| x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
|---|----------------------------------------------------------------------------------------------|

|  ̈ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
|--------|------------------------------------------------------------------------------------------|

| Delaware                        |   | 84-1111224                           |
|---------------------------------|--------|--------------------------------------|
| (State or Other Jurisdiction of |   | (I.R.S. Employer Identification No.) |
| Incorporation or Organization)  |   |                                 |

| Large accelerated filer  ̈ | Accelerated filer  ̈ | Non-accelerated filer  ̈                                |   | Smaller reporting company x |
|-----------------------------------------------|------------------------------------|-----------------------------------------------------------------------|--------|--------------------------------------------|
|                                          |                               | (Do not check if a smaller reportingcompany) |   |                                       |

----

|                                                                                                                                                          |   | Page     |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|
|                                                                                                                                                          |   |     |   |
| PART I. FINANCIAL INFORMATION                                                                                                                                 |   |     |   |
|                                                                                                                                                          |   |     |   |
| Item 1. Condensed Financial Statements.                                                                                                                       |   | 3        |   |
|                                                                                                                                                          |   |     |   |
| Condensed Consolidated Statements of Operations and Other Comprehensive Income, for the three months ended June 30, 2011  and 2010 (unaudited) |   | 3        |   |
|                                                                                                                                                          |   |     |   |
| Condensed Consolidated Balance Sheets, as of June 30, 2011 and December 31, 2010                                                                         |   | 4        |   |
|                                                                                                                                                          |   |     |   |
| Condensed Consolidated Statements of Cash Flows, for the three and six months ended June 30, 2011 and 2010 (unaudited)                                        |   | 5        |   |
|                                                                                                                                                          |   |     |   |
| Notes to Condensed Consolidated Financial Statements                                                                                                          |   | 6        |   |
|                                                                                                                                                          |   |     |   |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.                                                          |   | 22       |   |
|                                                                                                                                                          |   |     |   |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk.                                                                                           |   | 38       |   |
|                                                                                                                                                          |   |     |   |
| Item 4. Controls and Procedures.                                                                                                                              |   | 38       |   |
|                                                                                                                                                          |   |     |   |
| PART II. OTHER INFORMATION                                                                                                                                    |   |     |   |
|                                                                                                                                                          |   |     |   |
| Item 1. Legal Proceedings.                                                                                                                                    |   | 39       |   |
| Item 1A. Risk Factors.                                                                                                                                        |   | 39  |   |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.                                                                                          |   | 39       |   |
| Item 3. Defaults Upon Senior Securities.                                                                                                                      |   | 39  |   |
| Item 4. (Removed and Reserved).                                                                                                                               |   | 39       |   |
| Item 5. Other Information.                                                                                                                                    |   | 39  |   |
| Item 6. Exhibits.                                                                                                                                             |   | 39       |   |

----

----

|                                                |   |   |   | Three months ended June 30, |       |   | Six months ended June 30, |   |
|-----------------------------------------------------|--------|--------|--------|-----------------------------|------------|--------|---------------------------|--------|
|                                                |   |   |   | 2011                        |       |   | 2010                      |   |   | 2011 |   |   | 2010 |   |
|                                                |   | Note   |   | US$’000               |       |   | US$’000             |   |   | US$’000 |   |   | US$’000 |   |
|                                                |   |   |   | (Unaudited)                 |       |   | (Unaudited)               |   |   | (Unaudited) |   |   | (Unaudited) |   |
| Operating revenues:                                 |   |   |   |                        |       |   |                      |   |   |   |   |   |   |   |
| Net sales of equipment                              |   |   |   |                        | 8,834      |   |                      |   | 7,060 |   |   |   | 15,826 |   |   |   | 12,160 |   |
| Service income                                      |   |   |   |                        | 15,503     |   |                      |   | 9,559 |   |   |   | 22,983 |   |   |   | 15,591 |   |
|                                                |   |   |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Total operating revenues                            |   |   |   |                        | 24,337     |   |                      |   | 16,619 |   |   |   | 38,809 |   |   |   | 27,751 |   |
|                                                |   |   |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Cost of operating revenues:                         |   |   |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Cost of net sales                                   |   |   |   |                        | 5,305      |   |                      |   | 3,998 |   |   |   | 9,136 |   |   |   | 6,868 |   |
| Cost of service                                     |   |   |   |                        | 8,398      |   |                      |   | 5,123 |   |   |   | 12,441 |   |   |   | 8,446 |   |
|                                                |   |   |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Total cost of operating revenues                    |   |   |   |                        | 13,703     |   |                      |   | 9,121 |   |   |   | 21,577 |   |   |   | 15,314 |   |
|                                                |   |   |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Gross income                                        |   |   |   |                        | 10,634     |   |                      |   | 7,498 |   |   |   | 17,232 |   |   |   | 12,437 |   |
|                                                |   |   |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Operating expenses:                                 |   |   |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Sales and marketing                                 |   |   |   |                        | 3,026      |   |                      |   | 4,176 |   |   |   | 5,157 |   |   |   | 6,904 |   |
| General and administrative                          |   |   |   |                        | 1,360      |   |                      |   | 882 |   |   |   | 3,365 |   |   |   | 3,816 |   |
| Research and development                            |   |   |   |                        | 620        |   |                      |   | 191 |   |   |   | 868 |   |   |   | 415 |   |
| Depreciation and amortization                       |   |   |   |                        | 120        |   |                      |   | 81 |   |   |   | 222 |   |   |   | 152 |   |
|                                                |   |   |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Total operating expenses                            |   |   |   |                        | 5,126      |   |                      |   | 5,330 |   |   |   | 9,612 |   |   |   | 11,287 |   |
|                                                |   |   |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Operating income                                    |   |   |   |                        | 5,508      |   |                      |   | 2,168 |   |   |   | 7,620 |   |   |   | 1,150 |   |
| Interest expense                                    |   |   |   |                        | (187       | )      |                      |   | (134 | ) |   |   | (336 | ) |   |   | (260 | ) |
| Other income, net                                   |   |   |   |                        | 121        |   |                      |   | 194 |   |   |   | 324 |   |   |   | 529 |   |
|                                                |   |   |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Income before income taxes                          |   |   |   |                        | 5,442      |   |                      |   | 2,228 |   |   |   | 7,608 |   |   |   | 1,419 |   |
| Income taxes                                        |   |   |   |                        | (918       | )      |                      |   | (508 | ) |   |   | (1,465 | ) |   |   | (829 | ) |
|                                                |   |   |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Net income                                          |   |   |   |                        | 4,524      |   |                      |   | 1,720 |   |   |   | 6,143 |   |   |   | 590 |   |
|                                                |   |   |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Other comprehensive income                          |   |   |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Foreign currency translation adjustment             |   |   |   |                        | 1,911      |   |                      |   | - |   |   |   | 1,911 |   |   |   | - |   |
|                                                |   |   |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Total comprehensive income                          |   |   |   |                        | 6,435      |   |                      |   | 1,720 |   |   |   | 8,054 |   |   |   | 590 |   |
|                                                |   |   |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Earnings per share:                                 |   | 3      |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
|                                                |   |   |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average number of common stock outstanding |   |   |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                               |   |   |   |                        | 12,333,264 |   |                      |   | 10,549,143 |   |   |   | 12,333,264 |   |   |   | 10,531,304 |   |
| Effect of dilutive warrants and stock options       |   |   |   |                        | 8,571      |   |                      |   | - |   |   |   | 12,690 |   |   |   | 21,647 |   |
|                                                |   |   |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Diluted                                             |   |   |   |                        | 12,341,835 |   |                      |   | 10,549,143 |   |   |   | 12,345,954 |   |   |   | 10,552,951 |   |
|                                                |   |   |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
|                                                |   |   |   | US$                         |       |   | US$                       |   |   | US$ |   |   | US$ |   |
| Net income per share of common stock                |   |   |   |                        |       |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                               |   |   |   |                        | 0.37       |   |                      |   | 0.16 |   |   |   | 0.50 |   |   |   | 0.06 |   |
| Diluted                                             |   |   |   |                        | 0.37       |   |                      |   | 0.16 |   |   |   | 0.50 |   |   |   | 0.06 |   |

