock has fluctuated significantly since our initial public offering in February 1999, and is likely to remain volatile in the future. The trading price of our common stock could be subject to wide fluctuations in response to many events or factors, including the following:

	•		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.

     In addition, the stock market has experienced volatility that has particularly affected the market prices of equity securities of many high technology companies, which often has been unrelated or disproportionate to the operating performance of these companies. These broad market fluctuations may adversely affect the market price of our common stock.

We experience intense competition with respect to our products.

     Some of our competitors have longer operating histories and significantly greater financial, technical, marketing and other resources than we have. As a result, some of these competitors are able to devote greater resources to the development, promotion, sale, and support of their products. In addition, our competitors that have larger market capitalization or cash reserves are better positioned than we are to acquire other companies in order to gain new technologies or products that may displace our product lines.

We are subject to a concentration of credit risk.

     We perform ongoing credit evaluations of each customer’s financial condition. We maintain reserves for potential credit losses and such losses in the aggregate have not exceeded management’s projections. As of December 31, 2008 and 2009, our five largest accounts receivable accounted for approximately 60.7% and 93.7% of our total accounts receivable.

The economy of China differs from the economies of most countries and creates significant risks.

     Although the majority of productive assets in China are still owned by the government, economic reform policies since 1978 have emphasized decentralization and the utilization of market mechanisms in the development of the Chinese economy. We have significantly benefited from such reforms, as the Ministry of Post and Telecommunications since 1994 has opened the telecommunications equipment market of China to all kinds of manufacturers. Our management believes that the basic principles underlying the reforms will continue to provide an acceptable framework of the PRC’s political and economic systems. In addition, we currently see no evidence that this refinement and readjustment process may adversely affect, directly or indirectly, the Company’s operations in the future.

     As substantially all of our operations are conducted in Mainland China, we are subject to special considerations and significant risks not typically associated with companies operating in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. Our results may be adversely affected by changes in the political and social conditions in Mainland China, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

     In addition, substantially all of our revenue is denominated in Renminbi (“Rmb”) which must be converted into other currencies before remittance outside Mainland China. Both the conversion of Renminbi into foreign currencies and the remittance of foreign currencies abroad require the approval of the Mainland Chinese government.

Our currency is not freely convertible.

     The State Administration for Exchange Control (“SAEC”), under the authority of the People’s Bank of China (the “PBOC”), controls the conversion of Renminbi into foreign currency. The value of the Renminbi is subject to changes in central government policies and to international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System (“CFETS”) market. Since substantially all of our raw materials are provided by local suppliers using Renminbi and the majority of our expenses are denominated in Renminbi, restrictions on currency conversions did not materially affect our operations. Also, since we do not expect to require any raw material that are not permitted or are limited to purchase using foreign currencies, our management believes that such restriction will not materially affect our operations in the future. However, our ability to pay dividends and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiaries and our other holdings and investments, and our operating subsidiaries located in China may be subject to restrictions on the conversion of Renminbi to U.S. dollars and, as a result, may be restricted to make distributions to us.

We may not maintain adequate insurance coverage for damage to our Chinese factories.

     We have no direct business operation, other than our ownership of our subsidiaries located in China, and our results of operations and financial condition are currently solely dependent on our subsidiaries’ factories in China. We currently maintain fire, casualty and theft insurance covering various of our stock in trade, goods and merchandise, furniture and equipment, and factory buildings in China. The proceeds of this insurance may not sufficiently cover material damage to, or the loss of, any of our factories due to fire, severe weather, flooding or other cause, and such damage or loss would have a material adverse effect on our financial condition, business and prospects. However, we have not materially suffered from such damage or loss to date.

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.

     Our PRC operating subsidiary, CEC Telecom Co., Ltd. (“CECT”), was subject to the PRC Enterprise Income Tax Law Concerning Foreign-Invested Enterprises and Foreign Enterprises. CECT, as a foreign-invested enterprise,

was generally subject to enterprise income tax at a statutory rate of 33% (30% national income tax plus 3% local income tax) through 2007 under this law and its related regulations, and 25% from January 1, 2008 under the new tax law described below. However, as a “high-tech enterprise” formed in the Zhongguancun Science Park high technology zone in Beijing, CECT enjoyed preferential tax treatment through 2007. In particular, CECT was exempted from enterprise income tax from May 22, 2000 to December 31, 2002 and was entitled to preferential enterprise income tax rates of 7.5% from January 1, 2003 to December 31, 2005 and 15% from January 1, 2006 to December 31, 2007.

     On March 16, 2007, the National People’s Congress of the PRC passed the PRC Enterprise Income Tax Law, which law took effect as of January 1, 2008. In accordance with the new tax law, a unified enterprise income tax rate of 25% and unified tax deduction standards will be applied equally to both domestic-invested enterprises and foreign-invested enterprises such as CECT. However, certain qualifying high-technology enterprises may still benefit from a preferential tax rate of 15% under the new tax law if they meet the definition of “qualifying high-technology enterprise” to be set forth in the more detailed implementing rules when they are adopted. As a result, if CECT qualifies as a “qualifying high-technology enterprise”, it will continue to benefit from a preferential tax rate of 15%. Before being qualified as a “qualifying high-technology enterprise” under the new tax law, CECT’s applicable tax rate increased from its then existing tax rate of 15% to the unified tax rate of 25% effective January 1, 2008. The Chinese tax authorities issued “Circular 362 (Guo Ke Fa Huo [2008] No. 362)” on 11 July 2008 (“Circular 362”) that provides detailed implementation guidance on identifying and approving “qualifying high-technology enterprise” status. Circular 362 follows the April 2008 issuance of “Circular 172 (Guo Ke Fa Huo [2008] No. 172),” China’s first step in creating a mechanism to identify and approve “qualifying high-technology enterprise” status. CECT is currently in the process of applying for the status of “qualifying high-technology enterprise”. If the application is approved, CECT will be qualified to apply for a preferential enterprise income tax rate of 15%.

     We cannot assure you that CECT will qualify as a “qualifying high-technology enterprise” under the new tax law, and even if CECT successfully obtains this high-tech enterprise status, its preferential tax treatment may be discontinued by the tax authorities at their discretion or pursuant to any future changes in PRC tax laws, rules or regulations. Before being qualified as a “qualifying high-technology enterprise” under the new tax law, CECT is subject to a 25% rate from January 1, 2008 under the new tax law described above, which significantly increases our effective tax rate and materially adversely affects our operating results.

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 any dividends payable by us and upon gains realized on the sale of our ordinary shares, if we are classified as a PRC “resident enterprise.”

     Under the new PRC Enterprise Income Tax Law, dividends, interests, rent, royalties and gains on transfers of property payable by a foreign-invested enterprise in the PRC to its foreign investor who is a non-resident enterprise will be subject to a 10% withholding tax, unless such non-resident enterprise’s jurisdiction of incorporation has a tax treaty with the PRC that provides for a reduced rate of withholding tax. The British Virgin Islands, where our investment holding subsidiaries are incorporated, does not have such a tax treaty with the PRC. If these BVI-incorporated investment holding subsidiaries are considered non-resident enterprises, this new 10% withholding tax imposed on their dividend income received from their PRC subsidiaries would reduce our net income and have an adverse effect on our operating results.

     Under the new tax law, an enterprise established outside the PRC with its “de facto management body” within the PRC is considered a resident enterprise and will be subject to the enterprise income tax at the rate of 25% on its worldwide income. The “de facto management body” is defined as the organizational body that effectively exercises overall management and control over production and business operations, personnel, finance and accounting, and properties of the enterprise. It remains unclear how the PRC tax authorities will interpret such a broad definition. Substantially all of our management members are based in the PRC. If the PRC tax authorities subsequently determine that we should be classified as a resident enterprise, then our worldwide income will be subject to income tax at a uniform rate of 25%, which may have a material adverse effect on our financial condition and results of operations. Notwithstanding the foregoing provision, the new tax law also provides that, if a resident enterprise directly invests in another resident enterprise, the dividends received by the investing resident enterprise from the invested enterprise are exempted from income tax, subject to certain conditions. Therefore, if our BVI-incorporated investment holding

subsidiaries are classified as resident enterprises, the dividends they receive from their PRC subsidiaries may be exempted from income tax.

     In addition, under the new tax law, foreign corporate holders of our ordinary shares may be subject to a 10% withholding tax upon dividends payable by us and gains realized on the sale or other disposition of ordinary shares, if such income is sourced from within the PRC. Although we are incorporated in the British Virgin Islands, it remains unclear whether the dividends payable by us or the gains our foreign corporate holders may realize will be regarded as income from sources within the PRC if we are classified as a PRC resident enterprise. Any such tax may reduce the return on an investment in our ordinary shares by a foreign corporation.

We depend upon certain key personnel to manage our company.

     Our ability to successfully carry out our business plans continues to be largely dependent upon the efforts of our senior management and executive officers, particularly our chairman, Rui Lin Wu. We have not entered into an employment agreement with Mr. Wu and the loss of his services would have a material adverse effect on our ability to achieve our business objectives. Further, we do not maintain any key-person life insurance policy on his life.

We are controlled by one of our shareholders, whose interests may differ from other shareholders.

     Rui Lin Wu, our chief executive officer and chairman, and members of his family beneficially own or control approximately 43.2% of our outstanding shares as of June 30, 2010. Accordingly, he has substantial control and influence in determining the outcome of any corporate transaction or other matter submitted to the shareholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions. He also has the power to prevent or cause a change in control. In addition, without his consent, we could be prevented from entering into transactions that could be beneficial to us. The interests of this shareholder may differ from the interests of the other shareholders.

Our holding company structure creates restrictions on the payment of dividends.

     We have no direct business operations, other than our ownership of our subsidiaries. While we have no current intention of paying dividends, should we decide in the future to do so, as a holding company, our ability to pay dividends and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiaries and other holdings and investments. In addition, our operating subsidiaries, from time to time, may be subject to restrictions on their ability to make distributions to us, including as a result of restrictive covenants in loan agreements, restrictions on the conversion of local currency into U.S. dollars or other hard currency and other regulatory restrictions. If future dividends are paid in Renminbi, fluctuations in the exchange rate for the conversion of Renminbi into U.S. dollars may adversely affect the amount received by U.S. shareholders upon conversion of the dividend payment into U.S. dollars.

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.

     Our common shares are currently listed on the Nasdaq Global Market and, for so long as our securities continue to be listed, we will remain subject to the rules and regulations established by Nasdaq applicable to listed companies. As permitted under Nasdaq rules applicable to foreign private issuers, we have determined not to comply with the following Nasdaq rules:

	•		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.

We may in the future determine to voluntarily comply with one or more of the foregoing provisions.

It may be difficult to serve us with legal process or enforce judgments against us or our management.

     We are a British Virgin Islands holding company, and all or a substantial portion of our assets are located in China. In addition, all of our directors and officers are non-residents of the United States, and all or a substantial portion of the assets of such non-residents are located outside the United States. As a result, it may not be possible to effect service of process within the United States upon them. Moreover, there is doubt as to whether the courts of the British Virgin Islands or China would enforce:

	•		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.

     We are a foreign private issuer within the meaning of the rules under the Exchange Act. As such, we are exempt from certain provisions applicable to United States domestic public companies, including:

	•		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.

Because of these exemptions, investors are not provided with the same information which is generally available about domestic public companies organized in the United States.

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.

     Under the laws of most jurisdictions in the United States, majority and controlling shareholders generally have certain fiduciary responsibilities to the minority shareholders. Shareholder action must be taken in good faith, and actions by controlling shareholders which are obviously unreasonable may be declared null and void. British Virgin Island law protecting the interests of minority shareholders may not be as protective in all circumstances as the law protecting minority shareholders in U.S. jurisdictions.

     In addition, the circumstances in which a shareholder of a BVI company may sue the company derivatively, and the procedures and defenses that may be available to the company, may result in the rights of shareholders of a BVI company being more limited than those of shareholders of a company organized in the U.S.

     Furthermore, our directors have the power to take certain actions without shareholder approval which would require shareholder approval under the laws of most U.S. jurisdictions. The directors of a BVI corporation, subject in

certain cases to court approval but without shareholder approval, may implement a reorganization, merger or consolidation, the sale of any assets, property, part of the business, or securities of the corporation. Our ability to amend our Memorandum of Association and Articles of Association without shareholder approval could have the effect of delaying, deterring or preventing a change in our control without any further action by the shareholders, including a tender offer to purchase our common stock at a premium over then current market prices.

      Risk Factors Regarding Our Mining Operations in China

Fluctuations in the market price of molybdenum could adversely affect the Company’s financial condition, results of operations and cash flows from operations .

     The Company’s financial condition, results of operations and cash flows depend significantly upon the market price of molybdenum, which has historically fluctuated considerably. Molybdenum prices depend primarily on the demand in the end-user markets in which molybdenum is used. The end-user markets for molybdenum are primarily the steel and chemical industries. These industries, as well as other industries that use molybdenum, exhibit a cyclical business cycle. Many of the factors that affect the demand for molybdenum are beyond the Company’s control, including the general level of industrial production in the PRC and other countries, interest rates, the rate of inflation and the stability of exchange rates. Such external factors are influenced by changes in international investment markets, international monetary systems and internal and external political developments. The volatility in molybdenum prices is illustrated by the range of average molybdenum prices from 1999 to 2009 from a low of US$2.35 per pound to a high of $31.98 per pound of molybdenum.

     Future declines in the price of molybdenum could materially reduce the Company’s working capital, profitability and cash flows from operations. Severe declines in the molybdenum price could cause the Company to temporarily close its molybdenum mine and plant facilities. Furthermore, a significant decrease in molybdenum prices could require the Company to revise its mineral reserve calculations and life-of-mine plans. Such a revision could result in material write-downs of the Company’s proven and probable reserves and other long-lived assets and have a material adverse effect on its financial position, results of operations and cash flows.

Estimates of proven and probable mineral reserves and other mineralized material may prove to be inaccurate .

     Estimates of proven and probable reserves and other mineralized material involve numerous assumptions and are subject to numerous uncertainties. The estimates of proven and probable reserves and other mineralized material disclosed herein are, therefore, only estimates. Therefore, the Company cannot provide assurance that its estimates of tonnages, grade and contained molybdenum of proven and probable reserves and tonnages and grade of other mineralized material will be achieved in the future, that the indicated level of recovery will be realized or that the Company can mine and process the estimated proven and probable reserves and other mineralized material profitably. The actual production of proven and probable reserves and other mineralized material depends on a number of factors including, among others, geological and mining conditions, the effects of government regulation, prevailing molybdenum prices, exchange rates, interest rates and inflation rates, operating costs, development costs, equipment and plant maintenance costs, site restoration costs and the availability and cost of labor, equipment, raw materials and other services required to mine and process the ore. Furthermore, the Company cannot provide assurance that the recovery rates it produced in small-scale laboratory tests can be duplicated in on-site conditions during production. Estimates of proven and probable reserves and other mineralized material, including the classifications thereof based on probability of recovery, may vary substantially if prepared by different engineers or by the same engineers at different times. If the Company’s actual proven and probable reserves and other mineralized material are less than its estimates disclosed herein, the Company’s financial condition, results of operations and cash flows may be materially impaired.

The Company’s exploration activities may not result in discoveries of proven and probable reserves and commercial quantities of molybdenum .

     Exploration and development of mineral deposits involves substantial risks. Only a few properties that are explored are eventually developed into producing mines, and the success of exploration activities depends on a number of factors, including the attributes of the deposit such as size and grade, prevailing molybdenum prices and

government regulations relating to exploration and mining rights, royalties, etc. Exploration activities may need to occur for a number of years before commercially viable ore deposits are discovered and developed, and the Company may incur substantial expenses to locate and establish proven and probable reserves and to construct mining and processing facilities. The Company cannot provide assurance that exploration and development activities will give rise to new commercial mining operations or result in new proven and probable reserves.

The Company’s revenues for its mining operations are primarily dependent on its production of molybdenum. The Company’s ability to sustain current molybdenum production levels or to increase molybdenum production levels depends on its ability to bring new mines into production or to expand proven and probable reserves at the existing mine .

     The Company generates revenues from its mining operations primarily through the production and sale of molybdenum. Without any future expansion or other development, production from the existing mine is expected to decline over the life of the mine. Furthermore, the production estimates in the life-of-mine plan for its existing mining operation may vary materially from the actual production because the feasibility of extracting and processing proven and probable reserves and other mineralized material is dependent on market conditions, the regulatory environment and available technology. Therefore, the Company’s ability to maintain its current production or increase its annual production of molybdenum and generate revenues depends to a large extent on its ability to discover or acquire new proven and probable reserves and other mineralized material, to bring new mines into production and to expand the proven and probable reserves and other mineralized material at its existing mine.

Mining operations are subject to conditions or events beyond the Company’s control which could have a material adverse effect on the Company’s financial condition, results of operations and cash flows from operations. The Company’s insurance policies may not adequately cover all these risks and hazards .

     Mining operations, including the exploration and development of mineral deposits, involve a high degree of risk. The Company’s operations are subject to a host of hazards and risks normally associated with the exploration, development and production of molybdenum. These hazards and risks include, among others, adverse environmental conditions, hazardous or inclement weather conditions, accidents, metallurgical and other processing problems, unusual or unexpected geologic formations, ground or slope failures, structural cave-ins or slides, flooding or fires, seismic activity and equipment failures.

     These hazards and risks could give rise to, among other impacts, damage to, or destruction of, the mine, processing facilities and equipment. The hazards and risks could also cause personal injury or death, delays in mining, monetary losses and potential legal liability.

     The Company’s insurance will not cover all the potential risks associated with its mining operations. Certain of the Company’s risks are insurable, but it may be unable to maintain insurance to cover the hazards and risks at affordable premiums. Furthermore, insurance to cover risks such as environmental pollution or other hazards as a result of mining or processing operations is generally not available on acceptable terms. The Company could, therefore, become subject to liability for pollution or other risks for which it does not have insurance or against which the Company elects not to obtain insurance because of premium costs or other factors. Uninsured risks may cause the Company to incur significant costs that could have a material impact on its financial position, results of operations or cash flows.

The Company may not be able to acquire desirable mining assets in the future .

     The Company intends to grow its business by selectively acquiring attractive and high-quality mining assets in the future through strategic acquisitions, but there is no assurance the Company will be able to identify suitable acquisition opportunities. The Company’s ability to acquire and integrate future acquisitions on terms that are favorable to the Company may be limited by the number of desirable acquisition targets, internal demands on its resources, competition from other mining companies and its ability to finance such acquisitions on satisfactory terms.

The development of mining projects is inherently risky and may require more capital than anticipated, which could adversely affect the cash flows of the Company .

     There are many risks and uncertainties inherent in all mining development projects, including the ongoing development of the Company’s underground mine. The economic feasibility of mining development projects is dependent on many factors, including the accuracy of estimated proven and probable reserves and other mineralized material, metallurgical recoveries, capital and operating costs and the future prices of the relevant minerals. The capital expenditures and time required to develop new mines or infrastructure in existing mines are considerable, and changes in costs or construction schedules can affect project economics. It is, therefore, possible that the actual costs and economic returns on mining development projects may differ materially from our estimates.

     New mining development projects have no operating history upon which to base estimates of future cash flow. Mining development projects also require the successful completion of feasibility studies, the acquisition of government permits, the acquisition of exploration or mining rights, negotiating energy and water supplies and other factors. It is possible that the Company could fail to successfully complete these and other factors associated with a mine development project, in which case the project may not proceed, either on its original timing or at all. It is not unusual for new mining operations to experience problems during the development or start-up phases of the project, resulting in delays in producing revenue and increases in invested capital.

Intense competition in the mining industry could reduce the Company’s market share or harm its financial condition, results of operations and cash flows .

     The mining industry is extremely competitive, and the Company competes with many mining companies that possess greater financial and technical resources. Because mineral rights have a limited life, the Company must compete with other mining companies who also seek to increase their mineral reserves through the acquisition of exploration and mining rights. Furthermore, the Company competes with other mining companies for the technical expertise to find, develop and operate its mining properties, for skilled labor, for equipment and spare parts and for the capital to fund the acquisition, development and operation of its properties. Existing or future competition in the mining industry could adversely affect the Company’s financial position, results of operations and cash flows.

The temporary shutdown of the Company’s mining operations could expose it to significant costs and adversely affect its access to skilled labor .

