Qiao Xing Universal Telephone, Inc. Reports 2008 Third Quarter Financial Results

HUIZHOU, Guangdong, China, Nov. 27 /PRNewswire-Asia-FirstCall/ -- Qiao Xing Universal Telephone, Inc. (Nasdaq: XING) today announces its un-audited third quarter financial results for the three months ended September 30, 2008.

Highlights for the Third Quarter of 2008

Compared to the same period in last year, net sales decreased 31.5% to RMB 716.2 million (USD 102.5 million). However, gross profit increased 35.3% to the amount of RMB 333.3 million (USD 47.7 million), due to the dramatic decrease of cost of sales. Cost of sales decreased to RMB 382.9 million (USD 54.8 million), representing a decrease of 52.1%.

Gross margin increased from 23.6% in the third quarter of 2007 to 46.5% for the same period of this year.

Net operating income was RMB 234.8 million (USD 33.6 million) in the third quarter of 2008, represents an increase of 29.7% from RMB 181.0 million in the third quarter of 2007.

Net income in the third quarter of 2008 was RMB 17.4 million (USD 2.5 million), compared to net loss of RMB 9.6 million in the third quarter of 2007.

Basic earnings per share of common stock for the third quarter of 2008 was RMB 0.49 (USD 0.07), compared to basic loss per share at amount of RMB 0.33 in the same period of 2007.

Commenting on the results, Mr. Wu Rui Lin, Chairman of XING, said, "We are satisfied with our results for the third quarter of 2008. The increase of gross profit and net income demonstrated the success of our high-end luxury brand strategy."

Financial Review of Operations for the Third Quarter of 2008

Compared to the third quarter of 2007, XING's net sales decreased 31.5% to RMB 716.2 million (USD 102.5 million) for the same period this year. The decrease was mainly attributable to the recession of macro-economic environment.

Compared to the third quarter of 2007, gross profit of the Company increased 35.3% to reach RMB 333.3 million (USD 47.7 million) for the same period of this year. Gross margin increased from 23.6% of revenues for the third quarter of 2007 to 46.5% for the same period this year. The increase in gross profit and the improvement in gross margin were attributable to the successful strategic shift to new high-end luxury VEVA brand in Qiao Xing Mobile Communication Co., Ltd ("QXM"), a main subsidiary of XING.

Total operating expenses were RMB 98.4 million (USD 14.1 million) in the third quarter of 2008, which represented an increase of 51.0% from RMB 65.2 million in the third quarter of 2007. The significant increase in operating expenses in the third quarter of 2008 was mainly due to the airtime costs incurred on the sales of handset products through the infomercial arrangement in QXM. QXM sells parts of handsets to infomercial companies under a TV infomercial sales arrangement. Airtime costs incurred in QXM were RMB 52.8 million in the third quarter of 2008, compares to RMB 1.9 million in the third quarter of 2007.

Net non-operating losses were RMB 107.5 million (USD 15.4 million) in the third quarter of 2008, represented an increase of 3.9% from RMB 103.4 million in the third quarter of 2007. The details of the non-operating income (losses) are listed in the following table:

Non-operating income (expenses) for the three months ended Sep 30, 2008

RMB'000 US$'000

Non-operating income (expenses):

Interest income 6,569 941

Exchange gain (loss), net (8,933) (1,279)

Interest expense (143,925) (20,608)

Gain (loss) on remeasurement of

embedded financial derivative 48,835 6,992

Gain (loss) on disposal of equity

interests in subsidiary 281 40

Gain (loss) on extinguishment of

convertible debts (10,634) (1,523)

Other income, net 330 47

Total net non-operating income

(loss) (107,478) (15,389)

Interest expenses were RMB 143.9 million (USD 20.6 million) in the third quarter of 2008. Among these interest expenses, non-cash interest expenses represents RMB 110.1 million (USD 15.8 million), including accretion of convertible note discount at amount of RMB 107.4 million (USD 15.4 million) and amortization of deferred debt issuance cost at amount of RMB 2.7 million (USD 0.4 million). Total interest expenses paid in cash amounted to RMB 33.9 million (USD 4.8 million).

About Qiao Xing Universal Telephone, Inc.

Qiao Xing Universal Telephone, Inc. is one of China's largest manufacturers and distributor of telecommunications products in China. QXUT's product portfolio includes telecommunications terminals and related products, including fixed wireless phones, VoIP telephones, mobile handsets, PDAs and consumer electronic products, including MP3 players, cash registers and set- top-box products. The Company primarily conducts its business through its operating subsidiaries CEC Telecom Co., Ltd (CECT), and Huizhou Qiao Xing Communication Industry Co., Ltd (HZQXCI), a company engaged in R&D and distribution of indoor telephone sets and economy mobile phones under the COSUN brand. The Company Group has built a strong distribution network comprised of more than 5,000 retail stores throughout China and has established partnerships with major retailers in Europe, North America and Latin America, including Bellsouth and Wal-Mart. For more details, please visit http://www.cosun-xing.com .