----

|                                                                                                                                |   |       |   | As ofJune 30, |    |   | As of December31, |   |
|-------------------------------------------------------------------------------------------------------------------------------------|--------|------------|--------|---------------|---------|--------|-------------------|--------|
|                                                                                                                                |   |       |   | 2011          |    |   | 2010              |   |
|                                                                                                                                |   | Note       |   | US$’000 |    |   | US$’000     |   |
|                                                                                                                                |   |       |   | (Unaudited)   |    |   |              |   |
| ASSETS                                                                                                                              |   |       |   |          |    |   |              |   |
|                                                                                                                                |   |       |   |          |    |   |              |   |
| Current assets:                                                                                                                     |   |       |   |          |    |   |              |   |
| Cash and cash equivalents                                                                                                           |   |       |   |          | 19,905  |   |              |   | 31,020 |   |
| Accounts receivable, net of allowance                                                                                               |   | 5          |   |          | 206,318 |   |              |   | 192,487 |   |
| Due from related parties                                                                                                            |   | 14         |   |          | 1,509   |   |              |   | 2,018 |   |
| Inventories, net of allowance                                                                                                       |   | 10         |   |          | 7,222   |   |              |   | 3,123 |   |
| Prepayments                                                                                                                         |   |       |   |          | 1,661   |   |              |   | 1,748 |   |
| Other current assets                                                                                                                |   |       |   |          | 4,240   |   |              |   | 1,630 |   |
|                                                                                                                                |   |       |   |          |    |   |              |   |   |   |
| Total current assets                                                                                                                |   |       |   |          | 240,855 |   |              |   | 232,026 |   |
|                                                                                                                                |   |       |   |          |    |   |              |   |   |   |
| Goodwill                                                                                                                            |   | 6          |   |          | 3,119   |   |              |   | 3,119 |   |
| Property, plant and equipment, net                                                                                                  |   | 7          |   |          | 1,906   |   |              |   | 1,565 |   |
| Lease prepayment                                                                                                                    |   | 8          |   |          | 2,555   |   |              |   | 2,528 |   |
|                                                                                                                                |   |       |   |          |    |   |              |   |   |   |
|                                                                                                                                |   |       |   |          | 7,580   |   |              |   | 7,212 |   |
|                                                                                                                                |   |       |   |          |    |   |              |   |   |   |
| Total assets                                                                                                                        |   |       |   |          | 248,435 |   |              |   | 239,238 |   |
|                                                                                                                                |   |       |   |          |    |   |              |   |   |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                          |   |       |   |          |    |   |              |   |   |   |
|                                                                                                                                |   |       |   |          |    |   |              |   |   |   |
| Current liabilities:                                                                                                                |   |       |   |          |    |   |              |   |   |   |
| Short-term bank loans                                                                                                               |   | 9 & 14 |   |          | 10,368  |   |              |   | 9,846 |   |
| Accounts payable – Trade                                                                                                      |   |       |   |          | 43,266  |   |              |   | 40,685 |   |
| Customer deposits for sales of equipment                                                                                            |   |       |   |          | 2,482   |   |              |   | 2,089 |   |
| Due to related parties                                                                                                              |   | 14         |   |          | 1,801   |   |              |   | 3,977 |   |
| Income tax payable                                                                                                                  |   |       |   |          | 15,336  |   |              |   | 13,760 |   |
| Accrued expenses and other accrued liabilities                                                                                      |   |       |   |          | 49,374  |   |              |   | 52,031 |   |
|                                                                                                                                |   |       |   |          |    |   |              |   |   |   |
| Total current liabilities                                                                                                           |   |       |   |          | 122,627 |   |              |   | 122,388 |   |
|                                                                                                                                |   |       |   |          |    |   |              |   |   |   |
| Commitments and contingencies                                                                                                       |   | 15         |   |          |    |   |              |   |   |   |
|                                                                                                                                |   |       |   |          |    |   |              |   |   |   |
| Stockholders’ equity:                                                                                                         |   |       |   |          |    |   |              |   |   |   |
| Preferred stock, US$0.001 par value, 10,000,000 shares authorized, no shares issued                                                 |   |       |   |          | -       |   |              |   | - |   |
| Common stock and paid-in-capital, US$0.001 par value:Authorized – 100,000,000 shares as of June 30, 2011and December 31, 2010 |   |       |   |          |    |   |              |   |   |   |
| Issued and outstanding – 12,233,264 shares as of June 30, 2011 and December 31, 2010                                          |   | 13         |   |          | 12      |   |              |   | 12 |   |
| Additional paid-in capital                                                                                                          |   |       |   |          | 43,954  |   |              |   | 43,050 |   |
| Dedicated reserves                                                                                                                  |   |       |   |          | 5,115   |   |              |   | 5,115 |   |
| Other comprehensive income                                                                                                          |   |       |   |          | 10,348  |   |              |   | 8,437 |   |
| Retained earnings                                                                                                                   |   |       |   |          | 66,379  |   |              |   | 60,236 |   |
|                                                                                                                                |   |       |   |          |    |   |              |   |   |   |
| Total stockholders’ equity                                                                                                    |   |       |   |          | 125,808 |   |              |   | 116,850 |   |
|                                                                                                                                |   |       |   |          |    |   |              |   |   |   |
| Total liabilities and stockholders’ equity                                                                                    |   |       |   |          | 248,435 |   |              |   | 239,238 |   |