     The Company may have to temporarily shut down its mine from time to time if it no longer considers the mine to be commercially viable. There are a number of factors that may cause the Company to reach a conclusion that the operation of the mine is no longer commercially viable, many of which are beyond the Company’s control. These factors include adverse changes in interest rates or currency exchange rates, decreases in the prevailing price of molybdenum or the market rates for treatment and refining charges and increases in transportation and labor costs. During a temporary shutdown of its mine, the Company would have to continue to expend capital to maintain the plant and equipment. The Company may incur significant labor costs as a result of a temporary shutdown if it is required to give employees notice prior to any layoff or to pay severance for an extended layoff. In addition, temporary shutdowns may adversely affect the Company’s future access to skilled labor, as employees who are laid off may seek employment elsewhere. Furthermore, if the Company’s mining operations are shut down for an extended period of time, it may be required to engage in environmental remediation of the plant and mine sites, which would result in the Company incurring additional costs. Taking into consideration the costs of a temporary shutdown, the Company may choose to operate the mine at a loss rather than shut down the property. Either a temporary shutdown or continuing to operate the mine at a loss could have a material adverse effect on the Company’s financial position, results of operations or cash flows.

The Company’s mining operations give rise to environmental risk .

     All of the Company’s mining operations are subject to environmental regulation in the PRC. Environmental regulation is evolving in the PRC and may in the future require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. The Company can provide no assurance that existing or future environmental regulation will not have a material adverse effect on the Company’s financial condition, results of operations and cash flows. The Company owns or has control of properties that may result in a requirement to remediate such properties that could involve material costs. Furthermore, environmental hazards may exist on the properties on which it holds interests that are unknown to the Company at the present time that have been

caused by previous owners or operators of the properties. The Company may also acquire properties in the future that pose environmental risks.

     Failure to comply with applicable laws, regulations and permitting requirements in the PRC may result in enforcement actions, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective action requiring capital expenditures, installation of additional equipment, or remedial actions. The Company may be required to compensate those suffering loss or damage from the mining operations and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations..

     Future changes to current laws, regulations and permits governing the operations and activities of mining companies in the PRC, or more stringent implementation thereof, could have a material adverse effect on the Company’s financial position, results of operations and cash flows.

     Such changes could result in increases in exploration expenses, remedial and reclamation obligations, capital expenditures or production costs, reductions in the levels of production at the producing mine or abandonment or delays in the development of new mining properties or the expansion of the existing property.

Mineral ores and mineral products, including molybdenum ore and molybdenum products, contain naturally occurring impurities and toxic substances .

     The Company has implemented procedures designed to identify, isolate and safely remove or reduce impurities or toxic substances that are naturally occurring in molybdenum ore and molybdenum products. Such procedures require strict adherence, and the Company cannot provide assurance that employees, contractors or other parties will adhere to these procedures or will not be exposed to or affected by such impurities and toxic substances. Employees, contractors and other parties who are exposed to or affected by these impurities and toxic substances may give rise to liabilities by the Company. Even if procedures are strictly adhered to by employees, contractors and other parties, there is still a risk that they will be exposed to or affected by impurities and toxic substances in the course of operations of the mine. Such incidences may result in requirements that the Company take remedial action, may result in the curtailment of mining operations and may have a materially adverse effect on the Company’s financial position, results of operations and cash flows.

Reclamation and mine closure costs could adversely affect the Company’s financial position, results of operations and cash flows .

     Currently in the PRC, mining companies are required to make payments to government entities for reclamation and mine closure costs. The government entities actually perform the reclamation and mine closure work to restore the mine site. Presently, mining companies must pay a sewage charge to the Mongolia Environmental Protection Bureau at a rate of RMB15 per ton of extracted ore, multiplied by 0.94. Mining companies must pay a one-time fee to the State Treasury equal to Rmb15,000 — Rmb75,000/ hectare as determined through negotiations with government authorities and based upon the underground areas which have been mined and the nature of the mine. The Company cannot provide assurance that national or regional governments in the PRC will not increase these charges or create laws or regulations to make additional charges on mining companies in the future. National or regional governments may also create laws or regulations to require mining companies to perform some or all of the reclamation and closure activities themselves in the future. Future changes to reclamation and mine closure requirements in the PRC may have a material adverse effect on the Company’s financial position, results of operations or cash flows.

Title to some of the Company’s exploration and mining rights could be challenged or defective .

     The acquisition of title to exploration and mining rights in the PRC is a very detailed and time-consuming process, and title to such rights may be disputed, challenged or impaired. Third parties may assert valid claims to some of the Company’s interests in exploration and mining rights. As a result, the Company may be impaired in its ability to explore or mine on its properties or unable to enforce its rights with respect to such properties. An impairment to, or defect in, the Company’s title to its exploration and mining rights could, therefore, have a material adverse effect on its financial condition, results of operations and cash flows.

The Company is required to obtain government permits in order to conduct mining operations .

     The Company must currently obtain government approvals and permits to operate its mine in the PRC. Further approvals and permits may be required in the future. The ability of the Company to obtain permits from the government of the PRC is contingent upon many factors outside of its control. Obtaining governmental permits may increase costs and cause delays depending on the nature of the activity to be permitted and the interpretation of applicable requirements by government authorities. The Company cannot provide assurance that it will be able to obtain all necessary permits for its mining operations in the future, and if it obtains them, that the costs involved will not exceed the Company’s estimates. To the extent the Company is unable to obtain or renew required permits, its mining operations may be curtailed, or the Company may not be able to proceed with planned exploration, development or operation of mineral properties.

Increased energy prices or a disruption of energy supply could adversely affect the Company’s operations .

     Mining operations, plant and facilities are intensive users of electricity and carbon-based fuels. Numerous factors beyond the Company’s control influence energy prices, including global and regional supply and demand, political and economic conditions and applicable regulatory regimes. The prices of various sources of energy may increase significantly compared to current levels, and such an increase could adversely affect the Company’s financial condition, results of operations and cash flows. A disruption in the transmission of energy to the mine site, the lack of sufficient energy transmission infrastructure or the termination of energy supply contracts could interrupt the Company’s energy supply and adversely affect mining operations. An interruption of the Company’s energy supply could have a material adverse effect on the Company’s financial position, results of operations and cash flows.

Disruption of transportation services or increased transportation costs could have a material adverse effect on the Company’s financial position, results of operations and cash flows .

     Disruption of transportation services due to weather-related problems, strikes, lock-outs or other events could have a material adverse effect on the Company’s mining operations. If transportation of the Company’s molybdenum and other mineral products becomes unavailable, the Company’s ability to market its products would be diminished. Furthermore, increases in the Company’s transportation costs relative to those of its competitors could make the Company’s mining operations less competitive. Disruption of transportation services or increases in transportation costs could have a material adverse effect on the Company’s financial position, results of operations and cash flows.

The Company’s mining business depends on good relations with its employees .

     Production at the Company’s mining operations depends on the efforts of its employees. Changes in labor laws or in the Company’s relationships with its employees could result in strikes, lockouts or other work stoppages, any of which could have a material adverse effect on the Company’s financial condition, results of operations and cash flows.

      ITEM 4. INFORMATION ON THE COMPANY

A. HISTORY AND DEVELOPMENT OF THE COMPANY.

     From our inception through December 31, 2002, Qiao Xing Universal Resources, Inc. (“Qiao Xing” or “we”) was principally engaged in the manufacturing and sales of telecommunication terminals and equipment, including corded and cordless telephone sets, in China. Our history dates back to April 1992 when Mr. Rui Lin Wu, our founder and chief executive officer, established Qiao Xing Telecommunication Industry Co. Ltd. in Huizhou, People’s Republic of China (“PRC” or “China”). We initially were engaged in the original design and manufacturing of corded telephones, whereby products are designed and manufactured to the customer’s requirements and instructions and are marketed under the customer’s designated brand name or without a designated brand name.

     Our company, formerly known as Pastiche Investments Limited, was incorporated as an international business company under the International Business Companies Act of the British Virgin Islands on December 6, 1994. As of July 10, 2010, we owned 61.1% of Qiao Xing Mobile Communication Co. Ltd. (“QX Mobile”), an international business company incorporated in the British Virgin Islands on January 31, 2002. QX Mobile owns 96.55% of CEC Telecom Co., Ltd., a limited liability company established in China (“CECT”). In addition, we own 100% of China Luxuriance Jade Company, Ltd. (“China Luxuriance” or “CLJC”), which is the sole shareholder of China Huizhou Taiherui Information Technology Co., Ltd. (“Taiherui”). Taiherui is the sole shareholder of Chifeng Zhongtai Mining Company Ltd.

     Fiscal year 2009 represented a critical year for the Company as we transitioned our business focus from telecommunication terminals to the mineral resources industry, with a focus on several strategically important nonferrous metal mines. In April 2009, we acquired China Luxuriance Jade Co., Ltd. to enter the molybdenum mining and processing industry. In July 2009, we started commercial production of molybdenum concentrate at our molybdenum mine, generating sales revenue of Rmb193.9 million (US$28.4 million) and net income of Rmb64.2 million (US$9.4 million) in the second half of the year.

     Based on the initial success of our molybdenum business as well as an extensive study of China’s macro economic trends, we are further consolidating our strategy to become a pure resources company with meaningful scale and a focus on strategically important metals. As a result of our new strategic direction, we divested our fixed line and low-end mobile phone business on November 30, 2009 and officially changed our corporate name to Qiao Xing Universal Resources, Inc. effective January 28, 2010.

     For 2007, our total capital expenditure was about Rmb7.0 million, which primarily included: 1)Rmb6.5 million for acquisition of property, machinery and equipment; and 2)Rmb0.5 million for construction in progress.

     For 2008, our total capital expenditure was about Rmb20 million for property, machinery and equipment.

     For 2009, our total capital expenditure was about Rmb114.3 million (US$ 16.7 million) for property, machinery, equipment and construction-in-progress.

     Our principal place of business and our executive office is the Qiao Xing Science Industrial Park, Tang Quan, Huizhou City, Guangdong, People’s Republic of China, 516023, telephone: (011) 86-752-2820-268. We have designated Andrew N. Bernstein, 5445 DTC Parkway, Suite 520, Greenwood Village, Colorado 80111 as our agent for service of process in the United States.

Initial Public Offering of QX Mobile Shares And Non-Competition Arrangement

     QX Mobile conducted an initial public offering of 12,500,000 of its ordinary shares (the “QXM IPO”). The initial offering price of the QX Mobile Shares was US$12.00 per share and the shares were listed for trading on the New York Stock Exchange under the symbol “QXM” on May 2, 2007.

     In connection with the QXM IPO, we entered into a non-competition agreement with QX Mobile and Mr. Rui Lin Wu, which became effective upon the completion of the QXM IPO and will remain valid until we or Mr. Rui Lin Wu or any family member of Mr. Rui Lin Wu does not directly or indirectly own any QX Mobile shares, or until

termination of such agreement through the written consent of the parties. The agreement provides that we and Mr. Rui Lin Wu will not, and will procure our subsidiaries and Mr. Wu’s family members to not, solely or jointly, or through any person, company, enterprise or unit other than QX Mobile and its subsidiaries, develop, carry on, participate in, engage in, or be involved in any business or activities that result in or may result in direct or indirect competition with QX Mobile’s business.

Acquisition of China Luxuriance Jade Company, Ltd. and commencement of diversification into the resources industry

     On April 6, 2009, the Company acquired a 100% equity interest in CLJC in a cash-and-stock transaction from Mr. Wu Rui Lin, the president of the Company. CLJC was valued at approximately US$110 million. The Company paid US$30 million in cash and issued 40,000,000 shares of the Company’s common stock valued at US$2.00 per share to Mr. Wu Rui Lin. The closing share price of the Company’s common stock as of the acquisition date was US$1.73 per share. The Company also issued 2,100,000 shares to a financial consulting firm and 100,000 shares to a law firm for services in connection with the acquisition.

     China Luxuriance, through its wholly owned Chinese subsidiaries, owns the right to receive the expected residual returns from Chifeng Haozhou Mining Co., Ltd. (“Haozhou Mining”), a large copper-molybdenum poly-metallic mining company in China. Haozhou Mining owns the exploration license of a mine covering 53.9 square kilometers (the “Mine”) in the Inner Mongolia Autonomous Region in the People’s Republic of China. Through exploration of 32.34 square kilometers, it was concluded that there is a reserve of 30,985 tons of molybdenum metal and an abundance of other types of mineralization, which was supported by the Technical Report issued by Behre Dolbear Asia, Inc. Haozhou intends to explore for additional mineralization on the remaining 21.56 square kilometers in the future.

     The Mine is located in Chifeng, which is a strategically important base for China’s mineral resources industry; the average grade of the molybdenum reserves of the Mine is 0.40%, which is very high compared with the global average for molybdenum mines; transportation, supply of water and electricity are economically accessible; Chifeng Haozhou is managed by a team of mining experts with proven experience who are capable of operating a mining business; it has all necessary permits, approval from the PRC government authorities to explore and extract the mines, as well as environment protection permits and safety permits; the infrastructure and the initial production facility (the “Initial Project”) are believed to be sufficient to support the capacity of processing 435,000 tons of ores and producing 2,817 tons of molybdenum concentrate product annually (equivalent to 1,378 tons of molybdenum metal). The Mine commenced commercial operations in July 2009. It is planned that, as of 2011, the production capacity will eventually increase to a level to process 540,000 tons of ores and produce 3,526 tons of molybdenum concentrate on an annual basis.

     Since the Acquisition would constitute a material related party transaction, the Board of Directors of the Company determined to establish the Special Acquisition Committee (the “Committee”) to deal with this Acquisition. In order to maintain the independence of the Committee, Mr. Rui Lin WU (our Chairman and CEO) and Mr. Zhi Yang WU (our Vice Chairman and eldest son of Rui Lin WU) were excluded from membership on the Committee.

     The members of the Committee and their respective relationships with the Company and our Board of Directors is as follows:

(i) Mr. Qian Mao Gen, senior geological engineer, was engaged as a consultant to the Company in connection with the Company’s diversification efforts into the resources industry in 2007 and was appointed as a member of the Committee in February 2009.

(ii) Mr. Peng Bin, geological engineer, was engaged as a consultant to the Company in connection with the Company’s diversification efforts into the resources industry in 2007 and appointed as a member of the Committee in February 2009.

(iii) Dr. Edward Tsai was elected as a non-executive director of the Company and appointed as a member of the Company’s audit committee in December 2007 and was appointed as a member of the Committee in February 2009.

(iv) Professor Yi Hong Zhang was elected as a non-executive director of the Company and appointed as a member of the Company’s audit committee in December 2004 and was appointed as a member of the Committee in February 2009.

(v) Mr. Ze Yun Mu was elected as a non-executive director of the Company and appointed as a member of the Company’s audit committee in September 2003 and was appointed as a member of the Committee in February 2009.

     Mr. WU and the Committee agreed that the consideration for the Acquisition should be based on the valuation report of a reputable valuation firm. The management of the Company recommended American Appraisal China Limited to the Committee. The Committee had a discussion with Mr. WU, and both parties agreed to engage American Appraisal China Limited to serve as the internal valuator for the Acquisition and required American Appraisal China Limited to provide to the Committee a price range in its valuation report to facilitate the negotiation between the Committee and Mr. WU. American Appraisal is a large independent worldwide valuation consulting firm with more than 50 offices in five continents, providing multi-disciplined appraisal services in business, real estate and industrial valuation. American Appraisal China Limited does not have any past and present affiliations with the Company other than prior valuation projects which it performed for the Company in the past.

     The US$110,000,000 purchase price for the Acquisition was reached by negotiations between Mr. WU and the Committee based primarily on the valuation report of American Appraisal China Limited as of November 30, 2008 which established a valuation range of US$77,013,000 to US$128,957,000. The appraisal report served as an internal reference for the negotiation of the purchase price of the Acquisition.

     For more than ten years, Qiao Xing and its subsidiaries had achieved great success in the telecommunication terminal industry. However, due to the significant shrinkage in the indoor phone business industry and the intense pricing competition war in the mobile phone market, another subsidiary of ours, Huizhou Qiao Xing Communication Industry Co., Ltd., a company specializing in the indoor phone and lower-end mobile phone business, was now facing a threat of loss. In order to maintain our long term growth momentum and sustained profitability, roughly three years ago, our management team started to explore the opportunities and arenas for our diversification strategy. Upon completion of our due diligence and market research, we selected this copper-molybdenum poly-metallic mining company as our first diversification target.

     As a rare metal and a non-renewable resource of great strategic importance, molybdenum is widely used in many areas, including the iron and steel melting industries. In the recently-announced RMB 4 trillion stimulus package launched by the Chinese Government, nearly RMB 1.8 trillion will be spent in the construction of railway, highway, airport and power grid, which is expected to have a very positive effect on the cement, iron and steel industries. We expect that the good opportunities for the iron and steel melting industries will further stimulate the demands for molybdenum concentrate products.

     We believe that our diversification into the mineral resources industry was one of the major strategic measures we have implemented to ensure our continued sustainable development into the future.

Purchase of US$30,000,000 of Convertible Notes of QX Mobile

     We entered into a Sales and Purchase Agreement dated March 31, 2009 with DKR SoundShore Oasis Holding Fund, Ltd., CEDAR DKR Holding Fund Ltd. and Chestnut Fund Ltd. pursuant to which we purchased US$30,000,000 aggregate principal amount of Convertible Notes (the “Notes”) of QX Mobile from these three non-affiliated original purchasers of the Notes. The three non-affiliated original purchasers of the Notes are sister funds of a hedge fund and, due to their need for and lack of liquidity regarding the Notes, had approached us in late 2008 — early 2009 and offered to sell the Notes to us at a discounted aggregate purchase price of US$24,000,000.

     In accordance with the terms of the Notes, the holders of the Notes have the right of optional redemption on November 15, 2009.

     We believed that, with the purchase of the Notes for an aggregate consideration of US$24,000,000, we would be able to receive US$30,000,000 plus US$1,790,081 of accrued interest and foreign exchange expenses on the

optional redemption date of November 15, 2009. The holding period for the Notes would be only seven and half months, and the nominal return on this investment would be approximately 32%. Thus, we believed that such a purchase would be in the economic best interests of our shareholders and could provide us with additional cash reserves for potential future acquisitions.

     We exercised our right of optional redemption in November 2009 and received the expected return on the investment.

Disposal of Qiao Xing Communication Holdings Limited

     On November 30, 2009, the Company sold 100% of its equity interest in Qiao Xing Communication Holdings Limited (“QXCH”) to Dragon Fu Investment Limited (“DFIL”) for a total consideration of Rmb75,000,000 (US$10,989,000), resulting in a gain on disposal of discontinued operations of Rmb144.2 million (US$21.1 million). The total purchase price consideration was based upon an appraisal report to the Company, as well as negotiations between the parties. In addition, in accordance with the sales agreement, DFIL undertook to repay as a primary obligor, or to cause QXCH’s subsidiary to repay, the outstanding loan of RMB236,102,000 which is due from a QXCH subsidiary to the Company, in three installments but no later than November 30, 2010. As of December 31, 2009, this outstanding loan amounted to Rmb200,000,000.

     We owned 100% of Qiao Xing Communication Holdings Limited, which owned 90% of Huizhou Qiao Xing Communication Industry Co., Ltd. (“HZQXCI”). HZQXCI’s principal business was the manufacture and sale of COSUN — branded economy mobile handsets for the PRC market. Through HZQXCI, we had conducted the business of research and development and distribution of mobile phones and the design and distribution of fixed line telephones, wireless telephones and fax machines.

Restructured 2006 Unsecured Convertible Notes (“2006 Notes”)

     On November 3, 2009, the Company signed an Amendment and Exchange Agreement with two institutional investors that owned US$26 million principal amount of 2006 Notes issued by the Company in October 2006, and issued US$24 million aggregate principal amount of 0% unsecured restated senior convertible notes (“0% Restated Notes”) to these two institutional investors in exchange for the 2006 Notes. In addition, the Company issued 2,400,000 shares of common stock of the Company to these two institutional investors. The institutional investors have also waived the interest accrued on the 2006 Notes over the first four months of 2009 as part of the restructuring.

     The Company and the two holders of the 2006 Notes started negotiations with respect to the restructuring prior to the Maturity Date and agreed to the basic terms and conditions for the restructuring in June 2009 (“June Terms”).

     Pursuant to the Amendment and Exchange Agreement, the 0% Restated Notes could be converted into the Company’s common stock by the note holders. The Company was obligated to repay the principal of the 0% Restated Notes in eight installments prior to July 3, 2010, in the form of, at the Company’s option, cash or common stock.

Repayment of Outstanding 0% Restated Notes

     In 2009, the holders of the 0% Restated Notes exercised the option to convert an aggregate of US$6,000,000 of the principal amount of the notes into 3,319,171 shares of the Company at an average conversion price of US$1.81 per share.

     In 2010, the holders of the 0% Restated Notes exercised the option to convert an aggregate of US$17,220,000 of the principal amount of the notes into 9,077,280 shares of the Company at an average conversion price of US$1.90 per share.

     In May 2010, the Company repaid the remaining outstanding US$780,000 of the principal amount of the 0% Restates Notes and the 0% Restated Notes have been cancelled and retired.