Safe Harbor Statement

This announcement contains forward-looking statements, as defined in the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. In some cases, these forward-looking statements can be identified by words or phrases such as "aim," "anticipate," "believe," "continue," "estimate," "expect," "intend," "is /are likely to," "may," "plan," "potential," "will" or other similar expressions. Statements that are not historical facts, including statements about Qiao Xing Universal's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward- looking statement. Information regarding these factors is included in our filings with the Securities and Exchange Commission. Qiao Xing Universal does not undertake any obligation to update any forward-looking statement, except as required under applicable law. All information provided in this press release is as of November 27, 2008, and Qiao Xing Universal undertakes no duty to update such information, except as required under applicable law.

Qiao Xing Universal Telephone Inc. and its Subsidiaries

Condensed Consolidated Profit and Loss Account

For Three Months Ended 30 September

2007 2008

RMB'000 RMB'000 US$'000

Net sales 1,044,987 716,194 102,548

Cost of goods sold (798,741) (382,932) (54,830)

Gross profit 246,246 333,262 47,718

Total operating expenses (65,203) (98,437) (14,095)

Income from operation 181,043 234,825 33,623

Net non-operating income (loss) (103,403) (107,478) (15,389)

Income before income tax 77,640 127,347 18,234

Provision for income tax (28,732) (60,241) (8,626)

Income before minority

interests 48,908 67,107 9,609

Minority interest (58,545) (49,730) (7,121)

Net income (loss) before

extraordinary items (9,637) 17,376 2,488

Extraordinary items: -- --

Net income (loss) (9,637) 17,376 2,488

To participatory convertible notes (2,281) (327)

To common stock 15,095 2,161

Basic earnings (loss) per common

share:

Before extraordinary gain (0.33) 0.49 0.07

Extraordinary gain

After extraordinary gain (0.33) 0.49 0.07

Weighted average number of shares

outstanding

Basic 29,649,000 30,948,836 30,948,836

Qiao Xing Universal Telephone Inc. and its Subsidiaries

Condensed Consolidated Balance Sheet

December 31, September 30,

2007 2008

RMB'000 RMB'000 US$'000

ASSETS

CURRENT ASSETS

Cash and cash equivalents 3,033,010 4,153,832 611,766

Restricted cash 197,951 182,163 26,828

Bills receivable 115,261 71,426 10,519

Accounts receivable, net 941,518 487,716 71,830

Inventories 304,024 235,386 34,667

Prepaid expenses 273,881 533,422 78,561

Other current assets 1,111,408 630,933 92,922

Due from related parties 27 25 4

Deferred income taxes 13,350 7,695 1,133

Deferred debt issuance costs, net 14,579 -- --

TOTAL CURRENT ASSETS 6,005,009 6,302,597 928,231

NON-CURRENT ASSETS

Property, machinery and

equipment, net 192,601 196,202 28,896

Land use rights 36,106 35,505 5,229

Other non-current assets -- --

Investment at cost 7,803 7,802 1,149

Goodwill 76,594 82,059 12,085

Other acquired intangible assets,

net 60,728 50,191 7,392

Deferred debt issuance costs 39,644 5,839

TOTAL NON-CURRENT ASSETS 373,832 411,403 60,590

TOTAL ASSETS 6,378,841 6,714,000 988,822

LIABILITIES, MINORITY INTERESTS AND

SHAREHOLDERS' EQUITY

CURRENT LIABILITIES

Short term bank borrowings 1,471,454 1,456,989 214,582

Accounts payable 180,573 177,618 26,159

Other payables 42,009 10,715 1,578

Accrued liabilities 104,984 84,168 12,396

Deposits received 4,539 3,236 477

Finance lease obligations-current

obligations --

Deferred revenues 26,402 20,184 2,973

Due to related parties 608 193,573 28,509

Taxation payable 73,301 121,553 17,902

Convertible notes 135,667 176,537 26,000

Embedded derivatives liabilities 19,004 124,278 18,303

TOTAL CURRENT LIABILITIES 2,058,541 2,368,852 348,879

LONG-TERM LIABILITIES

Shareholders loans 7,194 6,697 986

Convertible notes 189,660 174,013 25,628

Deferred tax liabilities 5,561 4,320 636

TOTAL NON-CURRENT LIABILITIES 202,415 185,030 27,251

TOTAL LIABILITIES 2,260,956 2,553,882 376,129

MINORITY INTEREST 1,095,917 1,003,020 147,722

SHAREHOLDERS' EQUITY

Common stock, par value RMB0.008

(equivalent of US$0.001);

authorised 50,000,000 shares;

outstanding and fully paid -

30,948,836 shares as of

December 31, 2007 and September

30, 2008 251 251 34

Additional paid-in capital 1,737,541 1,864,984 274,670

Cumulative translation

adjustments (41,808) (81,687) 1,679

Retained earnings (deficits) 1,325,984 1,373,550 188,587

TOTAL SHAREHOLDERS' EQUITY 3,021,968 3,157,099 464,970

TOTAL LIABILITIES & SHAREHOLDERS'

EQUITY 6,378,841 6,714,000 988,822

The accompanying unaudited condensed consolidated financial statements do not fully comply with U.S. GAAP due to the omission of certain required disclosures.

For more information, please contact:

Rick Xiao

Qiao Xing Universal Telephone, Inc.

Tel: +86-752-282-0268

Email: rick@qiaoxing.com