----

|                                                                          |   | Six months ended June 30, |    |
|-------------------------------------------------------------------------------|--------|---------------------------|---------|
|                                                                          |   | 2011                      |    |   | 2010 |   |
|                                                                          |   | US$’000             |    |   | US$’000 |   |
|                                                                          |   | (Unaudited)               |    |   | (Unaudited) |   |
| Cash flows from operating activities                                          |   |                      |    |   |   |   |
| Net income                                                                    |   |                      | 6,143   |   |   |   | 590 |   |
| Adjustments to reconcile net income to net cash used in operating activities: |   |                      |    |   |   |   |   |   |
| Depreciation and amortization                                                 |   |                      | 222     |   |   |   | 152 |   |
| Loss on disposal of property, plant and equipment                             |   |                      | 3       |   |   |   | - |   |
| Stock-based compensation                                                      |   |                      | 904     |   |   |   | 2,701 |   |
| Changes in assets and liabilities:                                            |   |                      |    |   |   |   |   |   |
| Accounts receivable                                                           |   |                      | (9,694  | ) |   |   | (11,972 | ) |
| Inventories                                                                   |   |                      | (4,032  | ) |   |   | (1,933 | ) |
| Prepayments                                                                   |   |                      | 124     |   |   |   | 465 |   |
| Other current assets                                                          |   |                      | (2,411  | ) |   |   | 370 |   |
| Accounts payable                                                              |   |                      | 1,713   |   |   |   | 2,854 |   |
| Customer deposits for sales of equipment                                      |   |                      | 348     |   |   |   | 7 |   |
| Due to related parties                                                        |   |                      | (1,829  | ) |   |   | 1,379 |   |
| Income tax payable                                                            |   |                      | 1,283   |   |   |   | 963 |   |
| Accrued expenses and other accrued liabilities                                |   |                      | (3,898  | ) |   |   | 1,102 |   |
|                                                                          |   |                      |    |   |   |   |   |   |
| Net cash used in operating activities                                         |   |                      | (11,124 | ) |   |   | (3,322 | ) |
|                                                                          |   |                      |    |   |   |   |   |   |
| Cash flows from investing activities                                          |   |                      |    |   |   |   |   |   |
| Purchase of property, plant and equipment                                     |   |                      | (505    | ) |   |   | (173 | ) |
|                                                                          |   |                      |    |   |   |   |   |   |
| Net cash used in investing activities                                         |   |                      | (505    | ) |   |   | (173 | ) |
|                                                                          |   |                      |    |   |   |   |   |   |
| Cash flows from financing activities                                          |   |                      |    |   |   |   |   |   |
| Repayment of short-term bank loans                                            |   |                      | (3,868  | ) |   |   | (3,656 | ) |
| Short-term bank loans raised                                                  |   |                      | 4,180   |   |   |   | 3,656 |   |
|                                                                          |   |                      |    |   |   |   |   |   |
| Net cash from financing activities                                            |   |                      | 312     |   |   |   | - |   |
|                                                                          |   |                      |    |   |   |   |   |   |
| Net decrease in cash and cash equivalents                                     |   |                      | (11,317 | ) |   |   | (3,495 | ) |
|                                                                          |   |                      |    |   |   |   |   |   |
| Cash and cash equivalents, beginning of the period                            |   |                      | 31,020  |   |   |   | 11,233 |   |
|                                                                          |   |                      |    |   |   |   |   |   |
| Effect on exchange rate changes                                               |   |                      | 202     |   |   |   | - |   |
|                                                                          |   |                      |    |   |   |   |   |   |
| Cash and cash equivalents, end of the period                                  |   |                      | 19,905  |   |   |   | 7,738 |   |
|                                                                          |   |                      |    |   |   |   |   |   |
| Supplemental disclosure of cash flow information                              |   |                      |    |   |   |   |   |   |
| Interest received                                                             |   |                      | 24      |   |   |   | 29 |   |
| Interest paid                                                                 |   |                      | (314    | ) |   |   | (195 | ) |
| Tax paid                                                                      |   |                      | (120    | ) |   |   | (221 | ) |

----

| 1. | ORGANIZATION AND PRINCIPAL ACTIVITIES |
|----|---------------------------------------|

----

| 1. | ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED) |
|----|---------------------------------------------------|

|   | Note: | These are direct translations of names in Chinese for identification purposes only and are not the official names in English. |
|--------|-------|-------------------------------------------------------------------------------------------------------------------------------|

| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
|----|--------------------------------------------|

----

| 3. | EARNINGS PER SHARE |
|----|--------------------|

| 4. | OPERATING RISK |
|----|----------------|

|   | (a) | Concentration of major customers and suppliers |
|--------|-----|------------------------------------------------|

|                                                                                           |   | Six months ended June 30, |   |
|------------------------------------------------------------------------------------------------|--------|---------------------------|--------|
|                                                                                           |   | 2011                      |   |   | 2010 |   |
|                                                                                           |   | US$’000             |   |   | US$’000 |   |
|                                                                                           |   | (Unaudited)               |   |   | (Unaudited) |   |
| Major customers with revenues of more than 10% of the Company’s total operating revenues |   |                      |   |   |   |   |
| Revenues from major customers                                                                  |   |                      | 33,277 |   |   |   | 27,132 |   |
| Percentage of operating revenues                                                               |   |                      | 86     | % |   |   | 98 | % |
| Number                                                                                         |   |                      | 2      |   |   |   | 3 |   |
|                                                                                           |   |                      |   |   |   |   |   |   |
| Major suppliers with purchases of more than 10% of the Company’s purchases               |   |                      |   |   |   |   |   |   |
| Purchases from major suppliers                                                                 |   |                      | 6,940  |   |   |   | 913 |   |
| Percentage of purchases                                                                        |   |                      | 52     | % |   |   | 10 | % |
| Number                                                                                         |   |                      | 2      |   |   |   | 1 |   |