Recent Developments

     On May 26, 2010, the Company’s subsidiary signed a letter of intent with Chifeng Xingu Mining Co., Ltd. (“Chifeng Xingu”), a non-affiliated third party, to acquire the 100% equity interest in Balinzuo Banner Xinyuan Mining Co., Ltd. (“Xinyuan Mining” or the “Mining Company”). Xinyuan Mining owns a relatively large-scale lead-zinc mine in Balinzuo Banner, in the Inner Mongolia Autonomous Region of the People’s Republic of China (the “Xinyuan Lead-zinc Mine” or the “Mine”). Based on the preliminary due diligence and domestic geological exploration materials, Xinyuan Mining owns the mining license of the Xinyuan Lead-zinc Mine, covering 3.3233 square kilometers. The reserves of lead-zinc metal and copper metal, which are subject to verification, are estimated to be 825,000 tons and 109,000 tons, respectively, with average grade at 7.60% for lead-zinc and 1.01% for copper. The Mine has current production capacity for processing 500 tons of ores per day, and is now at the stage of trial operation. The Company will use its best efforts to complete the acquisition of the Mining Company during 2010.

B. BUSINESS OVERVIEW.

     Prior to fiscal year 2009, we were principally engaged in the design, manufacture and sale of telecommunication terminals and equipment in the PRC, including primarily in-house corded and cordless telephone sets under the trademark of “Qiao Xing”.

     For the fiscal year ended December 31, 2009, we classified our products into two core business segments, mobile phones and mining. In view of the fact that we operate principally in Mainland China, no geographical segment information is presented. Sales in the PRC market accounted for approximately 94% and 100% of our total revenues for the fiscal years ended December 31, 2008 and 2009, respectively.

		2007				2008				2009
		Rmb’000				Rmb’000				Rmb’000
Net sales:
Mobile phones			3,141,094				2,153873				1,632,912
Mining business			—				—				193,887
Indoor phones			733,013				441,075				—
			3,874,107				2,594,948				1,826,799

QX Mobile and Its Subsidiary CECT’s Business Overview

     QX Mobile is a domestic manufacturer of mobile handsets in China. It manufactures and sells mobile handsets based primarily on the GSM global cellular technologies. QX Mobile operates its business primarily through CECT, its 96.6% owned subsidiary in China. QX Mobile’s products have historically been sold primarily under the “CECT” brand name, and beginning in May 2008, under the new “VEVA” brand.

     QX Mobile develops, produces and markets a wide range of mobile handsets, with increasing focus on differentiated products that generally generate higher profit margins. QX Mobile sold approximately 2.71 million and 2.12 million handset products in 2008 and 2009, respectively. The average selling price of QX Mobile’s handsets was RMB 788 in 2008 and RMB 735 ($108) in 2009.

     QX Mobile’s in-house handset development teams are based in two research and development centers in Beijing and Huizhou. QX Mobile’s Beijing research center focuses on developing higher-end and differentiated products, while its Huizhou research center concentrates on developing handsets targeted at the mid-range and economy markets based on existing technologies. Its in-house research and development teams developed a number of handset designs and certain technologies used in producing its handsets, such as mobile phone application software, user-friendly product interfaces and printed circuit board designs, including baseband designs and radio frequency circuit designs that contribute to its ability to produce differentiated handsets. QX Mobile also sources certain software and hardware designs used in producing its handsets from third-party designers to complement its in-house development capabilities.

     QX Mobile currently has one main handset manufacturing facility in Huizhou City, Guangdong Province, China. This facility is equipped with three SMT lines and seven assembly and testing lines. It historically outsourced and continues to outsource the manufacturing of a substantial portion of QX Mobile’s products to EMS providers. QX Mobile produced approximately 0.71 million units in its Huizhou facility in 2008 and 0.21 million units in 2009. It sourced approximately 2.04 million units in 2008 and 1.91 million units in 2009 through EMS providers.

     Substantially all of its products are sold in China. QX Mobile sells its products primarily to its national distributors, provincial distributors and TV direct sales distributors, which resell its products to end customers either directly or through their own distribution networks, which are typically composed of local distributors and retail outlets. As of July 10, 2010, QX Mobile’s distribution network included four national distributors, 58 provincial distributors and three TV direct sales distributors.. In addition, certain of its distributors and other third parties provide repairs and other after-sales services to its end customers through after-sales service centers located throughout China. In November 2008, QX Mobile also began the online retailing of its VEVA branded handsets directly to end customers at its website, www.vevago.com. Since the beginning of 2009, it has also started to build and operate its own specialty retail stores to market and sell its VEVA branded handsets directly to end customers. As of July 10, 2010, QX Mobile operates six VEVA retail stores in Beijing, China.

CLJC and Its Subsidiary Haozhou’s Business Overview

     CLJC, through its wholly owned Chinese subsidiaries, owns the right to receive the expected residual returns from Chifeng Haozhou Mining Company Limited (“Haozhou”), a company that owns 100% interest in the Erdaoyingzi molybdenum mining property in China. Haozhou owns the exploration license of a mine covering 53.9 square kilometers (the “Mine”) in the Inner Mongolia Autonomous Region in the PRC about 745 km northeast of Beijing.

     Through exploration of 32.34 square kilometers of this property in 2007, Haozhou estimates that the Mine has a reserve of approximately 30,985 tonnes of molybdenum metal with an average grade of 0.40% and an abundance of other types of minerals. Haozhou expects to continue to explore the remaining 21.56 square kilometers of the property in the future.

      General description

     Under the “Mineral Resource Law of the PRC,” the state owns all mineral resources. Parties can obtain mining or exploration permits for conducting such activities in a specific area during a specified license period. The permits are generally extendable at the end of the permit period. Haozhou initially obtained an exploration permit for an area of 27 square kilometers. Haozhou obtained an expansion to this permit to the present-day 53.9 square kilometers in 2008. In June 2009, Haozhou obtained a mining permit authorizing extraction for a 4.8 square kilometer area to a subsurface elevation of 279 meters. The exploration license is valid from October 2008 to October 2010, and the mining permit is valid from March 2010 to March 2013. Haozhou fully expects to be able to extend these permits when they expire. The permitted mining area includes the West District containing Deposits I, II and III, and the East District, containing Deposit IV. The two districts are about 5 kilometers apart and are connected by a paved highway.

     A regional mineral resource investigation conducted by a state exploration entity in the late 1970s and early 1980s discovered molybdenum mineralization in the East District. After a period of inactivity, Mr. Guo Yongfa, a local prospector, obtained an exploration permit for the area in 2002. Mr. Yongfa sold the property to Lindong Yongsheng Mining Company Limited in early 2003, who then sold it to Haozhou in December 2003. Haozhou then proceeded with exploration activities, including geological mapping, surface trenching and underground drifting.

     A local prospector, Mr. Li Honglin, discovered molybdenum mineralization in the West District in 2001. Haozhou purchased the property in 2002 and proceeded with exploration activities on the property, including geological mapping, surface trenching and underground drifting.

     Mr. Wu Ruilin acquired Haozhou in 2006 and proceeded with additional exploration activities in 2006 and 2007, including further geological mapping, surface trenching and underground drifting, as well as drilling. In April 2009, the Company, through its wholly owned Chinese subsidiaries, acquired the right to receive the expected residual returns from Haozhou.

     Haozhou completed a feasibility study for the project in September 2007 and commenced construction and development of the mining and plant infrastructure shortly thereafter. Haozhou employs underground mining techniques and a flotation processing plant at the Mine to produce molybdenum concentrate for sale to smelters in various areas of China.

     Molybdenum mineralization at the Mine occurs as molybdenite bearing quartz veins and veinlets that follow shear zones associated with the Yanshan Period faulting. Molybdenum values are sharply controlled by the vein boundaries, with essentially no value falling outside of the vein structures.

     Haozhou is currently using a contractor for mining extraction operations at the Mine. Ore extracted from the Mine is transported to the processing plant where it is crushed in primary and secondary crushers and then passed through a ball mill for grinding. The ore then passes through flotation and filters to produce the molybdenum concentrate.

      Location, access and traffic, climate, physiography and infrastruture

     Haozhou is located within the administrative area of the Balinzuo Banner of Chifeng City. Chifeng City is located in the eastern portion of the Inner Mongolia Autonomous Region in China and approximately 500 kilometers (“km”) northeast of Beijing, the capital city of China. Chifeng City and is well connected with Beijing and other major cities in China through well-developed highway systems and railroads. There is also a regional airport in Chifeng City, with flights to Beijing and other major cities in the surrounding areas.

     Haozhou is located approximately 245 km north-northeast of Chifeng City and approximately 50 km north-northwest of the town of Lindong. Road distance from Chifeng City to Lindong is currently approximately 370 km and the road is generally well-maintained highways. Road distance from Lindong to the mine is approximately 85 km. The first 80 km is a paved highway, and the remaining are gravel and dirt roads. Haozhou transports its molybdenum concentrate product to smelters primarily via truck.

     Haozhou is located in a low-mountain-range and rolling-hill region and on an east-facing slope at the southwestern section of the Daxinganling Mountains. Local elevation difference is approximately 300 meters (“m”) and surface elevation ranges from approximately 700 m to 1,000 m. The hills near the project are generally barren with few shrubs, whereas land in the valleys is generally used for agricultural purposes. Primary crops in the area include corn, millet, sorghum and soybean. Ranching of cattle, goats and sheep is also an important part of the local economy.

     Climate is semi-arid continental with clear seasonal alternation in the area. Summer is hot with a maximum temperature of approximately 36ºC; winter is extremely cold with a minimum temperature of approximately -30ºC. Average annual temperature ranges from 3ºC to 7ºC. May to August is the frost-free season in the area. Annual precipitation averages approximately 450 millimeters (“mm”), and July and August is the rainy season. The annual evaporation rate is much higher than annual precipitation.

     Electricity supply in the Chifeng District is generally in surplus at present. Electricity for Haozhou is supplied by the local power grid. A power line has been constructed to the West district of Haozhou. It was used for construction and production.

     Water supply for mine and mill production at Haozhou consist of pumped ground water from wells drilled in a nearby valley and limited amounts of underground mine water. Water from the tailings ponds is also recycled for production. Water supply at Haozhou is sufficient for production needs.

Location Map of the Erdaoyingzi Molybdenum Project

      Uses of molybdenum and other products

     Haozhou produces molybdenum concentrates and sells to molybdenum smelters. Molybdenum’s most common mineral form is MoS ₂ which is mined as a primary ore or a secondary mineral in copper mining. Approximately 75% of molybdenum is used as an alloy in steels especially where high-strength, temperature resistant or corrosive resistant properties are sought. The addition of molybdenum enhances the strength, toughness, and wear or corrosion resistance of alloys. Molybdenum is used in major industries, including transportation, process equipment manufacturing, oil well drilling and the manufacturing of petroleum and gas pipelines. Molybdenum metal and superalloys are used in applications which require materials with high melting points, high-temperature structural strength and corrosion resistance. Such applications include industrial furnaces, lighting components, aircraft and stationary turbine engines. The molybdenum chemicals produced are used as catalysts, lubricants, flame-retardants, corrosion inhibitors and pigments. One catalyst which is growing in importance is used in the de-sulphurization and de-metallization of crude oils as they are being refined.

     Molybdenum is a key alloying element in steel and the raw material for several chemical-grade products used in catalysts, lubrication, smoke suppression, corrosion inhibition and pigmentation. Molybdenum as a high-purity metal is also used in electronics such as flat-panel displays, heat sinks, and wiring.

      Marketing

     Challenges to the real economy remained as the aftermath of the global financial crisis lingered in 2009. As the economic stimulus packages adopted by international governments have gradually come to effect since May, the world’s and China’s economy showed signs of slow recovery, yet on a shaky foundation. As such, the price of molybdenum products stayed low.

     In retrospect, the price of molybdenum in year 2009 basically experienced three stages, with a slump during January to April, followed by a surge during May to August and ended with a modest fall during September to December. Looking into the case of Europe’s ferromolybdenum price, it dropped from US$24/kg in January to US$20/kg in April during the first phase, rallied from US$23/kg in May to US$41/kg in August during the second phase and dropped from US$33/kg in September to US$27/kg in December during the third phase. The price of year 2009 bottomed in April, which was mainly attributable to the low production capacity of domestic and overseas steel factories which were on the verge of suspension, and the extremely quiet trading. The upsurge recorded in August was also driven by downstream steel factories. As factories all over the globe increased their production capacity with inventories running out and traders flocking to the market, the molybdenum price swiftly increased.

     As for the domestic molybdenum market in China, the domestic price in year 2009 was basically in line with the international price, lingering at a low price level. The average price of ferromolybdenum over the year was Rmb126,900/tonne, hitting its bottom at Rmb100,000/tonne in April and its peak at Rmb169,000/tonne in August. The average price of molybdenum concentrates was Rmb1,876/metric tonne unit, with the lowest at Rmb1,500/metric tonne unit in April and the highest at Rmb2,529/metric tonne unit in August. The domestic and overseas markets have the same reasons for the ups and downs in molybdenum prices.

     Haozhou entered into a sales agreement with a third party molybdenum metal producer and sells all of its molybdenum concentrates to this third party at the market price of molybdenum concentrates on a Rmb/metric tonne unit basis. The table below shows the high, low and average prices of molybdenum concentrate sold by Haozhou on the Rmb/metric tonne unit basis for the six months ended of December 31, 2009:

Period		Low				High				Average
		Rmb/				Rmb/				Rmb/
		metric tonne				metric tonne				metric tonne
		unit				unit				unit
July, 2009			2,000				2,300				2,147
August, 2009			2,580				2,650				2,611
September, 2009			2,350				2,400				2,374
October, 2009			1,950				2,200				2,071
November, 2009			1,920				1,970				1,945
December, 2009			1,950				1,980				1,964
2009			1,950				2,650				2,160

     Haozhou started its commercial production of molybdenum concentrate in July 2009. Consolidated revenues from CJLC for 2009 were Rmb193.9 million (US$28.4 million). During the second half of 2009, 1,920 tonnes of molybdenum concentrate containing 925 tonnes of molybdenum metal were sold at an average sales price of Rmb2,160/metric tonne unit [equal to Rmb209,700 (US$30,700) per tonne of molybdenum metal (also equal to US$13.96 per pound of molybdenum metal contained)].

      Summary of ore reserves and mineralized material

     Recoverable proven and probable reserves summarized below have been calculated as of December 31, 2009, in accordance with Industry Guide 7 as required by the Securities Exchange Act of 1934. Proven and probable reserves may not be comparable to similar information regarding mineral reserves disclosed in accordance with the guidance in other countries. Proven and probable reserves were determined by the use of mapping, drilling, sampling, assaying and evaluation methods generally applied in the mining industry, as more fully discussed below. The term “reserve”, as used in the reserve data presented here, means that part of a mineral deposit that can be economically and legally extracted or produced at the time of the reserve determination. The term “proven reserves” means reserves for which quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes and grade and/or quality are computed from the results of detailed sampling from sites where inspection, sampling and measurements are spaced so closely and the geologic character is sufficiently defined that size, shape, depth and mineral content of the reserves are well established. The term “probable reserves” means reserves for which quantity and grade are computed from information similar to that used for proven reserves but the sites for sampling are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation.

     Ore reserve estimates are based on the latest available geological and geotechnical studies. We conduct ongoing studies of our ore bodies to optimize economic values and to manage risk. We revise our mine plans and estimates of proven and probable mineral reserves as required in accordance with the latest available studies. The following estimate of proven and probable reserves is based on an Independent Technical Review dated December 29, 2007 prepared by Behre Dolbear Asia, Inc., independent experts in mining, geology and reserve determination. Since December 29, 2007, there have not been significant exploration activities on the Erdaoyingzi Molybdenum Mining Property. The estimate of proven and probable reserves at December 31, 2009 has been prepared by the Company’s employees taking into account the amount of reserves produced commencing in June 2009 and by updating the assumptions in the Company’s mine plan for the property. Estimated proven and probable reserves at December 31, 2009 were determined using a long-term average molybdenum concentrate price of Rmb2,146/metric tonne unit, which equals to US$17.0 per pound of molybdenum metal. The average molybdenum price during the last three years

has averaged US$23.32 per pound according to Platts Metals Week. In defining our underground mineral reserves, we use a break-even cut-off grade to define the in-situ reserves. The cut-off grade of the molybdenum ore in the Company’s estimated proven and probable reserves is 0.06%.

Erdaoyingzi Molybdenum Recoverable Ore Reserve Summary at December 31, 2009

Ore Reserve		Tonnage				Contained Mo
Category		(kt)		Mo Grades (%)		Metals (t) )
Proved		2,610.4		0.40		10,442
Probable		5,083.0		0.38		19,547
Total		7,693.4		0.39		29,989

     Recoverable proven and probable reserves are estimated metal quantities from which we expect to be paid after application of estimated metallurgical recovery rates. Recoverable reserves are that part of a mineral deposit that we estimate can be economically and legally extracted or produced at the time of the reserve determination.

      Other Erdaoyingzi Molybdenum Mineralized Material

     The Erdaoyingzi Molybdenum Mining Property contains mineralized material that we believe could be brought into production should market conditions warrant. However, permitting and significant capital expenditures would be required before operations could commence on this mineralized material. Mineralized material is a mineralized body that has either been delineated by appropriately spaced drilling and/or underground sampling to support the reported tonnage and average metal grades. Such a deposit may not qualify as recoverable proven and probable reserves until legal and economic feasibility are confirmed based upon a comprehensive evaluation of development costs, unit costs, grades, recoveries and other material factors.

     Furthermore, the Company has identified other mineralized material for which quantity and grade can be estimated and reasonably assumed on the basis of geological evidence and limited sampling, but for which geological and grade continuity cannot be verified. The estimate is based on limited information and sampling gathered through appropriate techniques from drill holes or other sampling procedures.

Erdaoyingzi Molybdenum Mineralized Material Summary at December 31, 2009

Tonnage		Mo Grades
(kt)		(%)
1,958.6		0.37

      Mining operation

     Currently on site, there is a concentrator with a design capacity of 1,500 tonnes per day, crushing facilities, dry facilities, various offices, one rock dump with sand dams, a tailings management facility and the Erdaoyingzi underground mine.

     In 2009, Haozhou completed the access to Deposits I, II and III in East District and reached mining capacity of 1,500 tonnes per day. Haozhou plans to increase the mining capacity to 1,800 tonnes per day by the end of September 2010. Haozhou is also working on the stripping of Deposit IV and expects to expand the access to Deposit IV in 2011.

     In April 2009, Haozhou completed the building of a concentrator with a design capacity of 1,500 tonnes per day. Currently, Haozhou is improving its milling plant and expects to expand the processing capacity to 1,800 tonnes per day by the end of 2010.

     As at December 31, 2009, net book value of Haozhou amounted to Rmb742.7 million (US$108.8 million).

     With commercial production of molybdenum concentrate started in July 2009, the total cost of sales incurred in Haozhou for the second half of 2009 amounted to Rmb93.3 million (US$13.7 million). During the second half of 2009, Haozhou produced 263,000 tonnes of ore and milled 262,000 tonnes. The average grade of the ore produced was 0.402%. 1,930 tonnes of molybdenum concentrate containing 930 tonnes of molybdenum metal were produced. The average recovery rate of the ore milled was 88.44%. Average cost of sales per tonne of molybdenum metal produced for 2009 was Rmb100,360 (US$14,703), which equals to Rmb45.62(US$6.68) per pound.

      Geology

     Molybdenum mineralization at Erdaoyingzi consists of quartz veins, veinlets and disseminated molybdenite along northwest-trending altered shear structures hosted by Yanshanian granitic intrusives.

     Stratigraphy outcropping in the Erdaoyingzi area includes the Lower Permian Qingfengshan Formation and Dashizhai Formation as well as Quaternary alluvium. The Qingfengshan Formation is subdivided into a lower member of meta-quartzites, arkoses, siltstones and slates, a middle member of carbonaceous slates, spotted slates, calcareous siltstones and a lower member of meta-sandstones, siltstones and slates. The Dashizhai Formation is subdivided into a lower member of submarine intermediate volcanic flows and tuffs with some slates and marble lenses and an upper member of meta-tuffaceous sandstones, tuffaceous siltstones, conglomerates and marbles. The stratigraphy was intruded by multiple-stage Yanshanian granitic intrusives. The Stage 3 Yanshanian fine-grained biotite granite is the host for the molybdenum mineralization in the West District, whereas the State 4 Yanshanian biotite granite is the host for the molybdenum mineralization in the East District.

     The following table is a geological plan map of the Erdaiyingzi molybdenum deposit showing the distribution of the four ore bodies.

      Exploration

     The Company acquired CJLC in April 2009 and focused on the commencement of operations of the molybdenum mine. No further exploration was conducted on the Mine during 2009. The Company expects to explore the remaining 21.56 square kilometers of the property in the future.