----

| 4. | OPERATING RISK (CONTINUED) |
|----|----------------------------|

|   | (a) | Concentration of major customers and suppliers (continued) |
|--------|-----|------------------------------------------------------------|

|   | (b) | Country risks |
|--------|-----|---------------|

|   | (c) | Cash and time deposits |
|--------|-----|------------------------|

----

| 5. | ACCOUNTS RECEIVABLE |
|----|---------------------|

|                            |   | As ofJune 30,2011 |    |   | As ofDecember 31,2010 |   |
|---------------------------------|--------|-------------------|---------|--------|-----------------------|--------|
|                            |   | US$’000     |    |   | US$’000         |   |
|                            |   | (Unaudited)       |    |   |                  |   |
|                            |   |              |    |   |                  |   |
| Completed contracts             |   |              | 200,761 |   |                  |   | 181,649 |   |
| Retentions                      |   |              | 13,555  |   |                  |   | 18,701 |   |
|                            |   |              |    |   |                  |   |   |   |
|                            |   |              | 214,316 |   |                  |   | 200,350 |   |
| Allowance for doubtful accounts |   |              | (7,998  | )      |                  |   | (7,863 | ) |
|                            |   |              |    |   |                  |   |   |   |
|                            |   |              | 206,318 |   |                  |   | 192,487 |   |

| 6. | GOODWILL |
|----|----------|

| 7. | PROPERTY, PLANT AND EQUIPMENT, NET |
|----|------------------------------------|

|                     |   | Estimated useful life |   | As ofJune 30,2011 |   |   | As ofDecember 31,2010 |   |
|--------------------------|--------|---------------------------------|--------|-----------------------------|--------|--------|---------------------------------|--------|
|                |   | (in years)                 |   | US$’000               |   |   | US$’000                   |   |
|                |   |                            |   | (Unaudited)                 |   |   |                            |   |
|                     |   |                            |   |                        |   |   |                            |   |
| Buildings                |   | 30                              |   |                        | 330    |   |                            |   | 323 |   |
| Leasehold improvement    |   | 5                               |   |                        | 171    |   |                            |   | 168 |   |
| Plant and machinery      |   | 5                               |   |                        | 924    |   |                            |   | 797 |   |
| Office equipment         |   | 5                               |   |                        | 1,616  |   |                            |   | 1,395 |   |
| Motor vehicles           |   | 5                               |   |                        | 1,015  |   |                            |   | 948 |   |
| Construction in progress |   |                            |   |                        | 154    |   |                            |   | - |   |
|                     |   |                            |   |                        |   |   |                            |   |   |   |
|                     |   |                            |   |                        | 4,210  |   |                            |   | 3,631 |   |
| Accumulated depreciation |   |                            |   |                        | (2,304 | )      |                            |   | (2,066 | ) |
|                     |   |                            |   |                        |   |   |                            |   |   |   |
|                     |   |                            |   |                        | 1,906  |   |                            |   | 1,565 |   |

----

| 7. | PROPERTY, PLANT AND EQUIPMENT, NET (CONTINUED) |
|----|------------------------------------------------|

| 8. | LEASE PREPAYMENTS, NET |
|----|------------------------|

|                     |   | As ofJune 31, |   |   | As ofDecember 31, |   |
|--------------------------|--------|---------------|--------|--------|-------------------|--------|
|                     |   | 2011          |   |   | 2010              |   |
|                     |   | US$’000 |   |   | US$’000     |   |
|                     |   | (Unaudited)   |   |   |              |   |
|                     |   |          |   |   |              |   |
| Prepaid land use rights  |   |          | 2,635  |   |              |   | 2,580 |   |
| Accumulated amortization |   |          | (80    | )      |              |   | (52 | ) |
|                     |   |          |   |   |              |   |   |   |
|                     |   |          | 2,555  |   |              |   | 2,528 |   |

| 9. | SHORT-TERM BANK LOANS |
|----|-----------------------|

|   | (a) | Accounts receivable of the Company with an aggregate carrying value as of June 30, 2011 and December 31, 2010 amounting to RMB177.18 million and RMB95.43 million, equivalent to approximately US$27.41 million and US$14.45 million, respectively; |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | Motor vehicles of the Company with an aggregate carrying value as of December 31, 2010 amounting to RMB0.97 million, equivalent to approximately US$0.15 million; |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (c) | Land use rights of the Company with a carrying value as of June 30, 2011 and December 31, 2010 amounting to RMB16.52 million and RMB16.68 million, equivalent to approximately US$2.56 million and US$2.53 million, respectively; |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (d) | Personal guarantee provided by Mr. Daqing Han, Telestone’s Chairman and Chief Executive Officer (“Mr. Han”); and |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------|

|   | (e) | Personal real estate property and securities of the Company held by Mr. Han. |
|--------|-----|------------------------------------------------------------------------------|

----

| 10. | INVENTORIES |
|-----|-------------|

|                                         |   | As ofJune 30,2011 |   |   | As ofDecember 31,2010 |   |
|----------------------------------------------|--------|-------------------|--------|--------|-----------------------|--------|
|                                         |   | US$’000     |   |   | US$’000         |   |
|                                         |   | (Unaudited)       |   |   |                  |   |
|                                         |   |              |   |   |                  |   |
| Raw materials                                |   |              | 1      |   |                  |   | 1 |   |
| Finished goods and parts                     |   |              | 7,683  |   |                  |   | 3,574 |   |
|                                         |   |              |   |   |                  |   |   |   |
|                                         |   |              | 7,684  |   |                  |   | 3,575 |   |
| Provision for slow-moving and obsolete items |   |              | (462   | )      |                  |   | (452 | ) |
|                                         |   |              |   |   |                  |   |   |   |
|                                         |   |              | 7,222  |   |                  |   | 3,123 |   |

| 11. | INCOME TAXES |
|-----|--------------|

| Unified EIT rate                                                      |   |   | 25 | % |
|-----------------------------------------------------------------------|--------|--------|----|---|
| Small scale / low profit enterprises                                  |   |   | 20 | % |
| High / new technology enterprises (“Hi-tech enterprises”) |   |   | 15 | % |