      Government regulations

     The following is a summary of the principal governmental laws and regulations that are or may be applicable to our operations in the PRC. The scope and enforcement of many of the laws and regulations described below are uncertain. We cannot predict the effect of further developments in the Chinese legal system, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement of laws.

     The mining industry, including certain exploration and mining activities, is highly regulated in the PRC. Regulations issued or implemented by the State Council, the Ministry of Land and Resources, and other relevant government authorities cover many aspects of exploration and mining of natural resources, including entry into the mining industry, the scope of permissible business activities, interconnection and transmission line arrangements, tariff policy and foreign investment.

The principal regulations governing the mining business in the PRC include:

o		China Mineral Resources Law, which requires a mining business to have exploration and mining licenses from provincial or local land and resources agencies.
o		China Mine Safety Law, which requires a mining business to have a safe production license and provides for

		random safety inspections of mining facilities.
o		China Environmental Law, which requires a mining project to obtain an environmental feasibility study of the project.

     The Guidance to Businesses by Foreign Investments revised in 2007 by the Chinese government does not allow foreign investments into the fields of exploration, development and mining of molybdenum in China. According to this regulation, a molybdenum mine can not be owned directly by foreign companies. Accordingly, the Company could not acquire Haozhou directly.

     On November 27, 2008 and November 28, 2008, Haozhou signed a “Long-term Cooperation Agreement” and a “Supplemental Agreement to Long-term Cooperation Agreement” with Chifeng Zhongtai Mining Company Ltd. (“Zhongtai”). According to these agreements, Zhongtai will provide Rmb300 million working capital to Haozhou and Haozhou agreed to sell all of its products to Zhongtai at cash cost. Furthermore, all cash flows generated from the operation and disposal of Haozhou will belong to Zhongtai. Thus, all cash flow and profits generated from Haozhou will belong to the Company indirectly.

      Sustainable development

     The Company has conducted a mine life analysis for the Erdaoyingzi mining property based on the December 31, 2009 ore reserve estimates and the anticipated 2011 full production rate at the full designed capacity. It can be seen that the ore reserves are sufficient to support production at the anticipated 2011 production level for 14.2 years for the Erdaoyingzi deposit. This ore reserve mine life may change significantly in the future.

      Closure and Rehabilitation

     Pursuant to the requirements under the “Law on Prevention of Water Pollution of the PRC”, “Law on Prevention of Air Pollution of the PRC” and “Administrative Regulations on Levy and Utilization of Sewage Charge”, enterprises which discharge water or air pollutants shall pay discharge fees pursuant to the types and volume of pollutants discharged. The discharge fees are calculated by the local environmental protection authority which shall review and verify the types and volume of pollutants discharged. Once the discharge fees have been calculated, a notice on payment of discharge fees shall be issued to the relevant enterprises.

     According to the Sewage Charge Fee Table and Calculation Basis issued by the Inner Mongolia Environmental Protection Bureau, mining companies need to pay to the State Treasury a sewage charge at RMB15*0.94 per tonne of ore produced. During 2009, Haozhou recorded a total output of about 262,703 tonnes of ores and, accordingly, its sewage charges totaled RMB 3,688,613 (US$540,385) for the year. As of July 15, 2010, the Company has not received the notice on payment of discharge fees from Inner Mongolia Environmental Protection Bureau yet.

     Pursuant to the “Mineral Resources Law”, “Land Administration Law of the PRC” and “Rules on Land Rehabilitation”, exploitation of mineral resources shall be conducted in compliance with the legal requirements on environmental protection so as to prevent environmental pollution. With respect to any damage caused to cultivated land, grassland or forest as a result of exploration or mining activities, mining enterprises shall restore the land to a state appropriate for use by reclamation, re-planting trees or grasses or such other measures as are appropriate to the local conditions. In the event that the mining enterprise is unable to rehabilitate or the rehabilitation does not comply with the relevant requirements, the mining enterprise shall pay a fee for land rehabilitation. Upon the closure of a mine, a report in relation to land

rehabilitation and environmental protection shall be submitted for approval. Enterprises that fail to perform or satisfy the requirements on land rehabilitation will be penalized by the relevant land administration authority. In Chifeng City, mining companies pay a one-time fee to the State Treasury equal to Rmb15,000 — Rmb75,000/ hectare as determined through negotiations with government authorities and based upon the underground areas which have been mined and the nature of the mine. Haozhou recorded a liability for mine restoration of Rmb324,750 (US$47,576) based on 4.33/hectare of mining areas (the areas being mined in 2009) at RMB75,000/hectare.

     In accordance with the ''Law on Prevention of Environmental Pollution Caused by Solid Waste of the PRC’’, entities and individuals collecting, storing, transporting, utilizing or disposing of solid waste shall take precautions against the spread, loss and leakage of such solid waste or adopt such other measures for preventing such solid waste from polluting the environment. The operations of Haozhou do not cause any release of solid waste to the environment.

     The penalties for breaches of the environmental protection laws vary from warnings and fines to administrative sanctions, depending on the degree of damage. Any entity whose construction projects fail to satisfy the requirements on pollution prevention may be ordered to suspend its production or operation and be subject to a fine. The person responsible for the entity may be subject to criminal liability for serious breaches resulting in significant damage to private or public property or personal death or injury. Haozhou believes that its current production and operating activities are in compliance with the relevant requirements on environmental protection. Haozhou has not been penalized as a result of breaching any environment protection laws and regulations.

C. ORGANIZATIONAL STRUCTURE AS OF JULY 10, 2010:

D. PROPERTY, PLANT AND EQUIPMENT.

     Our principal executive offices are located at Qiao Xing Science Industrial Park, Tang Quan, Huizhou City, Guangdong, PRC. For telecommunication business, our main manufacturing facility is located on a leased property of approximately 3,700 square meters in Huizhou. For mining business, our plants and mine properties are located within the administrative area of the Balinzuo Banner of Chifeng City, Inner Mongolia Autonomous Region in PRC. We believe that our existing facilities are adequate and suitable to meet our present and foreseeable needs.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

          The following management’s discussion and analysis of financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and notes thereto and Item 3.A. Selected Financial Data. The amounts reflected in the following discussion are in Renminbi (“Rmb”). Translation of amounts for 2009 from 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 of US$1.00 = Rmb6.8259 on December 31, 2009.

          The Company was incorporated in the British Virgin Islands (the “BVI”). The Company and its subsidiaries (the “Group”) are principally engaged in (i) the production and sale of mobile phones and accessories in the People’s Republic of China (the “PRC”); and (ii) the production and sale of molybdenum concentrates in the PRC.

HIGHLIGHTS

	-		Net loss for 2009 was Rmb259.9 million (US$38.1 million), or Rmb4.13 (US$0.61) per basic and diluted common share, which included a non-cash unrealized loss on common share purchase warrants of Rmb4.7 million (US$0.7 million), or Rmb0.07 (US$0.01) per basic and diluted common share. Total net loss from discontinued operations was Rmb139.8 million (US$20.5 million), or Rmb2.22 (US$0.33) per basic and diluted common share.
	-		Non-cash unrealized loss on common stock purchase warrants of Rmb4.7 million (US$0.7 million) for 2009 was the result of a requirement under US GAAP to account for the Company’s outstanding common stock purchase warrants as a derivative, with changes in the fair value recorded in net income (loss).
	-		Net of tax operating result of QXCH Group amounted to Rmb372.2 million (US$54.5 million). The Company disposed QXCH Group on November 30, 2009 and recorded a gain on the disposal at amount of Rmb144.2 million (US$21.1 million). The disposal of QXCH resulted in a realized foreign currency gain related to loans from the Group to QXCH at an amount of Rmb88.2 million (US$12.9 million). Total net loss from discontinued operations amounted to Rmb139.8 million (US$20.5 million).
	-		Consolidated revenues for 2009 were Rmb1,826.8 million (US$267.6 million). Among them, Rmb1,632.9 million (US$239.2 million) were contributed by the telecommunication business of QXMC, down approximately 24.2%; Rmb193.9 million (US$28.4 million) were contributed by the mining business of CLJC.
	-		Operating cash flows were Rmb872.6 million (US$127.8 million). Total cash and cash equivalents at December 31, 2009 were Rmb3,709.5 million (US$543.4 million), compared to Rmb3,117.5 million as of December 31, 2008.
	-		Highlights of the mining business:

	i)		Commercial production of the Company’s molybdenum mine started in July 2009. Consolidated revenues from the mining business for 2009 were Rmb193.9 million (US$28.4 million); the business generated a gross profit of Rmb100.6 million (US$14.7 million) and net income of Rmb64.2 million (US$9.4 million).
	ii)		Molybdenum concentrate production in 2009 was 1,929.6 tonnes, which contained 929.9 tonnes (2.05 million pounds) of molybdenum metal.

	iii)		Average cost of sales per tonne of molybdenum metal produced for 2009 was Rmb100,360 (US$14,703), which equals to Rmb45.62(US$6.68) per pound. (The final mining product of the Company is molybdenum concentrate, so the cash cost does not include the cost of smelting since the Company does not engage in smelting operations).
	iv)		Capital expenditures incurred in the mining business for 2009 were Rmb113.0 million (US$16.6 million), comprised Rmb94.0 million (US$13.8 million) for the mines and Rmb19.0 million (US$2.8 million) for the mill.

OUTLOOK

Telecommunication business of QXMC

Industry growth

          In recent years, China’s mobile handset market has experienced rapid growth and development. We believe that China will continue to play a key role in the development of the global telecommunication industry and remain one of the largest wireless subscriber markets in the world for the foreseeable future.

          Moreover, China’s mobile telecommunication operators have upgraded their networks to offer 3G wireless telecommunication services. 3G technology is expected to enable users to transmit larger volumes of data and more sophisticated content, such as streaming media and multi-player games, more quickly. In January 2009, MIIT issued 3G licenses to China Mobile (TD-SCDMA), China Unicom (CDMA2000) and China Telecom (WCDMA). The more extensive use of data transmission, as facilitated by new and upgraded technologies and networks, is expected to lead to increased demand for enhanced wireless value-added services and, therefore, increased demand for mobile phones with more advanced technologies in China.

          The mobile phone penetration rate in China is still considerably lower than most of the more developed countries and we believe that it has the potential to increase significantly in the next several years. Historically, the mobile telecommunication subscription and handset demand growth took place in China’s large cities, such as Beijing, Shanghai and Guangzhou. More recently, however, the demand growth is increasingly driven by medium and small cities and rural areas, which still have low penetration rates and benefit from favorable government policies, such as universal service obligations imposed upon mobile telecommunication operators in China, and the increasing affordability of handsets, mainly due to the higher average standard of living across China.

Competition and market position

          While China’s mobile handset market is expected to grow significantly, competition is intense. The market has become highly fragmented in recent years as an increasing number of handset producers have entered the market.

          We face significant competition from domestic and multinational mobile handset producers. A small number of multinational players have gained significant market share in China based on greater brand name recognition among Chinese consumers. In addition, competition from domestic handset makers has intensified in recent years.

          We focus on developing and marketing differentiated products for the Chinese handset market. By leveraging our in-house research and development capabilities and operational cost advantages, we have been able to offer consumers handsets with more attractive features at relatively lower prices. This strategy has allowed us to maintain our market position while avoiding direct competition with mass market competitive products.

Product offerings and pricing

          The mobile handset market in China, as well as globally, is characterized by rapidly changing technical standards and increasing demand for handsets with more functions and personalized features and shortening product

life cycles. Pricing of mobile handsets depends principally on manufacturing costs, overall market demand, competition and, increasingly, costs associated with licensing fees, royalties and other payments for technology improvements. Increased economies of scale, technology advancements, and intensified market competition among material and component suppliers have led to significant reductions in handset prices. The selling price and corresponding gross profit margin for a particular mobile handset model typically declines over time as it reaches maturity in the product life cycle. The product life cycle for our most successful handsets has been approximately 12 to 15 months and four to six months for other handset products.

          Our success depends on our ability to satisfy market demand by continually and successfully introducing new product offerings tailored towards local consumers and changing trends. Historically, we have been able to limit the decline in our average selling prices and reduce the impact on our overall margins by successfully introducing popular new products with increased features and designs. For example, in 2007, we released a series of products with enhanced functions, such as the fingerprint recognition information security phone and the wrist watch phone. In 2008, we released our new VEVA-branded mobile handsets to target the fashion-conscious professional men and women. The VEVA mobile handsets not only took our products’ overall design and functionality to a new level, but also gave value-conscious shoppers an attractive performance-price value proposition. Our ability to continually introduce new product offerings with attractive features has allowed us to achieve higher average selling prices and consistently achieve relatively higher profit margins.

          We also expect to continue to incur costs to license third-party technologies used in our products, as well as for royalties and other fees we may be required to pay in order to use 3G or other technologies used in our handset products.

Cost management

          We have adopted various measures to control our development and production costs, including utilizing locally sourced raw materials and components, focusing on in-house design and manufacturing and utilizing a limited number of core handset platform designs for developing and producing a wide range of products with varying features. We also achieved greater economies of scale by significantly increasing our total sales while containing the increases in operating expenses such as selling and distribution expenses, and general and administrative expenses.

Working capital management

          We believe our success also depends on our ability to effectively manage our inventory levels, trade-related receivables and payables and other working capital needs. We communicate regularly with our distributors to collect timely feedback from end users and through other channels regarding demand for particular products and project our production volumes and inventory levels based on our analysis of this feedback. As a result, this careful monitoring helps us better manage our working capital requirements. However, we depend on timely and accurate market feedback and a good relationship with our distributors to achieve these added efficiencies. Any failure to obtain timely and accurate market feedback or to correctly estimate demand for our products could result in lost sales opportunities, potential inventory related charges or reduced sales prices and gross margins for our products. We also closely monitor the level of trade-related receivables and payables to effectively anticipate and manage working capital needs.

Mining business of CJLC

Molybdenum market

          In 2008, the average price for molybdenum oxide was over US$30 per pound. The price declined dramatically during the fourth quarter of 2008 and the first four months of 2009, reaching a low of US$7.70 per pound in April 2009. This decline was primarily due to the collapse in demand from the steel industry for molybdenum bearing grades of steel. During June through August of 2009, the price of molybdenum rose sharply, reaching a year-to-date high of US$18.30 per pound in August 2009. The price of molybdenum was volatile during the remainder of 2009, with the average price for molybdenum oxide of US$11.53 per pound for the fourth quarter of 2009 and US$11.29 per pound for the month of December 2009. Accordingly, the price of molybdenum concentrate was volatile during 2009 also.

          At the start of 2010, the molybdenum price began to increase. By March 8, 2010, the price for molybdenum oxide had increased to US$18.00 per pound, and for the week of June 4, 2010, the average price for molybdenum oxide was US$15.40 per pound.

          The Company expects that demand will continue to improve. The Company believes that the price of molybdenum will depend on the pace of re-supply from Chinese mines in addition to the pace of improving demand from Western and Japanese steel mills. Nonetheless, the Company expects that the demand and sales price for molybdenum will increase within the next 18 months and, for this reason among others, the Company has decided to look for other acquisition opportunities in the PRC.

          There can be no assurance, however, that molybdenum demand will strengthen or that molybdenum prices will further improve. Any significant weakness in demand or reduction in molybdenum prices may have a material adverse effect on the Company’s results of operations, financial condition and cash flows. For every US$1 increase in the molybdenum price, the results of operations for 2009 would have increased US$1,277,000. For every US$1 decrease in the molybdenum price, the results of operations for 2009 would have decreased US$1,277,000.

           Operations

          For 2010, the Company expects the molybdenum concentrates production volume to be 3,600 tonnes (1,740 tonnes of contained molybdenum metal) to 3,800 tonnes (1,820 tonnes of contained molybdenum metal). For 2010, anticipated average costs per tonne of molybdenum metal produced (excluding the cost of smelting since the Company does not engage in smelting operations) is expected to be Rmb100,300 (US$14,694) to Rmb103,000 (US$15,909), equivalent to US$6.68 to US$6.86 per pound.

          Capital expenditures for 2010 are expected to be Rmb94.6 million (US$13.9 million), comprised of Rmb89.3 million (US$13.1 million) in capital expenditures for the mines and Rmb5.3 million (US$0.8 million) for the mill.

Anticipated productive lives of mineral properties, facilities and equipment

          The Company has conducted a mine life analysis for the Haozhou Mine based on the December 31, 2009 ore reserve estimates and the anticipated 2011 full production rate at the full designed capacity. It can be seen that the ore reserves are sufficient to support production at the anticipated 2011 production levels for 14.2 years for the Erdaoyingzi deposit. This ore reserve mine life may change significantly in the future due to the following reasons:

	1.		Additional exploration and development of the mines could convert some of the existing mineralized material to proven and probable ore reserves. These new ore reserves would increase the mine life.
	2.		Additional exploration may also find additional proven and probable reserves or mineralized material resources within the exploration license areas. Some of these additional mineral resources might be converted to ore reserves, which would extend the mine life.
	3.		Changes in the production rate would also change the mine life. The mine life would be shortened if the production rate is increased to a higher level than the anticipated production level for 2011.
	4.		Changes in the assumptions in the mining plan such as the long-term molybdenum price, mining costs, processing costs, fuel, electric power, etc. Changes in these assumptions could impact the cut-off grade determined in the mining plan.

Anticipated assets retirement costs

          In connection with the mining operation, the Company is required to make payments for restoration and rehabilitation.

          According to the Sewage Charge Fee Table and Calculation Basis issued by the Inner Mongolia Environmental Protection Bureau, mining companies need to pay to the State Treasury a sewage charge at RMB15*0.94 per tonne of ore produced. During 2009, Haozhou recorded a total output of about 262,703 tonnes of ores, and, accordingly, its sewage charges totaled RMB 3,688,613 (US$540,385) for the year.

          In Chifeng City, mining companies pay a one-time fee to the State Treasury equal to Rmb15,000 – Rmb75,000/ hectare as determined through negotiations with government authorities and based upon the underground areas which have been mined and the nature of the mine. Haozhou recorded a liability for mine restoration of Rmb324,750 based on 4.33/hectare of mining areas (the areas being mined in 2009) at RMB75,000/hectare.

          A. OPERATING RESULTS.

Fiscal 2009 compared to Fiscal 2008

          Our net loss increased by Rmb123.1 million (US$18.0 million) from a net loss of Rmb136.8 million in 2008 to a net loss of Rmb259.9 million (US$38.1 million) in 2009. This was mainly due to:

	-		Decrease of gross profit by Rmb514.9 million (US$75.4 million) mainly due to the decreased net sales and increased cost of sales in QXMC;
	-		Decrease of selling expenses by Rmb36.1 million (US$5.3 million);
	-		Increase of general and administrative expenses by Rmb55.0 million (US$8.1 million);
	-		Decrease of gain from remeasurement of embedded derivatives at amount of Rmb168.3 million (US$24.7 million);
	-		Decrease of interest expense by Rmb88.9 million (US$13.0 million);
	-		Decrease of net loss from discontinued operations at amount of Rmb139.8 million (US$20.5 million);

          The Company acquired CLJC on April 6, 2009. The operating results of CLJC have been consolidated with those of the Group since April 6, 2009, when the Company acquired CLJC from Mr. Wu Ruilin.

     On November 30, 2009, the Company disposed of QXCH to Dragon Fu Investment Limited. The Company has accounted for the QXCH business in the consolidated financial statements as a discontinued operation. Accordingly, assets and liabilities, revenues and expenses, and cash flows related to the QXCH business have been appropriately reclassified in the consolidated financial statements as discontinued operations for all periods presented.

          The details are as follows:

          (i) Net sales

          Analysis of our sales revenue by business segment for fiscal year 2009 and 2008 is as follows:

		Year ended December 31
		2009								2008
		Rmb’000				%				Rmb’000				%
Mobile telephones of QXMC			1,632,912				89				2,153,873				100
Mining business of CLJC			193,887				11				—				—
Total			1,826,799				100				2,153,873				100

          Net sales revenue decreased by Rmb327.1million from Rmb2,153.9 million for fiscal year 2008 to Rmb1,826.8 million (US$267.6 million) for fiscal year 2009, representing a decrease of 15.2%. The decrease was primarily due to a decline of sales in QXMC at amount of Rmb521.0 million (US$76.3 million).

          Revenue from QXMC decreased by 24.2% from Rmb2,153.9 million in 2008 to Rmb1,632.9 million (US$239.2 million) in 2009. The decrease was primarily due to a decline in our handsets and accessories revenue, which accounted for 99.4% and 99.5% of QXMC’s total revenues in 2008 and 2009, respectively.

          Revenue from the sale of handsets and accessories decreased by 24.1% from Rmb2,140.3 million in 2008 to Rmb1,624.3 million (US$238.0 million) in 2009, primarily due to lower handset shipments and a decrease in the average selling price of handsets sold in 2009. Our handset shipment decreased by 21.8% from 2,714,000 units in 2008 to 2,123,000 units in 2009. The decrease in our handset shipments in 2009 was primarily due to fewer new model launches and a slow-down in shipments amid intense competition in the handset market. The average selling price of our handsets decreased from Rmb788 per unit in 2008 to Rmb734 (US$108) per unit in 2009, primarily due to the launch of lower-priced VEVA-series products to target the lower-end market and more aggressive pricing to drive sales in an increasingly competitive and deteriorated uncertain economic environment. Average sale price was also affected by a decline in the use of the TV infomercial arrangement under which handsets were sold to infomercial companies at a higher price, but in return, we had to bear the airtime and logistic costs.

          CLJC started its commercial production of molybdenum concentrate in July 2009. Consolidated revenues from CLJC for 2009 were Rmb193.9 million (US$28.4 million). During the second half of 2009, 1,920 tonnes of molybdenum concentrate containing 925 tonnes of molybdenum metal were sold at an average sales price of Rmb209,700 (US$30,700) per tonne of molybdenum metal (equal to US$13.96 per pound of contained molybdenum metal).

          (ii) Cost of Goods Sold

          Analysis of our cost of goods sold by business segment for fiscal years 2009 and 2008 is as follows:

		Year ended December 31
		2009								2008
		Rmb’000				%				Rmb’000				%
Mobile telephones of QXMC			1,381,595				94				1,287,096				100
Mining business of CLJC			93,335				6				—				—
Total			1,474,930				100				1,287,096				100

          Cost of goods sold increased by Rmb187.8 million from Rmb1,287.1 million for fiscal year 2008 to Rmb1,474.9 million (US$216.1 million) for fiscal year 2009, representing an increase of 14.6%.

          In 2009, the cost of goods sold for QXMC was Rmb1,381.6 million (US$202.4 million), while it amounted to Rmb1,287.0 million in 2008, representing an increase of Rmb94.6 million. QXMC’s cost of goods sold increased by 7.3% primarily driven by the increased percentage sales of VEVA products, which resulted in, among others, a Rmb67.8 million increase in raw materials and components cost. In addition, inventory write-downs also increased from RMB6.6 million in 2008 to Rmb18.0 million (US$2.6 million) in 2009. The cost of goods sold in QXMC as a percentage of revenue increased from 59.8% in 2008 to 84.6% in 2009, primarily due to more aggressive pricing in 2009.

          With the commercial production of molybdenum concentrate starting in July 2009, the total cost of sales incurred in CLJC for the second half of 2009 amounted to Rmb93.3 million (US$13.7 million). During the second half of 2009, CLJC produced 263,000 tonnes of ore and milled 262,000 tonnes. The average grade of the ore produced was 0.402%. 1,930 tonnes of molybdenum concentrate containing 930 tonnes of molybdenum metal was produced. The

average recovery rate of the ore milled was 88.44%. Average cost of sales per tonne of molybdenum metal produced for 2009 was Rmb100,360 (US$14,703), which equals to Rmb45.62(US$6.68) per pound. (The final mining product of the Company is molybdenum concentrate, so the cash cost does not include the cost of smelting since the Company does not engage in smelting operations).

     (iii) Gross Profit

          Analysis of our gross profit by business segment for fiscal years 2009 and 2008 is as follows:

		Year ended December 31
		2009								2008
		Rmb’000				%				Rmb’000				%
Mobile telephones of QXMC			251,317				71				866,777				100
Mining business of CLJC			100,552				29				—				—
Total			351,869				100				866,777				100

          Gross profit for fiscal year 2009 was Rmb351.9 million (US$51.5 million), representing a decrease of Rmb514.9 million from Rmb866.8 million in fiscal year 2008.

          In 2008, the gross profit from QXMC was Rmb866.8 million, while it amounted to Rmb251.3 million (US$36.8 million) in 2009, representing a decrease of 71%. The decrease was primarily due to the decreased revenue from our mobile handset products. Gross margin of QXMC decreased from 40.2% in 2008 to 15.4% in 2009, primarily due to fewer new model launches and more aggressive pricing amid increasing competition in the PRC handset market. Gross margin was also affected by a decline in the use of the TV infomercial arrangement under which handsets were sold to infomercial companies at a higher price, but in return, we had to bear the airtime and logistic costs.

          Gross profit generated from CJLC amounted to Rmb100.5 million (US$14.7 million), representing a gross profit ratio of 51.8%.

     (iv) Selling expenses

          Selling expenses decreased by Rmb36.1 million from Rmb146.6 million for fiscal year 2008 to Rmb110.4 million (US$ 16.2 million) for fiscal year 2009. The decrease was mainly due to decreased selling and distribution expenses in QXMC.

          Selling and distribution expenses in QXMC decreased by 25.2% from Rmb146.6 million in 2008 to Rmb109.6 million (US$16.1 million) in 2009. The decrease in selling and distribution expenses was primarily due to the lower airtime costs we incurred on the reduced TV direct sales from Rmb128.2 million in 2008 to Rmb80.0 million (US$11.7 million) in 2009.

          Due to the business nature, selling and distribution expenses for the molybdenum mine products were very low. For the year ended December 31, 2009, only Rmb0.8 million (US$0.1 million) of selling expenses were recorded in CLJC.

     (v) General and administrative expenses including stock-based compensation

          Our general and administrative expenses primarily consisted of share-based compensation, salaries, benefits and other expenses for our administrative personnel, expenses relating to legal, accounting and other professional

services, travel and entertainment, depreciation and amortization charges and bad debt provisions. General and administrative expenses increased by Rmb55.0 million from Rmb59.8 million in fiscal year 2008 to Rmb114.8 million (US$ 16.8 million) in fiscal year 2009, representing an increase of 92.0%.

          The increase primarily related to the increased general and administrative expenses in QXMC for 2009.

          General and administrative expenses in QXMC increased by 66.4% from Rmb44.2 million in 2008 to Rmb73.6 million (US$10.8 million) in 2009. The increase was primarily due to the higher share-based compensation expenses, which increased from Rmb12.2 million in 2008 to Rmb31.0 million (US$4.5 million) in 2009. The increase in share-based compensation expenses in 2009 arose due mainly to the grant of restricted shares to a director and various employees in December 2009. In addition, bad debt expense in QXMC also increased from Rmb0.7 million in 2008 to Rmb12.4 million in 2009 (US$1.8 million). As for the percentage of total revenue, general and administrative expenses of QXMC increased from 2.1% in 2008 to 4.5% in 2009.

          In connection with the acquisition of CJLC, the Company issued 2,100,000 shares to a financial consulting firm and 100,000 shares to a law firm for services in connection with the acquisition. Accordingly, Rmb26.0 million (US$3.8 million) was recorded in general and administrative expenses for the year 2009.

          General and administrative expenses in CJLC in 2009 amounted to Rmb3.6 million (US$0.5 million). Among this, Rmb1.1 million (US$0.2 million) was incurred for the feasibility study on the remaining area of the Erdapyingzi Molybdenum mine.

     (vi) Research and development expenses

          Research and development expenses of QXMC increased by 24.7% from Rmb29.2 million in 2008 to Rmb36.4 million (US$5.3 million) in 2009. The increase was mainly driven by an increase in material and software costs, and the write-off of Rmb3.2 million (US$0.5 million) of costs relating to discontinued development projects in 2009.

     (vii) Amortization of intangible assets

          Amortization of other intangible assets related to the operations of QXMC. Amortization of other intangible assets decreased by 59.8% from Rmb11.7 million in 2008 to Rmb4.7 million (US$0.7 million) in 2009 mainly because certain intangible assets had been fully amortized during 2008 and 2009.

     (viii) Impairment of acquired intangible assets

          Impairment of acquired intangible assets also related to the operations of QXMC. As a result of our strategic shift to focus more on our high-end VEVA-branded mobile handsets, QXMC made an impairment charge of Rmb26.2 million (US$3.8 million) on its “CECT” brand in the year ended December 31, 2008. In 2009, an impairment charge of Rmb13.6 million (US$2.0 million) on the “CECT” brand was further recorded. The value of the “CECT” brand decreased to Rmb0 as of December 31, 2009.

     (ix) Impairment of assets held for sale

          In November 2009, QXMC entered into an agreement for the sale of a property and the associated land use

rights to a third party for a total consideration of Rmb163 million (US$23.9 million). The sale was subsequently completed in the second quarter of 2010. As of December 31, 2009, the land and property have been reclassified from non-current assets to current assets as assets held for sale. An impairment charge of Rmb6.0 million (US$0.9 million) was made during the year ended December 31, 2009 to write down the value of the assets to their fair value which was estimated based on the expected sales proceeds less costs to sell.

     (x) Interest income

          Interest income decreased by Rmb26.2 million from Rmb54.8 million in 2008 to Rmb28.6 million (US$ 4.2 million) in 2009. The decrease was mainly attributable to the decrease in interest rates in 2009 and the repayment of loans to a third party.

          Interest income in 2008 of Rmb36.5 million came from loans to a third party at an interest rate of 5% per annum. As the loan was repaid in June 2009, only Rmb9.3 million (US$1.4 million) interest income was recorded in 2009 related to loans to a third party.

     (xi) Exchange gain (loss)

          Assets and liabilities which are denominated in foreign currencies are translated into the functional currencies at the rates of exchange prevailing at the balance sheet date. Foreign currency transactions are translated using the exchange rates prevailing at the date of transactions. Foreign exchange gains or losses arising from the translation at year-end exchange rates of foreign currency intercompany balances that are of a long-term investment nature are included in shareholders’ equity separately as cumulative translation adjustments. All other foreign exchange gains or losses resulting from the settlement of foreign currency transactions and from the translation at financial year-end exchange rates of assets and liabilities denominated in foreign currencies are included in the consolidated statements of operations.

          A realized foreign currency translation gain of Rmb88.2 million (US$12.9 million) was recorded in 2009 primarily resulting from the disposal of QXCH.

          On November 30, 2009, the Company sold QXCH to DFIL for a total consideration of Rmb75,000,000 (US$10,989,000). In addition, in accordance with the sales agreement, DFIL undertook to repay as a primary obligor, or to cause QXCH’s subsidiary to repay, the outstanding loan of Rmb236,102,000 which was due from QXCH’s subsidiary to the Company in full to the Company in three installments but no later than November 30, 2010. In 2008, as these loans to subsidiaries of QXCH were inter-company loans within the Company, all related foreign exchange gains were recorded in cumulative translation adjustments. With the disposal of QXCH, cumulative foreign exchange gains from these loans to the subsidiaries of QXCH at amount of Rmb88.2 million (US$12.9 million) were recorded as realized foreign currency translation gain in the fiscal year of 2009. This realized foreign currency translation gain was included in net loss from discontinued operations.

     (xii) Interest expense

          Interest expenses decreased by Rmb88.9 million from Rmb311.7 million in 2008 to Rmb222.8 million (US$32.6 million) in 2009. The decrease related mainly to the convertible bonds and interest expenses for bank loans.

          In Qiao Xing Universal Resources, Inc (“QXUT”) for the year 2008, we recorded interest expenses of Rmb145.8 million relating to two convertible bonds issued in 2006 and 2007. Coupon interest for these two convertible bonds amounted to Rmb14.2 million in 2008. With repayment of the 2007 convertible bond, we only recorded an interest expense of Rmb4.1 million (US$0.6 million) in QXUT in 2009, among which, coupon interest amounted to Rmb3.0 million (US$0.4 million).

          QXMC issued US$70,000,000 senior convertible notes on May 15, 2008 and recorded interest expense of Rmb92.9 million in 2008. Coupon interest for these QXMC convertible notes amounted to Rmb11.6 million in 2008. On March 31, 2009, the Company purchased US$30,000,000 principal amount of QXMC senior convertible notes from three note holders for an aggregate purchase price of US$24,000,000. The Company recorded interest expense of Rmb168.3 million (US$24.7 million) related to the QXMC convertible notes in 2009. Coupon interest for the QXMC convertible notes amounted to Rmb15.8 million (US$2.3 million) in 2009.

          In 2009, interest expense related to bank loans and other bank borrowings amounted to Rmb50.4 million (US$7.4 million), compared to Rmb102.5 million in 2008, mainly attributed to the repayment of bank borrowings in 2009.

(xiii) Gain (loss) on re-measurement of embedded financial derivatives

          We recognized a gain on re-measurement of embedded derivatives relating to the convertible bonds of Rmb160.0 million in 2008 and a loss of Rmb8.3 million (US$1.2 million) in 2009, the fair value of the embedded derivative being most sensitive to the market price on the re-measurement date of the shares of the Company into which the bonds are convertible. The fair values of these embedded derivatives relating to the convertible bonds were appraised by a third party valuator.

(xiv) Loss on extinguishment of convertible debts

          On August 19, 2008, the holders of the QXMC US$70,000,000 senior convertible notes exercised the option to convert US$8.3 million of the principal amount of the notes and accrued interest thereon of US$0.5 million into 1,511,397 ordinary shares of QXMC at a conversion price of US$5.49 per share. The extinguishment of the convertible debts that arose from the conversion resulted in a loss of RMB10.6 million during the year ended December 31, 2008.

          In 2009, the holders of the QXMC convertible notes exercised the option to convert US$16,073,000 of the principal amount of the notes and accrued interest thereon of US$590,000 into 4,114,286 ordinary shares of QXMC at a conversion price of US$4.05 per share. The extinguishment of the QXMC convertible debts that arose from the conversion resulted in a gain of Rmb46.3 million (US$6.8 million) for the year ended December 31, 2009.

          On March 31, 2009, the Company purchased from three note holders US$30,000,000 of the outstanding QXMC convertible notes for an aggregate purchase price of US$24,000,000. The carrying value of the QXMC convertible notes purchased by the Company was estimated to be approximately Rmb176.3 million on March 31, 2009. The transaction resulted in a loss on the extinguishment of the US$30,000,000 QXMC convertible notes of Rmb15.1 million (US$2.2 million) for the Group, being the difference between the purchase price and the carrying value of the debt, the embedded derivatives and the unamortized deferred debt issuance costs relating to the QXMC convertible notes.

          On November 3, 2009, the Company signed an agreement with two institutional investors of the 2006 convertible notes and issued US$24 million aggregate principal amount of 0% unsecured restated senior convertible notes to these two institutional investors in exchange for the US$26 million aggregate principal amount of 2006 convertible notes. In addition, the Company has issued 2,400,000 shares of common stock of the Company to these two institutional investors. The institutional investors have also waived the interest accrued on the 2006 convertible notes over the first four months of 2009 as part of the restructuring. Loss from the extinguishment of the 2006 convertible notes included in the consolidated financial statements for the year ended December 31, 2009 was

Rmb49.2 million (US$7.2 million).

          In 2009, the holders of the 0% Restated Notes exercised the option to convert US$6,000,000 of the principal amount of the notes into 3,319,171 shares of the Company at an average conversion price of US$1.81 per share. The extinguishment of the 0% Restated Notes resulted in a gain of Rmb2.7 million (US$0.3 million) for the year ended December 31, 2009.

          As a result, total loss on extinguishment of convertible debts amounted to Rmb15.3 million (US$2.2 million) in 2009.

(xv) Gain on disposal of interests in subsidiaries

          For the year ended December 31, 2008, the Company recorded a gain on disposal of interests in subsidiaries at an amount of Rmb2.3 million relating to the disposal of subsidiaries by QXMC during the year ended December 31, 2008.

          Gain on disposal of discontinued operations at an amount of Rmb144.2 million (US$21.1 million) related to the disposal of QXCH was included in net loss from discontinued operations for the year ended December 31, 2009. No other disposal activity occurred in 2009.

(xvi) Gain on issue/repurchase of stocks by subsidiary

          On January 7, 2008, QXMC issued 565,000 new ordinary shares at US$7.50 per share upon the exercise of share options granted to its director and certain employees. On May 15, 2008, QXMC repurchased 6,966,666 of its issued ordinary shares at US$6.94 per share from two existing shareholders of QXMC through the issuance of the QXMC US$70,000,000 senior convertible notes. All ordinary shares repurchased were subsequently cancelled.

          On August 19, 2008, the holders of the QXMC US$70,000,000 senior convertible notes exercised the option to convert US$8,251,000 of the principal amount of the notes and accrued interest thereon of US$46,000 into 1,511,397 ordinary shares of QXMC at a conversion price of US$5.49 per share.

          In 2008, the Company recorded a total gain of Rmb4.4 million on these issuances and repurchase of stocks transactions by QXMC.

          In 2009, the holders of the QXMC convertible notes exercised the option to convert US$16,073,000 of the principal amount of the notes and accrued interest thereon of US$590,000 into 4,114,286 ordinary shares of QXMC at a conversion price of US$4.05 per share.

          On December 4, 2009, QXMC issued 960,884 ordinary shares to its management team in replacement of all of the outstanding stock options held by the management team.

          As a consequence of the QXMC share issue in 2009, the Company’s equity interest in QXMC was decreased to 61.1%. With the implementation of SFAS No. 160, in connection with the conversion of convertible notes and the exchange of stock option to ordinary shares, the Company charged retained earnings by Rmb98.1 million (US$14.4 million) in 2009 which was the decline in the Company’s share of the carrying value of QXMC as a result of ownership dilution caused by this transaction.

(xvii) Unrealized gain (loss) on derivatives

          Non-cash unrealized loss on common stock purchase warrants of Rmb4.7 million (US$0.7 million) for 2009 was the result of a requirement under US GAAP to account for the Company’s outstanding common stock purchase warrants as a derivative, with changes in the fair value recorded in net income (loss).

(xviii) Income tax expense

          Income tax expense decreased by Rmb111.8 million from Rmb155.7 million in 2008 to Rmb43.9 million (US$6.4 million) in 2009.

          Income tax expense of QXMC decreased by Rmb144.1 million from Rmb155.7 million in 2008 to Rmb11.6 million (US$1.7 million) in 2009, primarily due to decreases in taxable income. In 2009, CLJC recorded a total income tax expense of Rmb32.3 million (US$4.7 million). Both QXMC and CLJC are subject to a 25% enterprise income tax rate in 2008 and 2009.

(xix) Discontinued operations, net of tax

          On November 30, 2009, the Company sold QXCH to DFIL for a total consideration of Rmb75,000,000 (US$10,989,000), resulting in a gain on disposal of discontinued operations at an amount of Rmb144.2 million (US$21.1 million). Net loss from the discontinued operations of QXCH for the eleven months ended November 30, 2009 was Rmb372.2 million (US$54.5 million). The disposal also resulted in a realized foreign currency translation gain at an amount of Rmb88.2 million (US12.9 million). The total net loss from the discontinued operations of QXCH at an amount of Rmb139.8 million (US$20.5 million) was stated as a separate item in the consolidated financial statements of the Company in 2009.

          In 2008, net of tax loss from the operations of QXCH amounted to Rmb291.0 million. In 2007, QXCH recorded a net of tax income at an amount of Rmb63.0 million.

(xx) Net income (loss) attributable to the noncontrolling interest

          Net income attributable to the noncontrolling interest decreased by Rmb244.3 million from net income of Rmb161.8 million for 2008 to net loss of Rmb82.5 million (US$12.1 million) for 2009. The change related to the minority shareholder’s share of the consolidated results of QXMC. Net results of QXMC decreased to a net loss of Rmb235.5 million (US$34.5 million). Accordingly, the noncontrolling interest in QXMC will bear Rmb82.5 million. The Company owned 67.6% of QXMC for the first 11 months of 2009, while this figure changed to 61.1% in December 2009.

(xxi) Net results

     As a result of the foregoing, our net earnings decreased by Rmb123.1 million from a net loss of Rmb136.8 million in 2008 to a net loss of Rmb259.9 million (US$38.1 million) in 2009. Our total basic loss per share was Rmb4.42 in 2008, while our total basic loss per share was Rmb4.13 (US$0.61) in 2009.

Fiscal 2008 compared to Fiscal 2007

          Our net earnings decreased by Rmb1,040.7 million from a net income of Rmb903.9 million in 2007 to a net loss of Rmb136.8 million in 2008. This was mainly due to:

	-		Decrease of gross profit by Rmb99.2 million mainly due to the decreased net sales;
	-		Increase of provision for doubtful accounts by Rmb229.8 million;
	-		Increase of interest expense by Rmb93.6 million;
	-		Decrease of gain from disposal of interests in subsidiaries by Rmb480.3 million;
	-		Decrease of gain on issue/repurchase of stocks by subsidiary by Rmb379.6 million.