----

| 12. | SEGMENT INFORMATION |
|-----|---------------------|

| 13. | COMMON STOCK |
|-----|--------------|

| 14. | RELATED PARTY TRANSACTIONS |
|-----|----------------------------|

|                                         |   | Note   |   | As ofJune 30,2011 |   |   | As ofDecember 31,2010 |   |
|----------------------------------------------|--------|--------|--------|-------------------|--------|--------|-----------------------|--------|
|                                         |   |   |   | US$’000     |   |   | US$’000         |   |
|                                         |   |   |   | (Unaudited)       |   |   |                  |   |
| Due from related parties                     |   |   |   |              |   |   |                  |   |
| Employees                                    |   | a      |   |              | -      |   |                  |   | 540 |   |
| Ex-stockholders of SMI/Guolian               |   | b      |   |              | 1,509  |   |                  |   | 1,478 |   |
|                                         |   |   |   |              |   |   |                  |   |   |   |
|                                         |   |   |   |              | 1,509  |   |                  |   | 2,018 |   |
|                                         |   |   |   |              |   |   |                  |   |   |   |
| Due to related parties                       |   |   |   |              |   |   |                  |   |   |   |
| Directors                                    |   | a      |   |              | 245    |   |                  |   | 2,454 |   |
| Ex-stockholders of Beijing Telestone/Guolian |   | b      |   |              | 1,556  |   |                  |   | 1,523 |   |
|                                         |   |   |   |              |   |   |                  |   |   |   |
|                                         |   |   |   |              | 1,801  |   |                  |   | 3,977 |   |
|                                         |   |   |   |              |   |   |                  |   |   |   |
| Guarantor of short term loan                 |   |   |   |              |   |   |                  |   |   |   |
| A director                                   |   | 9      |   |              | 10,368 |   |                  |   | 9,846 |   |

|   | (a) | The amounts due from employees and due to directors represent unsecured advances made to / from those parties from time to time. These amounts are interest free and repayable on demand. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 14.  | RELATED PARTY TRANSACTIONS (CONTINUED) |
|-----------|----------------------------------------|

|   | Note: (continued) |
|--------|-------------------|

|   | (b) | The amounts due to ex-stockholders of Beijing Telestone represented the consideration arising from the consummation of the business combination. The ex-stockholders of SMI had represented that they had fully settled the amount with the ex-stockholders of Beijing Telestone and also undertaken to fully indemnify SMI against any claims from the ex-stockholders of Beijing Telestone (the “Undertaking”). However, an ex-stockholder of Beijing Telestone has initiated a lawsuit against SMI alleging that the consideration amount has not been settled. The court hearing commenced on May 10, 2006 and finalized on December 19, 2006. A verdict has been issued by the Second Intermediate People’s Court of Beijing (“北京市第二中級人民法院”) and announced that SMI and Beijing Telestone are not required to compensate the ex-stockholder of SMI.  On October 23, 2007, another verdict was issued by the High People’s Court of Beijing (“北京市高級人民法院”) to announcing that the verdict from the Second Intermediate People’s Court of Beijing was upheld and SMI was not required to compensate the ex-shareholder. The movement of the balances represented exchange rate re-alignment. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 15.  | COMMITMENTS AND CONTINGENCIES |
|-----------|-------------------------------|

| 16.  | STOCK OPTION PLAN |
|-----------|-------------------|

----

| 17.  | STOCK-BASED COMPENSATION |
|-----------|--------------------------|

|                  |   | Three months ended June 30, |   |   | Six months ended June 30, |   |
|-----------------------|--------|-------------------------------------------------|--------|--------|-----------------------------------------------|--------|
|                  |   | 2011                                            |   |   | 2010                                          |   |   | 2011 |   |   | 2010 |   |
|                  |   | US$’000                                   |   |   | US$’000                                 |   |   | US$’000 |   |   | US$’000 |   |
|                  |   | (Unaudited)                                     |   |   | (Unaudited)                                   |   |   | (Unaudited) |   |   | (Unaudited) |   |
|                  |   |                                            |   |   |                                          |   |   |   |   |   |   |   |
| Warrants (i)          |   |                                            | -      |   |                                          |   | - |   |   |   | - |   |   |   | 492 |   |
| Restricted stock (ii) |   |                                            | -      |   |                                          |   | 100 |   |   |   | - |   |   |   | 2,209 |   |
| Stock options (iii)   |   |                                            | 452    |   |                                          |   | - |   |   |   | 904 |   |   |   | - |   |
|                  |   |                                            |   |   |                                          |   |   |   |   |   |   |   |   |   |   |   |
|                  |   |                                            | 452    |   |                                          |   | 100 |   |   |   | 904 |   |   |   | 2,701 |   |

|                       |   | Three months ended June 30, |   |   | Six months ended June 30, |   |
|----------------------------|--------|-------------------------------------------------|--------|--------|-----------------------------------------------|--------|
|                       |   | 2011                                            |   |   | 2010                                          |   |   | 2011 |   |   | 2010 |   |
|                       |   | US$’000                                   |   |   | US$’000                                 |   |   | US$’000 |   |   | US$’000 |   |
|                       |   | (Unaudited)                                     |   |   | (Unaudited)                                   |   |   | (Unaudited) |   |   | (Unaudited) |   |
|                       |   |                                            |   |   |                                          |   |   |   |   |   |   |   |
| Sales and marketing        |   |                                            | -      |   |                                          |   | - |   |   |   | - |   |   |   | 492 |   |
| General and administrative |   |                                            | 452    |   |                                          |   | 100 |   |   |   | 904 |   |   |   | 2,209 |   |
|                       |   |                                            |   |   |                                          |   |   |   |   |   |   |   |   |   |   |   |
|                       |   |                                            | 452    |   |                                          |   | 100 |   |   |   | 904 |   |   |   | 2,701 |   |

----

| 17.  | STOCK-BASED COMPENSATION (CONTINUED) |
|-----------|--------------------------------------|

|   | (i)  | During the period ended June 30, 2011, no warrants were granted by the Company. |
|--------|-----------|---------------------------------------------------------------------------------|

|                                                       |   | Number ofshares |    |
|------------------------------------------------------------|--------|-----------------|---------|
|                                                       |   |            |    |
| Warrants outstanding and exercisable as of January 1, 2011 |   |            | 165,666 |   |
|                                                       |   |            |    |   |
| Expired on February 19, 2011                               |   |            | (85,666 | ) |
|                                                       |   |            |    |   |
| Warrants outstanding and exercisable as of June 30, 2011   |   |            | 80,000  |   |

|                |   |   | Outstanding, Vested and Exercisable |   |
|---------------------|--------|--------|----------------------------------------------------|--------|
| Exercise price |   |   | Number ofshares                               |   |   | Weightedaverageremainingcontractuallife |   |   | Weightedaverage exercise price |   |
| US$                 |   |   |                                               |   |   | Years |   |   | US$ |   |
|                |   |   |                                               |   |   |   |   |   |   |   |
| As of June 30, 2011 |   |   |                                               |   |   |   |   |   |   |   |
| 4.95                |   |   |                                               | 40,000 |   |   |   | 2.20 |   |   |   |   |   |
| 9.55                |   |   |                                               | 10,000 |   |   |   | 2.44 |   |   |   |   |   |
| 18.47               |   |   |                                               | 30,000 |   |   |   | 2.20 |   |   |   |   |   |
|                |   |   |                                               |   |   |   |   |   |   |   |   |   |   |
|                |   |   |                                               | 80,000 |   |   |   | 2.23 |   |   |   | 10.60 |   |