          The details are as follows:

(i) Net sales

          Analysis of our sales revenue by business segment for fiscal year 2008 and 2007 is as follows:

		Year ended December 31
		2008								2007
		Rmb’000				%				Rmb’000				%
Mobile telephones			2,342,754				90				3,636,431				94
Indoor telephones			252,194				10				237,676				6
Total			2,594,948				100				3,874,107				100

          Net sales revenue decreased by Rmb1,279.2 million from Rmb3,874.1 million for fiscal year 2007 to Rmb2,594.9 million for fiscal year 2008, representing a decrease of 33.0%. The decrease was primarily due to a decline in our handsets and accessories revenue.

          In 2007, the revenue from the mobile phone business segment was Rmb3,636.4 million, while it amounted to Rmb2,342.8 million in 2008, representing a decrease of Rmb1,293.6 million. The decrease was mainly attributable to the decrease in revenue from the sale of CECT-branded handsets and COSUN-branded lower-end handsets.

          Revenue from the sale of CECT-branded handsets and accessories decreased by 31.3% from Rmb3,113.8 million in 2007 to Rmb2,140.3 million in 2008, primarily due to lower handset shipment and a decrease in the average selling price of products sold in 2008. Our handset shipments decreased by 28.9% from 3,816,000 units in 2007 to 2,714,000 units in 2008. Our handset shipment in 2008 was negatively impacted by the earthquake that took place in the Sichuan province of China in May 2008 (“the May earthquake”) and the economic downturn in China. In addition, handset shipment of CECT-branded handsets in 2008 also decreased due to our strategic shift to the niche market of higher-margin VEVA branded handsets. The average selling price of CECT-branded handsets decreased from Rmb816 per unit in 2007 to Rmb788 per unit in 2008, primarily due to the sale of a high volume of ultra-low cost phones, such as the C3100, in the first half of 2008, as well as promotional sales across our CECT-branded products to deal with the economic slowdown in China in the fourth quarter of 2008.

          Net sales of the COSUN-branded mobile phone handsets for 2008 were Rmb195.3 million, representing a decrease of 61.7%. The decrease was primarily attributed to the significant decline in sales volume which was due to the May earthquake and the economic downturn in China. The target customers of COSUN-branded mobile phone are low-revenue groups. These customers were greatly influenced by the financial crisis which occurred in 2008. Many of these target customers lost their jobs due to the shutdown of plants during the financial crisis. Therefore, the sales of COSUN-branded mobile phones decreased dramatically.

          In addition, we believe that our sales continue to be adversely affected by illegally produced and distributed merchandise (commonly referred to as “copy-cat” or “knock-off” merchandise). Such illegal merchandise is believed to be sold at extremely low prices, and therefore such activities have the effect of diminishing our sales.

          Net sales of indoor telephones for 2008 were Rmb252.2 million, representing an increase of 6.1% from 2007. The increase was primarily attributable to the big volume orders received from an overseas telecommunication operator under the agreement signed in 2007. Domestic sales of indoor phones also suffered a significant decline in 2008 due to the economic downturn.

          (ii) Cost of Goods Sold

          Analysis of our cost of goods sold by business segment for fiscal years 2008 and 2007 is as follows:

		Year ended December 31
		2008								2007
		Rmb’000				%				Rmb’000				%
Mobile telephones			1,496,080				87				2,692,678				93
Indoor telephones			222,944				13				206,286				7
Total			1,719,024				100				2,898,964				100

          Cost of goods sold decreased by Rmb1,180.0 million from Rmb2,899.0 million for fiscal year 2007 to Rmb1,719.0 million for fiscal year 2008, representing a decrease of 40.7%.

          In 2008, the cost of goods sold for the mobile phones business segment was Rmb1,496.1 million, while it amounted to Rmb2,692.7 million in 2007, representing a decrease of Rmb1,196.6 million.

          Our cost of goods sold relating to our CECT-branded mobile phone business decreased by 42.9% from Rmb2,255.8 million in 2007 to Rmb1, 287.1 million in 2008, primarily driven by the decreased sales volume of our handset products, which resulted in, among others things, a Rmb885.4 million decrease in raw materials and components cost. Our product design fees paid to third parties also decreased by 75.7% from Rmb74.4 million in 2007 to Rmb18.1 million in 2008, as a greater proportion of product development was done in-house in 2008. The cost of goods sold as a percentage of revenue decreased from 71.8% in 2007 to 59.8% in 2008, primarily reflecting our strategic shift to the niche market of higher-margin products and the introduction of VEVA-branded handsets since 2008.

          Cost of goods sold for COSUN-branded mobile phones was Rmb215.7 million in 2008, a decrease of Rmb235.3 million from Rmb451.0 million in 2007. The decrease was primarily attributable to the significant decrease in sales volume.

          Cost of goods sold for indoor phones was Rmb223.0 million, an increase of Rmb15.0 million from Rmb208.0 million in 2007.

(iii) Gross Profit

          Analysis of our gross profit by business segment for fiscal years 2008 and 2007 is as follows:

		Year ended December 31
		2008								2007
		Rmb’000				%				Rmb’000				%
Mobile telephones			846,674				97				943,753				97
Indoor telephones			29,250				3				31,390				3
Total			875,924				100				975,143				100

          Gross profit for fiscal year 2008 was Rmb875.9 million, representing a decrease of Rmb99.2 million from Rmb975.1 million in fiscal year 2007.

          In 2007, the gross profit from the mobile phone business segment was Rmb943.8 million, while it amounted to Rmb846.7 million in 2008, representing a decrease of Rmb97.1 million. The decrease was mainly attributable to the decrease of gross profit generated from our COSUN-branded mobile phone business.

          Our gross profit from our CECT-branded mobile phone business decreased by 2.1% from Rmb885.3 million in 2007 to Rmb866.8 million in 2008, primarily due to decreased revenue from our mobile handset products. Our gross margin increased from 28.2% in 2007 to 40.2% in 2008, primarily due to contributions of the VEVA handset models and a higher percentage of revenue derived from TV direct sales. Under the TV direct sales arrangement, we were able to sell our handset to infomercial companies at a higher price, but in return, we had to bear the additional airtime and logistic costs.

          Gross profit/loss from our COSUN-branded mobile phone business decreased by Rmb80.3 million, from a gross profit of Rmb60.0 million in 2007 to a gross loss of Rmb20.3 million in 2008. In order to compete with the copy-cat or knock-off mobile phone producers and strive to maintain our market share, we were compelled to sell the COSUN-branded mobile handsets at prices below cost.

          Gross profit from the indoor telephone business segment decreased by Rmb2.2 million from Rmb31.4 million in 2007 to Rmb29.2 million in 2008. The decrease was primarily attributable to the decrease in gross margin from 13.2% in 2007 to 11.6% in 2008, as a result of the decreased gross margin from the indoor phones export business due to the global financial crisis and the appreciation of Rmb.

(iv) Selling expenses

          Selling expenses increased by Rmb97.2 million from Rmb59.8 million for fiscal year 2007 to Rmb157.0 million for fiscal year 2008. The increase was mainly due to an increase of Rmb110.3 million relating to the CECT-branded mobile phones. The selling and distribution expenses relating to the COSUN-branded mobile phones decreased by Rmb13.1 million.

          Our selling and distribution expenses relating to the CECT-branded mobile phones increased by 303.9% from Rmb36.3 million in 2007 to RMB146.6 million in 2008, primarily due to the higher airtime costs incurred on increased TV direct sales and more advertisement on VEVA brand in 2008. We plan to increase the level of our marketing and promotional activities and recruit additional sales and marketing personnel to expand our business in the near term. We do not expect the increase in our sales and marketing efforts to have a material adverse effect on our results of operations.

          The decrease in selling and distribution expenses by 55.6% for the COSUN-branded mobile phones related mainly to the recession in the economy. With the financial crisis, the revenue of the target customers of COSUN-branded mobile phones, the low-revenue customers, decreased dramatically. The sales of COSUN-branded

mobile phones decreased accordingly, and the selling and distribution expenses on this segment declined.

(v) General and administrative expenses including stock-based compensation

          Our general and administrative expenses primarily consisted of share-based compensation, salaries, benefits and other expenses for our administrative personnel, expenses relating to legal, accounting and other professional services, travel and entertainment, depreciation and amortization charges and bad debt provisions. General and administrative expenses increased by Rmb207.7 million from Rmb131.1 million in fiscal year 2007 to Rmb338.8 million in fiscal year 2008, representing an increase of 158.4%.

          The increase of general and administrative expenses primarily related to COSUN-branded mobile phones and the indoor phone business. With the recession in the economy, the financial position of the low-revenue customers deteriorated and the collection of accounts receivable from these customers became difficult. In fiscal year 2008, the Company recognized Rmb232.8 million in provisions for doubtful debts on accounts receivable, compared with Rmb3.0 million in fiscal year 2007. Among this, the provisions for doubtful debts related to COSUN-branded mobile phones and indoor phone section amounted to Rmb232.2 million in 2008. These provisions for doubtful debts were included in general and administrative expenses.

          Regarding the CECT-branded mobile phone business, general and administrative expenses in 2008 were Rmb44.2 million, compared to Rmb69.0 million in 2007. The decrease was primarily due to lower share-based compensation expenses recognized in 2008, which decreased from Rmb36.3 million in 2007 to Rmb12.2 million in 2008. As a result of the initial public offering of Qiao Xing Mobile Communication Co., Ltd in May 2007, the Company incurred a higher level of expenses relating to legal, accounting, financial compliance and other professional services. These charges for services decreased in 2008.

(vi) Research and development

          Research and development expenses increased by Rmb9.5 million from Rmb34.5 million for fiscal year 2007 to Rmb44.0 million for fiscal year 2008. The increase consisted mainly of the increase of Rmb10.6 million relating to the CECT-branded mobile phone handset business and a decrease of Rmb1.1 million relating to the COSUN-branded mobile phone handset business.

          Research and development expenses primarily consist of share-based compensation, salaries, benefits and other staff-related expenses for our research and development personnel, office expenses and related cost of materials and product testing expenses. We expect our research and development expenses to increase in the future as we intend to recruit more research and development engineers and acquire new technologies and testing equipment in CECT-branded mobile phone section to strengthen our in-house design and development capabilities, particularly our capability to develop higher-end and differentiated products.

          (vii) Amortization of intangible assets

          Amortization of other intangible assets was Rmb32.3 million in 2007 and Rmb11.7 million in 2008. The higher amortization of other intangible assets in 2007 arose as a result of the Company’s acquisition of the remaining 20% interest in QXMC on November 30, 2006. Amortization expense decreased in 2008 because certain acquired intangible assets had been fully amortized during 2007 and early 2008.

          (viii) Impairment of acquired intangible assets

          For the year ended December 31, 2008, as a result of the projected decrease in future cash flows, the Company determined that the estimated fair value of the “CECT” brand was less than its carrying amount, and an impairment loss was recognized at the amount of Rmb26.2 million. The impairment tests conducted by the Company on the “CECT” brand for the year ended December 31, 2007 did not result in any impairment charge.

          (ix) Interest income

          Interest income increased by Rmb28.9 million from Rmb42.1 million in 2007 to Rmb71.0 million in 2008. The increase was mainly attributable to:

          Interest income in 2008 of Rmb36.5 million came from loans to a third party at an interest rate of 5% per annum, compared with Rmb17.7 million in 2007, as the loan period of these loans in 2008 is longer than that in 2007. In addition, the Company also accrued Rmb2.9 million in 2008 at an interest rate of 7% per annum from a note receivable on the disposal of certain parcels of land. Interest income of Rmb31.6 million in 2008 came from bank deposits.

          (x) Exchange difference

          Assets and liabilities which are denominated in foreign currencies are translated into the functional currencies at the rates of exchange prevailing at the balance sheet date. Foreign currency transactions are translated using the exchange rates prevailing at the date of transactions. Foreign exchange gains or losses arising from the translation at year-end exchange rates of foreign currency intercompany balances that are of a long-term investment nature are included in shareholders’ equity separately as cumulative translation adjustments. All other foreign exchange gains or losses resulting from the settlement of foreign currency transactions and from the translation at financial year-end exchange rates of assets and liabilities denominated in foreign currencies are included in the consolidated statements of operations.

          We recognized a foreign currency exchange loss of Rmb5.4 million in 2008 and a foreign currency exchange gain of Rmb28.3 million in 2007, primarily resulting from the translation of foreign currency denominated assets and liabilities.

          (xi) Interest expenses

          Interest expenses increased by Rmb93.6 million from Rmb248.0 million in 2007 to Rmb341.6 million in 2008. The increase related mainly to the convertible bonds and interest expense for bank loans.

          In Qiao Xing Universal Telephone, Inc., we recorded interest expenses of Rmb193.0 million relating to two convertible bonds issued in 2006, and one convertible bond issued in 2007.

          Coupon interest for the three convertible bonds amounted to Rmb15.4 million in 2007.

          The discount associated with the three convertible notes arising from the Investors Warrants and the embedded derivatives on initial recognition and from the beneficial conversion amount on a conversion price reset, which totaled Rmb300.9 million, was accreted to interest expense over the expected terms of the Notes using the effective interest method. The related interest expenses amounted to Rmb140.3 million and were recognized in 2007.

          The deferred debt issuance costs associated with the three convertible notes, which totaled Rmb90.4 million on initial recognition, were amortized to expense over the expected term of the Notes using the effective interest method. The related interest expenses amounted to Rmb37.3 million and were recognized in 2007.

          In Qiao Xing Universal Telephone, Inc. for the year 2008, we recorded interest expenses of Rmb145.8 million relating to two convertible bonds issued in 2006 and 2007. Coupon interest for these two convertible bonds amounted to Rmb14.2 million in 2008.

          In addition, one major subsidiary of the Company, Qiao Xing Mobile Communication Co., Ltd. (“QXMC”) issued US$70,000,000 senior convertible notes on May 15, 2008 and recorded interest expense of Rmb92.9 million in 2008. Coupon interest for these QXMC convertible notes amounted to Rmb11.6 million.

          The discounts associated with the three convertible notes arising from the Investors Warrants and the embedded derivatives on initial recognition and from the beneficial conversion amount on a conversion price reset were accreted to interest expense at the amount of Rmb188.2 million in 2008.

          The deferred debt issuance costs associated with the three convertible notes were amortized to interest expense at the amount of Rmb24.7 million in 2008.

          In 2008, interest expense related to bank loans and other bank borrowings amounted to Rmb102.5 million, compared to Rmb54.6 million in 2007.

(xii) Gain/Loss on re-measurement of embedded derivatives

          We recognized a loss on re-measurement of embedded derivatives relating to the convertible bonds of Rmb129.1 million in 2007 and a gain of Rmb160.0 million in 2008, the fair value of the embedded derivative being most sensitive to the market price on the re-measurement date of the shares of the Company into which the bonds are convertible. The fair values of these embedded derivatives relating to the convertible bonds were appraised by a third party valuator.

(xiii) Loss on extinguishment of convertible debts

          On May 3, 2007, the purchasers of US$40,000,000 senior convertible notes issued by the Company exercised an option to exchange the entire US$40,000,000 notes into 7,800,000 ordinary shares of QXMC that were owned by the Company (the “Exchange”). The fair value of the shares of QXMC given up by the Company in the Exchange was estimated to be approximately Rmb721.2 Million. The Exchange resulted in a loss on the extinguishment of the US$40,000,000 senior convertible notes of Rmb142.1 million during the year ended December 31, 2007.

          On August 19, 2008, the holders of the QXMC US$70,000,000 senior convertible notes exercised the option to convert US$8.3 million of the principal amount of the notes and accrued interest thereon of US$0.5 million into 1,511,397 ordinary shares of QXMC at a conversion price of US$5.49 per share. The extinguishment of the convertible debts that arose from the conversion resulted in a loss of RMB10.6 million during the year ended December 31, 2008.

          (xiv) Gain on disposal of interests in subsidiaries

          On May 3, 2007, the purchasers of US$40,000,000 senior convertible notes issued by the Company exercised an option to exchange the entire US$40,000,000 notes into 7,800,000 ordinary shares of QXMC that were owned by the Company. The fair value of the shares of QXMC given up by the Company in the Exchange was estimated to be approximately Rmb721.2 million.

          The gain on the disposal of the 7,800,000 shares equity interest in QXMC of Rmb482.6 million was

recognized for the year ended December 31, 2007.

          For the year ended December 31, 2008, the Company only recorded a gain on disposal of interests in subsidiaries at amount of Rmb2.3 million, relating to the disposal of subsidiaries by QXMC during the year ended December 31, 2008.

          (xv) Gain on issue/repurchase of stocks by subsidiary

          As a consequence of the QXMC IPO on May 8, 2007, the Company recorded a gain of Rmb384.0 million in 2007 .

          On January 7, 2008, QXMC issued 565,000 new ordinary shares at US$7.50 per share upon the exercise of share options granted to its director and certain employees. On May 15, 2008, QXMC repurchased 6,966,666 of its issued ordinary shares at US$6.94 per share from two existing shareholders of QXMC through the issuance of the QXMC US$70,000,000 senior convertible notes. All ordinary shares repurchased were subsequently cancelled.

          On August 19, 2008, the holders of the QXMC US$70,000,000 senior convertible notes exercised the option to convert US$8,251,000 of the principal amount of the notes and accrued interest thereon of US$46,000 into 1,511,397 ordinary shares of QXMC at a conversion price of US$5.49 per share. The stock price of QXMC’s ordinary shares was US$5.31 at the date of exercise of the option to convert.

          In 2008, the Company recorded a total gain of Rmb4.4 million on these issuances and repurchase of stocks transactions by QXMC. As a consequence of these transactions, the Company’s equity interest in QXMC was changed from 61.3% as of December 31, 2007 to 67.6% as of December 31, 2008.

          (xvi) Income tax expense

          Income tax expense increased by Rmb40.1 million from Rmb124.1 million in 2007 to Rmb164.2 million in 2008. The increase consisted mainly of the increase of Rmb42.3 million relating to the CECT-branded mobile phone handset business carried out by our subsidiary CEC Telecom Co., Ltd.

          Income tax expense in CEC Telecom Co., Ltd. increased by Rmb48.7 million from Rmb113.4 million in 2007 to Rmb162.1 million in 2008, primarily due to the increase of income tax rate from 15% to 25% in the PRC.

          Qiao Xing Communication Holdings, Ltd. recorded a loss before taxation in 2008. However, in connection with the valuation allowance provided on deferred tax assets and the accrued income taxes for the profitable subsidiaries, it recognized an income tax expense at amount of Rmb8.5 million in 2008. Compared to Rmb10.7 million in 2007, income tax expense in Qiao Xing Communication Holdings, Ltd. decreased by Rmb2.2 million.

          (xvii) Minority interests

          Minority interest charges decreased by Rmb24.2 million from Rmb168.6 million for 2007 to Rmb144.4 million for 2008. The change related primarily to the minority shareholder’s share of the consolidated results of QXMC. This mainly related to the decrease of income before minority interest and the changes of the shareholding percentage. The Company owned 61.3% of QXMC for the last eight months of 2007, while this figure changed to 60.8% in January 2008, then changed to 69.9% in May 2008, and 67.6% since August 2008.

          (xviii) Net results

          As a result of the foregoing, our net earnings decreased by Rmb1,040.7 million from a net income of Rmb903.9 million in 2007 to a net loss of Rmb136.8 million in 2008. Our basic earnings per share after extraordinary gain was Rmb24.95 in 2007, while our basic loss per share after extraordinary gain was Rmb4.42 in 2008.

B. LIQUIDITY AND CAPITAL RESOURCES.

     During fiscal year 2009, we were principally engaged in (i) the production and sales of mobile phones and accessories in Mainland China; and (ii) the production and sales of molybdenum concentrate in Mainland China. We did not declare or pay dividends in fiscal year 2009.

     In summary, about Rmb872.6 million (US$127.8 million) was provided by operating activities, about Rmb597.9 million (US$87.6 million) was used in investing activities and about Rmb310.1 million (US$45.4 million) was provided by financing activities during the year ended December 31, 2009. Consequently, cash and cash equivalents increased by Rmb592.0 million (US$86.7 million) from Rmb3,117.5 million at the beginning to Rmb3,709.5 million (US$543.4 million) at the end of fiscal year 2009.

     (i) Cash flows from operating activities

     There was a net operating cash inflow of Rmb872.6 million (US$127.8 million) while the loss before minority interests and extraordinary gain was Rmb202.6 million (US$29.7 million) for the fiscal year 2009. The difference of Rmb1,075.2 million (US$ 157.5 million) stemmed mainly from the following:

	•		Interest expense relating to the accretion of convertible note discounts of Rmb158.8 million (US$23.3 million) which did not involve any outflow of cash
	•		Stock-based compensation of Rmb60.9 million (US$8.9 million) which did not involve any outflow of cash
	•		Decrease in accounts and bills receivable of Rmb370.3 million (US$54.3 million)
	•		Decrease in prepaid expenses of Rmb197.6 million (US$28.9 million)
	•		Decrease in inventories of Rmb86.5 million (US$12.7 million)
	•		Decrease in other current assets of Rmb454.5 million (US$66.6 million)
	•		Increase in other payables of Rmb148.9 million (US$21.8 million)
	•		Cash used in operating activities of discontinued operations of QXCH of Rmb436.5 million (US$63.9 million)

     In 2009, due to the deterioration of the economy and the effect it had on consumers, the sales of QXMC declined 24.2%. Accordingly, QXMC shrank its operation and focused on cash collection.

     (ii) Cash flows from investing activities

     Net cash used in investing activities amounted to Rmb597.9 million (US$87.6 million) during the year ended December 31, 2009. This was mainly attributable to a cash outflow of Rmb203.4 million (US$29.8 million) in connection with the acquisition of CLJC and cash outflow of Rmb162.4 million (US$23.8 million) in investing activities of discontinued operations of QXCH.

     In 2009, the Company used Rmb114.3 million (US$16.7 million) on the purchase of property, machinery and equipment and construction in progress, which mainly related to the construction of the molybdenum mine in CLJC. The disposal of QXCH resulted in a net cash outflow of Rmb60.2 million (US$8.8 million). Restricted cash increased by Rmb115.4 million (US$16.9 million).

     In November 2009, the Company’s subsidiary, QXMC, entered into an agreement for the sale of property and the associated land use rights to a third party for a total consideration of RMB163,000,000 (US$23,880,000). The sale was completed in the second quarter of 2010. As of December 31, 2009, a deposit of Rmb49 million (US$7.2 million) was received.

     (iii) Cash flows from financing activities

          Net cash inflow from financing activities amounted to Rmb310.1 million (US$45.4 million) for the year ended December 31, 2009. It related mainly to the net financing cash inflow in QXCH before its disposal at an amount of Rmb531.2 million (US$77.8 million).

          In 2009, the Company repurchased US$30 million principal of QXMC convertible notes from three notes holders, which resulted in a net cash outflow of Rmb164.0 million (US$24.0 million). Some warrants holders exercised their outstanding warrants in 2009 and provided cash inflow of Rmb42.1 million (US$6.2 million). Short-term borrowings decreased by Rmb99.2 million (US$14.5 million).

          For the year ended December 31, 2009, we financed our operations and investments principally through cash generated from operating activities. Outstanding bank borrowings accounted for 13.9% and 15.0% of our total assets as of December 31, 2008 and December 31, 2009, respectively. Seasonal working capital needs have been met through short- term borrowings under revolving lines of credit. As of December 31, 2009, our consolidated working capital was Rmb3,400.8 million (US$ 498.2 million) as compared to Rmb3,552.1 million as of December 31, 2008. We believe that our working capital is sufficient for our present requirements.

Critical Accounting Policies and Estimates

     In preparing our consolidated financial statements in conformity with accounting principles generally accepted in the United States, we must make a variety of estimates that affect the reported amounts and related disclosures. The following accounting policies are currently considered most critical to the preparation of our consolidated financial statements.

      Basis of consolidation

     The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

     The consolidated financial statements include the accounts of the Company, its subsidiaries and a variable interest entity (“VIE”) for which the Company is the primary beneficiary. All significant intercompany accounts and transactions have been eliminated. A VIE is required to be consolidated by a company if that company is required to absorb the majority of the losses of the VIE, is entitled to receive a majority of the VIE’s residual returns, or both.

     To comply with the PRC’s laws and regulations, the Company produces molybdenum concentrates in China via its VIE, Haozhou. Haozhou is 90% owned by Mr. Wu Ruilin, the Chairman of the Company, and the remaining 10% equity interest is owned by a relative of Mr. Wu Ruilin. The capital for Haozhou was funded by the Company and has been recorded as interest-free loans to Haozhou. These loans were eliminated against the debt of Haozhou in consolidation. Under various contractual agreements, Haozhou is required to sell all of its products to Zhongtai at cash cost. Furthermore, all future cash flows generated from the operation and disposal of Haozhou will belong to the Company. All voting rights of the VIE are assigned to the Company, and the Company has the right to appoint all directors and senior management personnel of the VIE. In addition, shareholders of the Haozhou have pledged their shares in the VIE as collateral for performance under these contractual agreements. As of December 31, 2009, the total amount of interest-free loans to Haozhou was RMB 200 million (US$29.3 million), and the aggregate accumulated losses of Haozhou of approximately RMB4.3 million (US$0.6 million) have been included in the consolidated financial statements.

     Haozhou is a large copper-molybdenum poly-metallic mining company in China. Haozhou owns the

exploration license of a mine covering 53.9 square kilometers in the Inner Mongolia Autonomous Region in the PRC. Through exploration of 32.34 square kilometers, Haozhou concluded that there is a reserve of 30,985 tons of molybdenum metal and an abundance of other types of multi-metal reserves, as determined by Behre Dolbear Asia, Inc, an independent mine consulting firm. The remaining 21.56 square meters are also expected to be explored.

          The operating results of Haozhou have been consolidated with those of the Group since April 6, 2009, when the Company acquired CLJC from Mr. Wu Ruilin. (Note 3(c))

          A subsidiary is a company, including equity joint ventures, in which the Company holds, directly or indirectly, more than a 50% equity interest and over which it can exercise control, as defined under U.S. GAAP.

           Sales recognition

          Sales represent the invoiced value of goods, net of value added tax (“VAT”), discounts, returns and price guarantees supplied to customers, and are recognized upon delivery of goods and passage of title. For telecommunication products, liability for sales returns and price guarantees is estimated taking into consideration historical experience and current conditions. For mineral products, the Company recognizes revenue from molybdenum concentrate sales when persuasive evidence of an arrangement exists, the price is fixed and determinable, the product has been delivered, title has transferred, and collection is reasonably assured.

          All of the Group’s sales made in the PRC are subject to PRC VAT. Such output VAT is payable after offsetting VAT paid by the Group on its purchases (“input VAT”).

           Trade accounts receivable

          Trade accounts receivable are recorded at invoiced amounts less allowances for doubtful accounts. The Group reviews its accounts receivables on a periodic basis and makes allowances when there is doubt as to the collectibility of the balances. In evaluating the collectibility of a receivable balance, the Company considers many factors, including the age of the balance, the customer’s historical payment history, its current credit-worthiness and current economic trends. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

           Inventories

          Inventories are stated at the lower of cost or net realizable value. Work-in-process and finished goods are composed of direct materials, direct labor and an attributable portion of manufacturing overhead. Net realizable value is the estimated selling price in the ordinary course of business less the estimated cost of completion and the estimated costs necessary to make the sale, and after making allowances for damaged, obsolete and slow-moving items. Allowances for damaged, obsolete and slow-moving items are determined by management based on a consideration of several factors, including the aging of the inventories, current and expected market trends and conditions, and the physical condition of the goods observed during periodic inventory counts.

          For mine products, cost is comprised of production costs for ore extracted and processed from the Company’s mines. Production costs included the costs of materials, cost of processing and direct labor, mine site and processing facility overhead costs and depreciation, depletion and amortization. Stripping costs incurred during the production phase are included as a component of inventory produced during the period in which stripping costs are incurred.

          When inventories are sold, their carrying amount is charged to expense in the period in which the associated revenue is recognized. Write-downs for declines in net realizable value or for losses of inventories are recognized as an expense in the year the impairment or loss occurs.

           Exploration

          Exploration costs include geological and geophysical work on areas without identified reserves together with drilling and other related costs. Exploration costs incurred for the purpose of converting mineral resources to proven and probable reserves or identifying new mineral resources at development or production stage properties are charged to expense as incurred.

           Product warranties

          The Group guarantees that products will meet the stated functionality as agreed to in each sales arrangement. The Company provides for the estimated warranty costs under these guarantees based upon historical experience and management’s estimate of the level of future claims, and accrues for specific items at the time their existence is known and the amounts are estimable.

           Goodwill

          Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired in business combinations accounted for under the purchase method. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired, using the prescribed two-step process under U.S. GAAP. The first step screens for potential impairment of goodwill to determine if the fair value of the reporting unit is less than its carrying value, while the second step measures the amount of goodwill impairment, if any, by comparing the implied fair value of goodwill to its carrying value.

           Other acquired intangible assets

          Intangible assets acquired in a business combination are recognized as assets apart from goodwill if they satisfy either the “contractual-legal” or “separability” criterion. Such intangible assets are initially measured and recorded at fair value. As a result of the application of purchase accounting to account for the Company’s acquisition of an additional 20% interest in QXMC on November 30, 2006, other acquired intangible assets have been adjusted to a new cost basis, which reflects the Company’s original 80% interest at amortized cost and the 20% acquired interest at fair value as of November 30, 2006.

          Intangible assets with determinable useful lives are amortized as follows:

Customer relationships		3 – 5 years
Completed technology		1.8 – 5 years
Core technology		4 – 5 years
Backlog		4 – 5 months
Licenses		5 years

          The Company has determined that the Group’s “CECT” brand held by its subsidiary, CECT, does not have a determinable useful life. Consequently, the carrying amount of this brand name is not amortized but rather tested for

impairment annually or more frequently if events or changes in circumstances indicate that the assets might be impaired. Such impairment test consists of a comparison of the fair value of the brand name with its carrying amount and an impairment loss is recognized if and when the carrying amount of the brand name exceeds its fair value.

           Asset Retirement Obligation

          In connection with the mine operation, the Company is required to make payments for restoration and rehabilitation. Provision for restoration cost is required when the Company has a present obligation as a result of past events and it is probable that the Company will be required to settle that obligation. Provision is measured in accordance with the relevant rules and regulations applicable in the PRC at the balance sheet date, and is discounted to their present value where the effect is material.

          According to the relevant rules and regulations applicable in the PRC, the Company accrues an asset retirement obligation related to sewage based on the tonnes of ore produced; accrues an asset retirement obligation related to land restoration obligation based on the underground hectares of area that have been mined. As the accrued liabilities are paid to relevant government agencies, the recorded amount of the liability is reduced.

           Depreciation, depletion and amortization of long-lived assets

          We have a substantial amount of property, machinery and equipment, and intangible assets, and the depreciation/amortization of these assets constitutes a significant operating cost for us. The useful lives of our long-lived assets represent our estimate of the periods during which we expect to derive economic benefits from the assets. In estimating the useful lives and also the recoverable salvage values of these assets and in determining whether subsequent revisions to the useful lives and salvage values are necessary, we consider the likelihood of technological obsolescence arising from changes in production techniques, technology, market demand and intended use. We routinely review the remaining estimated useful lives and salvage values of our long-lived assets to determine if such lives and values should be adjusted. However, actual economic lives and salvage values may differ from our estimates and any future revisions to these estimates will impact our depreciation/amortization expenses, and hence our operating results, in future periods. In the years ended December 31, 2007, 2008 and 2009, we have not made any changes to the estimated useful lives or salvage values for our long-lived assets.

          In connection with the Company’s acquisition of CLJC, the Company capitalized the costs to acquire proven and probable reserves and value beyond proven and probable reserves. The Company estimated the fair value of proven and probable mineral reserves as well as the value beyond proven and probable mineral reserves and recorded these amounts as assets at the date of acquisition. Proven and probable mineral reserves are depleted over the life of the mine using the units-of-production method based on the volume of mineral produced in relation to the total estimated proven and probable mineral reserves. Fixed plant, facilities, mobile and other equipment are depreciated on a straight-line basis over the shorter of their estimated useful life or the life of the mine. Mine development costs include costs incurred from mine pre-production activities undertaken to gain access to proven and probable reserves including shafts, adits, drifts, ramps, permanent excavations, infrastructure and are capitalized once all operating permits have been secured, mineralized material is classified as proven and probable reserves and a final feasibility study has been completed. Mine development costs incurred to access specific areas of the ore body are depreciated using the units-of-production method over the estimated life of the mine based on the volume of mineral to be produced from proven and probable reserves in the area of the ore body to which the development activities provide access. Proven and probable reserves and general mine development costs are depleted or depreciated, respectively, using the units-of-production method based on the volume of mineral to be produced from proven and probable reserves over the estimated life of the mine. The cost assigned to value beyond proven and probable mineral reserves

is not depleted. However, as the Company obtains new information, mineralized material relating to value beyond proven and probable reserves may be converted into proven and probable mineral reserves at which time the associated capitalized cost would become subject to depletion on a units-of-production basis.

           Impairment of long-lived assets with determinable useful lives

          Long-lived assets with determinable useful lives, including property, machinery and equipment, proven and probable reserves, value beyond proven and probable reserves and amortizable intangible assets, are tested for impairment whenever events or changes in circumstances indicate that the net carrying amount may not be recoverable. Recoverability of such assets to be held and used is measured by a comparison of the carrying amount of the asset to the estimated undiscounted future cash flows expected to result from its use and eventual disposition. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying value of the asset exceeds its fair value. If a readily determinable market price does not exist, fair value is estimated using discounted expected cash flows attributable to the assets. Future cash flow from mineral properties include estimates of recoverable pounds, molybdenum prices (considering current and historical prices, price trends and related factors), production levels and capital, all based on life-of-mine plans and projections. Assumptions underlying future cash flow estimates are subject to risks and uncertainties. Any differences between significant assumptions and market conditions and/or the Company’s operating performance could have a material effect on the Company’s determination of ore reserves, or its ability to recover the carrying amounts of its long-lived assets resulting in impairment charges. A prolonged decline in the molybdenum price could trigger an impairment.

           Stripping cost

          The process of mining overburden and waste materials is referred to as stripping. During the development stage of a mine before production commences, the Company capitalizes stripping costs as part of mine development costs.

          Stripping costs incurred during the production phase of a mine are considered variable costs and are included as a component of inventory produced during the period in which stripping costs are incurred.

           Stock-based compensation

          Share-based compensation is measured based on the fair value of all share-based awards on the dates of grant and is recognized using the straight-line method over the requisite service period, which is generally the same as the vesting period.

          The Company values share-based awards issued using either the Black-Scholes option-pricing model or the binomial option pricing model, and recognizes the value over the period in which the awards vest.

           Debt issuance costs and borrowing costs

          Costs related to the issuance of debt are capitalized and amortized to interest expense using the effective interest method over the expected term of the related debt. All other borrowing costs are recognized as an expense in the period in which they are incurred, except to the extent that they are attributable to the acquisition, construction or production of an asset that necessarily involves a substantial period of time before the asset is ready for its intended use

or sale, in which case the borrowing costs are capitalized as part of the costs of the asset.

           Income taxes

          Deferred income taxes are provided using an asset and liability method. Under this method, deferred tax assets and liabilities are recognized for all significant temporary differences between the tax and financial statement bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates currently applicable to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates or laws is recognized in the statement of operations in the period that the change in tax rates or tax laws is enacted. A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either expire before the Group is able to realize their benefits or that future deductibility is uncertain.

          The Company recognizes in the consolidated financial statements the impact of a tax position, if that position is more likely than not of being sustained upon examination, based on the technical merits of the position. The Company has elected to classify interest and penalties related to income tax matters, if and when imposed, as part of income tax expense in the statement of operations.

          As of December 31, 2008 and 2009, the Company has no material unrecognized tax benefits which would favorably affect the effective income tax rate in future periods and does not believe that there will be any significant increases or decreases of unrecognized tax benefits within the next twelve months. No interest or penalties relating to income tax matters have been imposed on the Company during the year ended December 31, 2007, 2008 and 2009, and no provision for interest and penalties is deemed necessary as of December 31, 2008 and 2009.

          According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or its withholding agent. The statute of limitations extends to five years under special circumstances, which are not clearly defined. In the case of a related party transaction, the statute of limitation is ten years. There is no statute of limitation in the case of tax evasion.

           Financial instruments

          All derivative financial instruments are recognized in the financial statements and maintained at fair value regardless of the purpose or intent for holding them. Changes in fair value of derivative financial instruments are either recognized periodically in income or shareholders’ equity (as a component of comprehensive income) depending on whether the derivative is being used to hedge changes in fair value or cash flows.

          The carrying amounts for cash and bank deposits, restricted cash, bills receivable, accounts receivable, prepaid and other assets, short-term borrowings, accounts payable, other payables, accrued liabilities and customer deposits approximate their fair values because of the short maturity or nature of these instruments. The carrying amounts of shareholders’ loans approximate their fair value because the imputed interest rate on these instruments fluctuates with market interest rates.

           Segment information

          The Company adopted management approach to determine the information related to reporting of financial and descriptive information about reportable operating segments, including segment profit or loss, certain specific revenue and expense items, and segment assets, as well as information about the revenues derived from the Group’s products and services, the countries in which the Group earns revenues and holds assets, and major customers. The

management approach is based on the way management organizes the enterprise to assess performance and makes operating decisions regarding the allocation of resources. The Group classifies its operations into two core business segments, namely mobile phones and mining. In view of the fact that the Group operates principally in the PRC, no geographical segment information is presented.

Recent Accounting Pronouncements

          In June 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2009-17 (“ASU 2009-17”), which amends guidance regarding consolidation of variable interest entities to address the elimination of the concept of a qualifying special purpose entity. It replaces the quantitative-based risks and rewards calculation for determining which enterprise has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of the variable interest entity, and the obligation to absorb losses of the entity or the right to receive benefits from the entity. Additionally, it requires any enterprise that holds a variable interest in a variable interest entity to provide enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. It is effective for interim and annual reporting periods beginning after November 30, 2009. The adoption is not expected to have a material impact on the Group’s consolidated financial statements.

          In October 2009, the FASB issued ASU No. 2009-13 (“ASU 2009-13”), regarding revenue arrangements with multiple deliverables. These updates addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting, and how the arrangement consideration should be allocated among the separate units of accounting. These updates are effective for fiscal years beginning after June 15, 2010 and to be applied retrospectively or prospectively for new or materially modified arrangements. In addition, early adoption is permitted. The adoption is not expected to have a material impact on the Group’s consolidated financial statements.

          In October 2009, the FASB issued ASU No. 2009-14 (“ASU 2009-14”), to exclude all tangible products containing both software and non-software components that function together to deliver the product’s essential functionality. The effective date for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 and is to be applied on a prospective basis. Early application is permitted as of the beginning of an entity’s fiscal year. The adoption is not expected to have a material impact on the Group’s consolidated financial statements.

          In January 2010, the FASB issued ASU No. 2010-06 (“ASU 2010-06”), which requires a number of additional disclosures regarding (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements, and (4) the transfers between Levels 1, 2, and 3. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption is not expected to have a material impact on the Group’s consolidated financial statements.

C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

          During each of the last three fiscal years, we spent the following amounts on company-sponsored research and development activities:

Year ended December 31, 2009		Rmb36,404,000
Year ended December 31, 2008		Rmb29,242,000
Year ended December 31, 2007		Rmb18,599,000

D. TREND INFORMATION.

          For the past four or so years, we have considered exiting the telecommunications industry in China due to the continuing increase in competition and decrease in profitability regarding telecommunications products. Since around 2000, many competitors entered the telecommunications products manufacturing arena in China, causing the profitability of the industry as a whole to decline dramatically. Faced with this continuing decrease in profitability and increase in competition, we formed a project team about four years ago to investigate and evaluate the possibility of diversifying into another industry.

          The project team suggested that, with the boom of the Chinese economy, the demand for natural resources had begun to increase dramatically, and we expected that trend to continue. Therefore, we decided to consider diversifying into the natural resources industry.

          Except as set forth above or disclosed elsewhere in this annual report, we are not aware of any known trends, uncertainties, demands, commitments or events for the period from January 1, 2009 to December 31, 2009 that are reasonably likely to have a material adverse effect on our net sales or revenues, income, profitability, liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.

E. OFF-BALANCE SHEET ARRANGEMENTS.

          We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS.

(a) Capital commitments

          Capital commitments not provided for in the consolidated financial statements include the following:

		2008				2009
		RMB’000				RMB’000				US$’000
Capital expenditures authorized and contracted for:
- Construction of mine properties			—				50,459				7,392
- Purchase of machinery and equipment			130				3,000				440
			130				53,459				7,832

(b) Operating lease commitments

          The Group has operating lease agreements for office and factory premises, which extend through December 2011. As of December 31, 2009, the Group’s future minimum lease payments required under non-cancelable operating leases are as follows:

		Amount
		RMB’000				US$’000
For the years ending December 31,
- 2010			6,448				944
- 2011			945				138
Total			7,393				1,082

(c) Service of debt

          i) On October 31, 2006, pursuant to a securities purchase agreement dated October 31, 2006, the Company issued and sold to two institutional investors US$26 million aggregate principal amount of 4.5% unsecured senior convertible notes (the “4.5% Note”).

          ii) On November 3, 2009, the Company signed an Amendment and Exchange Agreement with two institutional investors of the 4.5% Notes and issued US$24 million aggregate principle amount of 0% unsecured restated senior convertible notes (“0% Restated Notes”) to these two institutional investors in exchange for the 4.5% Notes.