----

| 17.  | STOCK-BASED COMPENSATION (CONTINUED) |
|-----------|--------------------------------------|

|                    |   |   | Outstanding, Vested and Exercisable |    |
|-------------------------|--------|--------|----------------------------------------------------|---------|
| Exercise price          |   |   | Number ofshares                                    |    |   | Weightedaverageremainingcontractuallife |   |   | Weightedaverageexerciseprice |   |
| US$                     |   |   |                                               |    |   | Years |   |   | US$ |   |
|                    |   |   |                                               |    |   |   |   |   |   |   |
| As of December 31, 2010 |   |   |                                               |    |   |   |   |   |   |   |
| 4.95                    |   |   |                                               | 40,000  |   |   |   | 2.69 |   |   |   |   |   |
| 9.55                    |   |   |                                               | 10,000  |   |   |   | 2.94 |   |   |   |   |   |
| 11.60                   |   |   |                                               | 85,666  |   |   |   | 0.14 |   |   |   |   |   |
| 18.47                   |   |   |                                               | 30,000  |   |   |   | 2.69 |   |   |   |   |   |
|                    |   |   |                                               |    |   |   |   |   |   |   |   |   |   |
|                    |   |   |                                               | 165,666 |   |   |   | 1.39 |   |   |   | 11.11 |   |

|   | (ii) | On January 20, 2010, the Board of Directors of TSTC approved to grant 100,000 shares of restricted common stock with three years restriction for sale to certain senior officers of the Company as an incentive compensation for their services rendered in previous years in improving the business result of the Company and their contribution to the success of the Company. |
|--------|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (iii) | On November 30, 2010, 601,663 shares of stock options were granted to certain eligible employees of the Company as incentive compensation to attract and retain superior personnel for positions of substantial responsibility and to provide them with an additional incentive to contribute to the success of the Company. |
|--------|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 17.  | STOCK-BASED COMPENSATION (CONTINUED) |
|-----------|--------------------------------------|

|   | (iii) | (continued) |
|--------|-------|-------------|

|                                                             |   | Numberof shares |    |   | Weightedaverageexerciseprice |   |
|------------------------------------------------------------------|--------|-----------------|---------|--------|------------------------------|--------|
|                                                             |   |            |    |   | US$                          |   |
|                                                             |   |            |    |   |                         |   |
| Outstanding as of June 30, 2011 and December 31, 2010            |   |            | 601,663 |   |                         |   | 11.04 |   |
|                                                             |   |            |    |   |                         |   |   |   |
| Vested and exercisable as of June 30, 2011 and December 31, 2010 |   |            | 179,501 |   |                         |   | 11.06 |   |

|                |   |   | Outstanding          |    |   | Vested and exercisable |   |
|---------------------|--------|--------|----------------------|---------|--------|----------------------------------|--------|
| Exercise price |   |   | Numberof shares |    |   | Weightedaverageexerciseprice     |   |   | Weightedaverageremainingcontractuallife |   |   | Numberof shares |   |   | Weightedaverageexerciseprice |   |
|                |   |   |                 |    |   | US$                              |   |   | Years |   |   |   |   |   | US$ |   |
| As of June 30, 2011 |   |   |                 |    |   |                             |   |   |   |   |   |   |   |   |   |   |
|                |   |   |                 |    |   |                             |   |   |   |   |   |   |   |   |   |   |
|  10.91         |   |   |                 | 529,663 |   |                             |   | 10.91 |   |   |   | 9.41 |   |   |   | 155,501 |   |   |   | 10.91 |   |
|  12.00         |   |   |                 | 72,000  |   |                             |   | 12.00 |   |   |   | 9.41 |   |   |   | 24,000 |   |   |   | 12.00 |   |
|                |   |   |                 |    |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                |   |   |                 | 601,663 |   |                             |   | 11.04 |   |   |   | 9.41 |   |   |   | 179,501 |   |   |   | 11.06 |   |

----

| 17.  | STOCK-BASED COMPENSATION (CONTINUED) |
|-----------|--------------------------------------|

|   | (iii) | (continued) |
|--------|-------|-------------|

|                    |   |   | Outstanding          |    |   | Vested and exercisable |   |
|-------------------------|--------|--------|----------------------|---------|--------|----------------------------------|--------|
| Exercise price     |   |   | Numberof shares |    |   | Weightedaverageexerciseprice     |   |   | Weightedaverageremainingcontractuallife |   |   | Numberof shares |   |   | Weightedaverageexerciseprice |   |
|                    |   |   |                 |    |   | US$                              |   |   | Years |   |   |   |   |   | US$ |   |
|                    |   |   |                 |    |   |                             |   |   |   |   |   |   |   |   |   |   |
| As of December 31, 2010 |   |   |                 |    |   |                             |   |   |   |   |   |   |   |   |   |   |
|  10.91             |   |   |                 | 529,663 |   |                             |   | 10.91 |   |   |   | 9.91 |   |   |   | 155,501 |   |   |   | 10.91 |   |
|  12.00             |   |   |                 | 72,000  |   |                             |   | 12.00 |   |   |   | 9.91 |   |   |   | 24,000 |   |   |   | 12.00 |   |
|                    |   |   |                 |    |   |                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                    |   |   |                 | 601,663 |   |                             |   | 11.04 |   |   |   | 9.91 |   |   |   | 179,501 |   |   |   | 11.06 |   |

| 18. | RECENT ACCOUNTING PRONOUNCEMENTS |
|-----|----------------------------------|

----

| 18.  | RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED) |
|-----------|----------------------------------------------|

----

| 18. | RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED) |
|-----|----------------------------------------------|

| 19.  | SUBSEQUENT EVENT REVIEW |
|-----------|-------------------------|

----

----

----

----

|   | · | Compatibility with the Big-3’s technologies and integrated services. Our WFDSTM solution is the industry’s first solution capable of providing integrated services on a single integrated platform. Our unified solution approach as well as our commitment to research and development, have strategically positioned us to be a benefactor of the Chinese government’s directive for network convergence. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Reduction in capital expenditures. The combination of integrating services along with the use of our patented fiber-optic technology should enable the Big-3 to significantly reduce their wireless infrastructure capital expenditures. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Reduction in space required. Utilizing our WFDSTM technology, property owners can reduce the installation space required for mobile wireless cable and Internet service by consolidating eleven devices into one. In a single compact, all-optical platform, we offer customers integrated solutions streamlined to meet our customer’s requirements. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Easy to install, use and maintain. Our WFDSTM solution enables a property owner to deploy a single multi-functional platform in a simple and consolidated form factor. WFDSTM is easy to install and is centrally managed, is compatible with 2G and 3G services, and is forward compatible with 4G services. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

|   | · | Guangdong Comba is one of the first Chinese domestic telecom manufacturers. The company is listed on the Hong Kong Stock Exchange under the stock symbol 2342.HK. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Wuhan Hongxin, originally a state-owned enterprise under the management of Wuhan Post & Telecom Academy, has a strong technical background and sales network. Wuhan Hongxin is a large company with a diverse group of products that extend beyond the wireless coverage sector. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | China GrenTech, formerly Powercom Holdings Limited, was founded in 1999 and is based in Shenzhen. China GrenTech is listed on the NASDAQ Global Select Market under the symbol GRRF. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Powerwave Technologies, Inc. is a global provider of end-to-end wireless infrastructure solutions for use in wireless communications networks. They offer OEMs (Original Equipment Manufacture), operators and network providers in the wireless communications industry a portfolio of antenna systems, base station systems and coverage systems. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Andrew Corporation (“Andrew”) is a global designer, manufacturer, and supplier of communications equipment, services and systems. Andrew’s products and expertise are found in communications systems throughout the world, including wireless and distributed communications, land mobile radio, cellular and personal communications, broadcast, radar and navigation. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Telecommunications Regulations (2000), (the “Telecom Regulations”). The Telecom Regulations categorize all telecommunications businesses in the PRC as either infrastructure telecommunications businesses or value-added telecommunications businesses. Under the Telecom Regulations, certain services are classified as being of a value-added nature, including telecommunication information services, online data processing and translation processing, call centers and internet access providers, and require the commercial operator of such services to obtain an operating license. The Telecom Regulations also set forth extensive guidelines with respect to different aspects of telecommunications operations in the PRC. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | Regulations for the Administration of Foreign-Invested Telecommunications Enterprises (2002), (the “FI Telecom Regulations”). The FI Telecom Regulations set forth detailed requirements with respect to capitalization, investor qualifications and application procedures in connection with the establishment of a foreign-invested telecom enterprise. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Foreign Exchange Controls. The principal regulations governing foreign exchange in the PRC are the Foreign Exchange Control Regulations (1996) and the Administration of Settlement, Sale and Payment of Foreign Exchange Regulations (1996), (“the Foreign Exchange Regulations”). Under the Foreign Exchange Regulations, Renminbi (“RMB”) is freely convertible into foreign currency for current account items, including the distribution of dividends. Conversion of RMB for capital account items, such as direct investment, loans and security investment, however, is still subject to the approval of the State Administration of Foreign Exchange (“SAFE”). Under the Foreign Exchange Regulations, foreign-invested enterprises are required to open and maintain separate foreign exchange accounts for capital account items. In addition, foreign-invested enterprises may only buy, sell and/or remit foreign currencies at those banks authorized to conduct foreign exchange business after providing valid commercial documents and, in the case of capital account item transactions, obtaining approval from SAFE. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | product mix and average selling prices; |
|--------|--------|-----------------------------------------|

|   | · | new product introductions and enhancements both by us and by our competitors; |
|--------|--------|-------------------------------------------------------------------------------|

|   | · | demand for our products and services; |
|--------|--------|---------------------------------------|

|   | · | our ability to attain volume manufacturing pricing from Shijiazhuang Spectrum and our other component suppliers; |
|--------|--------|------------------------------------------------------------------------------------------------------------------|

|   | · | losses associated with excess and obsolete inventory; and |
|--------|--------|-----------------------------------------------------------|

|   | · | growth in our headcount and other related costs incurred in our professional services organization. |
|--------|--------|-----------------------------------------------------------------------------------------------------|

----

----

----

| Item                                |   | 2011 Q2 |   |   | 2010 Q2     |   |   | Comparisons |   |
|-------------------------------------|--------|--------------|--------|--------|------------------|--------|--------|-------------|--------|
|                                |   | $'000        |   |   | % ofrevenue |   |   | $'000       |   |   | % ofrevenue |   |   | $'000 |   |   | % |   |
| Revenue                             |   |         | 24337  |   |             |   |   |        |   | 16619 |   |   |   |   |   |   | 7718 |   |   |   | 46.4 | % |
| Equipment and services costs        |   |         | 13703  |   |             |   | 56.3   | %           |   |   | 9121 |   |   |   | 54.9 | % |   |   | 4582 |   |   |   | 50.2 | % |
| Gross profit                        |   |         | 10634  |   |             |   | 43.7   | %           |   |   | 7498 |   |   |   | 45.1 | % |   |   | 3136 |   |   |   | 41.8 | % |
| Sales and marketing expenses        |   |         | 3026   |   |             |   | 12.4   | %           |   |   | 4176 |   |   |   | 25.1 | % |   |   | -1150 |   |   |   | -27.5 | % |
| General and administrative expenses |   |         | 1360   |   |             |   | 5.6    | %           |   |   | 882 |   |   |   | 5.3 | % |   |   | 478 |   |   |   | 54.2 | % |
| Research and development expenses   |   |         | 620    |   |             |   | 2.5    | %           |   |   | 191 |   |   |   | 1.1 | % |   |   | 429 |   |   |   | 224.6 | % |
| Depreciation and Amortization       |   |         | 120    |   |             |   | 0.5    | %           |   |   | 81 |   |   |   | 0.5 | % |   |   | 39 |   |   |   | 48.1 | % |
| Interest expenses                   |   |         | 187    |   |             |   | 0.8    | %           |   |   | 134 |   |   |   | 0.8 | % |   |   | 53 |   |   |   | 39.6 | % |
| Other income                        |   |         | 121    |   |             |   | 0.5    | %           |   |   | 194 |   |   |   | 1.2 | % |   |   | -73 |   |   |   | -37.6 | % |
| Net Income before income tax        |   |         | 5442   |   |             |   | 22.4   | %           |   |   | 2228 |   |   |   | 13.4 | % |   |   | 3214 |   |   |   | 144.3 | % |
| Income tax                          |   |         | 918    |   |             |   | 3.8    | %           |   |   | 508 |   |   |   | 3.1 | % |   |   | 410 |   |   |   | 80.7 | % |
| Net income                          |   |         | 4524   |   |             |   | 18.6   | %           |   |   | 1720 |   |   |   | 10.3 | % |   |   | 2804 |   |   |   | 163.0 | % |