          In 2009, the holders of the 0% Restated Notes exercised the option to convert US$6,000,000 of the principal amount of the notes into 3,319,171 shares of the Company at an average conversion price of US$1.81 per share.

          In 2010, the holders of the 0% Restated Notes exercised the option to convert US$17,220,000 of the principal amount of the notes into 9,077,280 ordinary shares of the Company at an average conversion price of US$1.90 per share.

          In May 2010, the Company paid the remaining US$780,000 outstanding balance of the principal amount of the 0% Restated Notes.

          iii) On May 15, 2008, pursuant to a securities purchase agreement dated May 15, 2008, Qiao Xing Mobile Communication Co., Ltd., a subsidiary of the Company, issued and sold to two institutional investors US$70 million aggregate principal amount of 4.0% unsecured senior convertible notes (the “QXMC 4.0% Note”).

          In 2008, the holders of the QXMC unsecured senior convertible notes exercised the option to convert US$8,251,000 of the principal amount of the notes and accrued interest thereon of US$46,000 into 1,511,397 ordinary shares of QXMC at a conversion price of US$5.49 per share.

          On March 31, 2009, the Company signed an agreement to purchase from three note holders US$30,000,000 of the outstanding QXMC 4.0% Notes for an aggregate purchase price of US$24,000,000.

          In 2009, the holders of the QXMC 4.0% Notes exercised the option to convert US$16,073,000 of the principal amount of the notes and accrued interest thereon of US$590,000 into 4,114,286 ordinary shares of QXMC at a conversion price of US$4.05 per share.

          The Group’s total future payments relating to the service of debt of the QXMC 4.0% notes assuming that the remained notes are repaid at maturity are as follows:

		Amount
		Rmb’000				US$’000
For the years ending December 31,
- 2011			109,214				16,000
Total			109,214				16,000

(d) Asset retirement Obligation

          According to the relevant rules and regulations applicable in the PRC, the Company accrues asset retirement obligation related to sewage based on the output of ore production, and land restoration obligation based on the underground hectares of area that have been mined as operating costs. As the accrued liabilities are paid to relevant government agencies, the recorded amount of the liability is reduced.

          The assets retirement obligation included in the consolidated financial statements for the year ended December 31, 2009 is analyzed as followings:

		RMB’000				US$’000
Accrued liabilities payable for sewage			3,688				540
Accrued liabilities payable for land restoration			325				48
Balance at December 31, 2009			4,013				588

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. DIRECTORS AND SENIOR MANAGEMENT.

          Our current senior management and directors are as follows:

Name		Age				Position
Rui Lin Wu			58			Chairman and Chief Executive Officer
Zhi Yang Wu			37			Vice Chairman
Aijun Jiang			38			Chief Financial Officer
Rick Wenjun Xiao			39			Vice President and Secretary
Ze Yun Mu			44			Non-Executive Director
Edward Tsai			53			Non-Executive Director
Yi Hong Zhang			68			Non-Executive Director
Zhi Min Guo			46			Non-Executive Director

          None of our directors and officers was selected pursuant to any agreement or understanding with any other person. There is no family relationship between any director or executive officer and any other director or executive officer, except Rui Lin Wu and his son Zhi Yang Wu.

           Mr. Rui Lin Wu is our chairman and chief executive officer. He is our founder and has over 20 years of experience in the telecommunication industry. He is responsible for our overall strategic planning, policy making and finance. Prior to his career in the telecommunications industry, he was a general manager of a fashion and garment factory from 1980 to 1986. Currently, Mr. Wu is the executive commissioner of the China National Association of Industry and Commerce, senior analyst of the China National Condition and Development Research Center, and a member of the Poverty Fund of China. Mr. Wu also serves as the vice chairman of QX Mobile (NYSE: QXM) and a director of CECT since February 2003.

           Mr. Zhi Yang Wu is our vice chairman and the eldest son of Mr. Rui Lin Wu. Mr. Wu received a diploma in enterprise management from Huizhou University in China. He joined us in 1992 and is responsible for our overall strategic planning, policy making and the overseas market development. Mr. Wu also serves as the chairman of QX Mobile (NYSE: QXM) and CECT since February 2003.

           Mr. Aijun Jiang has served as our chief financial officer since his appointment in August 2008. Mr. Jiang served as the head of finance for Tiens Biotech Group, Inc., a company traded on American Stock Exchange (AMEX:TBV), from September 2005 until July 2008. From July 2003 to August 2005, he served as a consultant (diplomat) in the Economic and Commercial Representation of China in Tanzania, the Economic Section of the Chinese Embassy in Tanzania, and was mainly responsible for providing commercial and financial consultation to Chinese companies conducting business in Tanzania. He is a registered member of the Association of Corporate Treasurers (ACT), Great Britain since 2006, a registered member of the Association of Chartered Certified Accountants (ACCA), Great Britain since 2004, and a registered member of the Chinese Institute of Certified Public Accountants (CICPA), People’s Republic of China since 2001.

           Mr. Rick Wenjun Xiao has served as our vice president and secretary since his appointment on May 20, 2009. Mr. Xiao has previously served as our investor relations officer and assistant to the Chairman for nearly seven years. He is a member of the Accounting Society of Hubei and a member of Translation Association of Huizhou.

           Mr. Ze Yun Mu has served as a non-executive director since September 15, 2003. Mr. Mu had also served since 1998 as the external affairs director for Huizhou Wei Guo Machinery Factory and served as a technician for them from 1990 to 1998.

           Dr. Edward Tsai has served as a non-executive director since December 2007. Dr. Tsai is the chairman of Paradigm Venture Partners L.L.C. since August 2000, a business engaged in venture capital funds management. From February 1997 to February 2000, he served as president of Allianz President General Insurance Co. Dr. Tsai was

president and chief executive officer of President Investment Trust Corp. from January 1994 to February 1997 engaged in mutual funds management. He was an attorney-at-law with Baker & McKenzie from October 1989 to January 1994 and with Diepenbrock, Wolff, Plant & Hannagen from August 1988 to October 1989. Dr. Tsai received his J.D. degree from Santa Clara University in 1988, his LL.M. degree from Tulane University in 1983, his LL.B. degree from Chinese Culture University in 1979 and the Executive Program of Business Management from National Cheng-Chi University in 1998.

           Mr. Yi Hong Zhang has served as a non-executive director since December 2004. Since 2004, he has served as senior advisor and independent director of Guangzhou Hualin Enterprise Group. From 2001 through 2003, Mr. Zhang was the standing deputy director of the leadership panel for technical assessment under the Guangdong Science and Technology Institute. From 2000 to 2001, he served as chairman and general manager of Guangdong Zhongping Yueke Appraisal Co., Ltd. From 1994 to 1999, Mr. Zhang served as head of the Guangdong Science and Technology Appraisal Center.

           Mr. Zhi Min Guo was appointed to serve as a non-executive director effective June 7, 2010. From January 2009 to March 2010, Mr. Guo served as Vice President of Mining Operations and Director of Investments at Shanghai Fosun High Technology (Group) Co., Ltd. (“Fosun”), a Chinese conglomerate with a mining division spanning iron ore, steel, coking coal and gold. Fosun’s holding company is listed on the Hong Kong Stock Exchange (HKSE). From January 2008 to December 2008, he served as Vice General Manager at Shanghai Gangtai Mining Co., Ltd. From August 2006 to December 2007, he was Vice General Manager at Zijin International (Beijing) Mining Co., Ltd., a subsidiary of Zijin Mining Group Co., Ltd. (“Zijin Mining”) that is dually listed on the HKSE and the Shanghai Stock Exchange. From January 2007 to December 2007, he also served as chairman of Zijin Mining’s Shanxi subsidiary and Rushan subsidiary in Shandong. From January 2006 to August 2006, he served as Standing Vice General Manager of Longkou Jintai Mining Co., Ltd. affiliated with Zijin Mining. From July 1986 to December 2005, Mr. Guo served the Gold Detachment of the Chinese People’s Armed Police Forces from the beginning to senior positions.

B. COMPENSATION.

          The aggregate compensation which we paid to all of our directors and executive officers as a group with respect to our fiscal year ended December 31, 2009 on an accrual basis, for services in all capacities, was Rmb2,468,112 (US$361,580). During the fiscal year ended December 31, 2009, we contributed an aggregate amount of Rmb30,000 (US$4,395) toward the pension plans of our directors and executive officers.

          We have not entered into an employment agreement with Mr. Rui Lin Wu. Currently, Mr. Wu serves as our chairman and chief executive officer at a director fee of Rmb223,560 (US$32,752) and a salary of Rmb0 (US$ 0) for 2009. Mr. Wu’s remuneration package includes benefits with respect to a motor car.

C. BOARD PRACTICES.

          Each of our current directors (other than Zhi Min Guo) was elected at our last annual meeting of shareholders held on December 18, 2009 to serve a one-year term or until their successor is elected and qualified.

          There are no directors’ service contracts with us or any of our subsidiaries providing for benefits upon termination of employment.

          Our board of directors has the responsibility for establishing broad corporate policies and for our overall performance, although it is not involved in day-to-day operating details. The board meets regularly throughout the year, including the annual organization meeting following the annual meeting of shareholders, to review significant developments affecting us and to act upon matters requiring board approval. It also holds special meetings as required from time to time when important matters arise requiring board action between scheduled meetings.

Audit Committee

     We have established an audit committee, which currently consists of Dr. Edward Tsai, Ze Yun Mu and Yi Hong Zhang. Its functions are to:

	•		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.

Nominating Committee

     We have established a nominating committee, which currently consists of Dr. Edward Tsai, Ze Yun Mu and Yi Hong Zhang. Its purpose and functions are to:

	•		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

     We have established a compensation committee, which currently consists of Dr. Edward Tsai, Ze Yun Mu and Yi Hong Zhang. Its purpose and functions are to:

	•		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 common shares are currently listed on the Nasdaq Global Market and, for so long as our securities continue to be listed, we will remain subject to the rules and regulations established by Nasdaq as being applicable to listed companies. Nasdaq has adopted its Rule 5600 Series to impose various corporate governance requirements on listed securities. Rule 5615 provides that foreign private issuers such as our company are required to comply with certain specific requirements of the Rule 5600 Series, but, as to the balance of the Rule 5600 Series, foreign private issuers are not required to comply if the laws of their home country do not otherwise require compliance.

     We currently comply with the specifically mandated provisions of the Rule 5600 Series. In addition, we have elected to voluntarily comply with certain other requirements of the Rule 5600 Series, notwithstanding that our home country does not mandate compliance; although we may in the future determine to cease voluntary compliance with those provisions of the Rule 5600 Series. However, we have determined not to comply with the following provisions of the Rule 5600 Series since the laws of the British Virgin Islands do not require compliance:

	•		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).

We may in the future determine to voluntarily comply with one or more of the foregoing provisions of the Rule 5600 Series.

D. EMPLOYEES .

     As of December 31, 2009 and giving effect to the staff of CECT and Haozhou, our indirectly majority-owned subsidiaries, we had a total of 775 full time employees, of which 11 are key management staff. In CECT, 42 are engaged in sales and marketing, 47 are engaged in finance and administration, 378 are engaged in production and 133 are engaged in research and development. In Haozhou, 27 are engaged in finance and administration, 137 are engaged in milling of molybdenum concentrate and the mining operation is outsourced to third parties contractors. None of our employees is represented by a labor union and we believe that our working relationship with our employees is good.

E. SHARE OWNERSHIP.

     The following table sets forth certain information regarding the beneficial ownership of our shares of common stock as of June 30, 2010 by:

	•		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 June 30, 2010, we had 92,093,426 shares of our common stock issued and outstanding.

     This information gives effect to securities deemed outstanding pursuant to Rule 13d-3(d)(l) under the Securities Exchange Act of 1934, as amended. The address for each person named below is c/o Qiao Xing Universal Resources, Inc., Qiao Xing Science Industrial Park, Tang Quan, Huizhou City, Guangdong, People’s Republic of China 516023.

		Number				Percent
Name of Beneficial Holder		Shares Beneficially Owned
Wu Holdings Limited			6,819,000	(1)			7.4
Rui Lin Wu			39,819,000	(1)			43.2
Zhi Yang Wu			0				0
Aijun Jiang			0				0
Rick Wenjun Xiao			0				0

		Number				Percent
Name of Beneficial Holder		Shares Beneficially Owned
Ze Yun Mu			0				0
Edward Tsai			0				0
Yi Hong Zhang			0				0
Zhi Min Guo			0				0
All directors and executive officers as a group (8 persons)			39,819,000				43.2

Other Options and Warrants Outstanding

     As of June 30, 2010, the following options and warrants to purchase shares of our common stock were outstanding:

	•		warrants to purchase an aggregate of 514,822 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”)
	•		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”)

     Each of the foregoing warrants contains provisions for the adjustment of exercise price and number of warrant shares in the event of “Dilutive Issuances” as defined therein.

Accordingly, the number of warrants and the exercise price of the following warrants have been adjusted pursuant to the “Dilutive Issuances” provisions thereof as follows:

1.

October 2006 SPA Warrants – 4,243,202 warrants at US$1.735 per warrant

2.

October 2006 CB Warrants – 4,495,681 warrants at US$1.735 per warrant

3.

August 2007 CB Warrants – 4,322,768 warrants at US$1.735 per warrant

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. MAJOR SHAREHOLDERS.

          Please see Item 6.E. for share ownership information regarding our major shareholders. Our major shareholders do not have different voting rights.

          We do not have available information as to the portion of our common stock held in the host country and the number of record holders in the host country.

          As of December 31, 2009, we had 72 record holders of our common stock. Of the 82,327,993 shares outstanding as of December 31, 2009, 35,439,212 shares were held by CEDE & Co.

          To the extent known to us, we are not directly or indirectly owned or controlled by another corporation, by any foreign government or by any other natural or legal persons severally or jointly.

          To our knowledge, there are no arrangements the operation of which may at a subsequent date result in a change in control of our company.

B. RELATED PARTY TRANSACTIONS.

          Name and relationship of related parties:

Name of related parties		Existing relationship with the Company
Mr. Zhi Jian Wu Li		Major shareholder
Mr. Rui Lin Wu		Director and father of Mr. Zhi Jian Wu Li
Wu Holdings Limited		Intermediate holding company
Exquisite Jewel Limited		Minority shareholder
Metrolink Holdings Limited		Minority shareholder
Specialist Consultants Limited		Minority shareholder
Qiao Xing Group Limited (“QXGL”)		Common director and minority shareholder of CECT, QXCI and QXPL
Huizhou Qiaoxing Famous Science & Technology Co., Ltd. (“QFST”)		A company 80% owned by QXGL

          Summary of related party transactions is as follows:

		2007				2008				2009
		RMB’000				RMB’000				RMB’000				US$’000
Property management fee paid and payable to:
- QXGL			100				119				55				8
Sales to:
- QFST			95,514				133,611				63,616				9,315

          Mr. Rui Lin Wu (held in trust for Mr. Zhi Jian Wu Li), Exquisite Jewel Limited, Metrolink Holdings Limited and Specialist Consultants Limited, the Company’s shareholders provided shareholders loan to the Company at

amount of RMB6,729,000. The loans are denominated in United States Dollar and are non-interest bearing. The shareholders have agreed not to make demand on the Group for repayment before January 1, 2010. For financial reporting purposes for the year ended December 31, 2009, interest expense of approximately RMB437,000 (US$64,000) (2008: RMB437,000; 2007: RMB487,000) was imputed based on the cost of borrowings of approximately 6.5% (2008: 6.5%; 2007: 6.5%) per annum and was recorded as interest expense and shareholders’ contribution in the consolidated financial statements.

     During each of the periods presented, the Company entered into various loan agreements with commercial banks in the PRC at terms ranging from three months to one year. The principal amounts of these short-term loans are repayable at the end of the loan period, while the related interest expense is payable on a monthly or quarterly basis.

     Short-term bank borrowings are secured by the following:

		2008				2009
		RMB’000				RMB’000				US$’000
Pledged of:
- Bank deposits of the Group			136,299				251,720				36,877
- Bills receivable of the Group			40,000				—				—
Guarantees provided by:
- QXGL			160,000				50,000				7,321
- QXGL and directors			360,000				290,000				42,463
- Directors			218,500				68,500				10,030

Please refer to Item 4.A. — “Acquisition of China Luxuriance Jade Company, Ltd. and commencement of diversification into the resources industry” for information regarding the acquisition of China Luxuriance Jade Company, Ltd. by the Company from Rui Lin WU.

C. INTERESTS OF EXPERTS AND COUNSEL.

     Not applicable.

ITEM 8. FINANCIAL INFORMATION

A.

CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION.

          The Consolidated Financial Statements are filed in this annual report as Item 18.

          Export sales do not constitute a significant portion of our total sales volume.

          Except as set forth below, there are no legal or arbitration proceedings, including those relating to bankruptcy, receivership or similar procedures and those involving any third party, which may have, or have had in the recent past, significant effects on our financial position or profitability. We are not aware of any material governmental proceedings pending or known to be contemplated.

          In August and September 2007, we were named as a defendant in five putative class actions filed in United States District Court for the Southern District of New York. Various of the lawsuits also named Rui Lin Wu, Albert Leung, Zhi Yang Wu, Sonny Kwok Wing Hung, Ze Yun Mu and Yi Hong Zhang as individual defendants. Grobstein, Horwath & Company LLP was also named as a defendant in two of the complaints. The allegations in the complaint relate to the Company’s restatement of prior financial statements that was disclosed on July 16, 2007 in the Form 20-F and in a press release on July 17, 2007. The Company and the individual defendants were named in all five of the cases pursuant to Section 10(b) of the Securities Exchange Act of 1934, and other related provisions. The complaints seek unspecified damages, attorney fees, and other unspecified litigation costs. By Order, dated November 1, 2007, Judge Denise Cote consolidated the five cases and appointed lead plaintiff and lead plaintiff’s counsel. A mediation was held on January 10, 2008 in front of Magistrate Judge Henry Pitman and the parties agreed to settle the case for US$2.4 million. The Company’s D&O insurance carrier agreed to contribute US$300,000 to the settlement. A Stipulation of Settlement was executed on February 25, 2008. The Stipulation of Settlement was filed with the Court on February 26, 2008 and the preliminary approval order was signed on April 2, 2008.

          The final fairness hearing was held on July 11, 2008. At that time, the Court gave final approval of the settlement of the class action without any admission of wrongdoing by the defendants in the settlement.

          We have no direct business operations, other than the ownership of our subsidiaries. While we have no current intention of paying dividends, should we decide in the future to do so, our ability to pay dividends and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiaries and other holdings and investments. In addition, our operating subsidiaries may be subject to restrictions on their ability to make distributions to us, including as a result of restrictive covenants in loan agreements, restrictions on the conversion of local currency into U.S. dollars or other hard currency and other regulatory restrictions.

B. SIGNIFICANT CHANGES.

          Except as otherwise disclosed herein, we do not believe that any significant change has occurred since the date of the annual financial statements included in this annual report.

ITEM 9. THE OFFER AND LISTING

A. OFFER AND LISTING DETAILS.

     Our common stock is listed and quoted for trading on The Nasdaq Global Market under the symbol “XING.” The following table sets forth, during the periods indicated, the high and low last sale prices for the common stock as reported by Nasdaq:

Period		High				Low
Year ended December 31, 2005		US$	8.50			US$	5.04
Year ended December 31, 2006		US$	17.09			US$	6.49
Year ended December 31, 2007		US$	19.56			US$	7.16
Year ended December 31, 2008		US$	8.11			US$	1.44
Year ended December 31, 2009		US$	2.46			US$	0.93
Quarter ended March 31, 2008		US$	8.11			US$	5.18
Quarter ended June 30, 2008		US$	7.52			US$	4.39
Quarter ended September 30, 2008		US$	5.44			US$	2.35
Quarter ended December 31, 2008		US$	2.63			US$	1.44
Quarter ended March 31, 2009		US$	2.12			US$	0.93
Quarter ended June 30, 2009		US$	2.46			US$	1.18
Quarter ended September 30, 2009		US$	2.35			US$	1.61
Quarter ended December 31, 2009		US$	2.42			US$	1.81
Quarter ended March 31, 2010		US$	2.73			US$	1.73
Quarter ended June 30, 2010		US$	1.93			US$	1.40
Month ended December 31, 2009		US$	2.42			US$	1.97
Month ended January 31, 2010		US$	2.73			US$	2.05
Month ended February 28, 2010		US$	2.03			US$	1.73
Month ended March 31, 2010		US$	2.00			US$	1.86
Month ended April 30, 2010		US$	1.93			US$	1.70
Month ended May 31, 2010		US$	1.72			US$	1.45
Month ended June 30, 2010		US$	1.73			US$	1.40