| Item                                |   | 2011 Six months |   |   | 2010 Six months |   |   | Comparisons |   |
|-------------------------------------|--------|---------------------------|--------|--------|---------------------------|--------|--------|-------------|--------|
|                                |   | $'000                     |   |   | % ofrevenue          |   |   | $'000       |   |   | % ofrevenue |   |   | $'000 |   |   | % |   |
| Revenue                             |   |                      | 38809  |   |                      |   |   |        |   | 27751 |   |   |   |   |   |   | 11058 |   |   |   | 39.8 | % |
| Equipment and services costs        |   |                      | 21577  |   |                      |   | 55.6   | %           |   |   | 15314 |   |   |   | 55.2 | % |   |   | 6263 |   |   |   | 40.9 | % |
| Gross profit                        |   |                      | 17232  |   |                      |   | 44.4   | %           |   |   | 12437 |   |   |   | 44.8 | % |   |   | 4795 |   |   |   | 38.6 | % |
| Sales and marketing expenses        |   |                      | 5157   |   |                      |   | 13.3   | %           |   |   | 6904 |   |   |   | 24.9 | % |   |   | -1747 |   |   |   | -25.3 | % |
| General and administrative expenses |   |                      | 3365   |   |                      |   | 8.7    | %           |   |   | 3816 |   |   |   | 13.8 | % |   |   | -451 |   |   |   | -11.8 | % |
| Research and development expenses   |   |                      | 868    |   |                      |   | 2.2    | %           |   |   | 415 |   |   |   | 1.5 | % |   |   | 453 |   |   |   | 109.2 | % |
| Depreciation and Amortization       |   |                      | 222    |   |                      |   | 0.6    | %           |   |   | 152 |   |   |   | 0.5 | % |   |   | 70 |   |   |   | 46.1 | % |
| Interest expenses                   |   |                      | 336    |   |                      |   | 0.9    | %           |   |   | 260 |   |   |   | 0.9 | % |   |   | 76 |   |   |   | 29.2 | % |
| Other income, net                   |   |                      | 324    |   |                      |   | 0.8    | %           |   |   | 529 |   |   |   | 1.9 | % |   |   | -205 |   |   |   | -38.8 | % |
| Net Income before income tax        |   |                      | 7608   |   |                      |   | 19.6   | %           |   |   | 1419 |   |   |   | 5.1 | % |   |   | 6189 |   |   |   | 436.2 | % |
| Income tax                          |   |                      | 1465   |   |                      |   | 3.8    | %           |   |   | 829 |   |   |   | 3.0 | % |   |   | 636 |   |   |   | 76.7 | % |
| Net income                          |   |                      | 6143   |   |                      |   | 15.8   | %           |   |   | 590 |   |   |   | 2.1 | % |   |   | 5553 |   |   |   | 941.2 | % |

----

|          |   | 2011 Q2 |   |   | 2010 Q2           |   |   | Growth |   |
|---------------|--------|--------------|--------|--------|------------------------|--------|--------|--------|--------|
|          |   | $'000        |   |   | % of revenue |   |   | $'000  |   |   | % of revenue |   |   | $'000 |   |   | % |   |
| Product sales |   |         | 8834   |   |                   |   | 36.3   | %      |   |   | 7060 |   |   |   | 42.5 | % |   |   | 1774 |   |   |   | 25.1 | % |
| Service sales |   |         | 15503  |   |                   |   | 63.7   | %      |   |   | 9559 |   |   |   | 57.5 | % |   |   | 5944 |   |   |   | 62.2 | % |
| Total         |   |         | 24337  |   |                   |   |   |   |   |   | 16619 |   |   |   |   |   |   |   | 7718 |   |   |   | 46.4 | % |

|          |   | 2011 Six months |   |   | 2010 Six months |   |   | Growth |   |
|---------------|--------|---------------------------|--------|--------|---------------------------|--------|--------|--------|--------|
|          |   | $'000                     |   |   | % of revenue    |   |   | $'000  |   |   | % of revenue |   |   | $'000 |   |   | % |   |
| Product sales |   |                      | 15826  |   |                      |   | 40.8   | %      |   |   | 12160 |   |   |   | 43.8 | % |   |   | 3666 |   |   |   | 30.1 | % |
| Service sales |   |                      | 22983  |   |                      |   | 59.2   | %      |   |   | 15591 |   |   |   | 56.2 | % |   |   | 7392 |   |   |   | 47.4 | % |
| Total         |   |                      | 38809  |   |                      |   |   |   |   |   | 27751 |   |   |   |   |   |   |   | 11058 |   |   |   | 39.8 | % |

|          |   |   | 2011 Q2 |   |   |                   |   |   |   | 2010 Q2 |   |   |                   |   |   | Growth |       |   |   |
|---------------|--------|--------|--------------|--------|--------|------------------------|--------|--------|--------|--------------|--------|--------|------------------------|--------|--------|--------|------------|--------|--------|
|          |   |   | $’000  |   |   | % of revenue |   |   |   | $’000  |   |   | % of revenue |   |   | $      | ’000 |   |   | % |   |
| China Mobile  |   |   | 13038        |   |   |                   | 53.6   | %      |   |         | 8694   |   |                   |   | 52.3   | %      |       |   | 4344   |   |   |   | 50.0 | % |
| China Unicom  |   |   | 8570         |   |   |                   | 35.2   | %      |   |         | 4748   |   |                   |   | 28.6   | %      |       |   | 3822   |   |   |   | 80.5 | % |
| China Telecom |   |   | 1339         |   |   |                   | 5.5    | %      |   |         | 2750   |   |                   |   | 16.5   | %      |       |   | -1411  |   |   |   | -51.3 | % |
| Others        |   |   | 1363         |   |   |                   | 5.6    | %      |   |         | 356    |   |                   |   | 2.1    | %      |       |   | 1007   |   |   |   | 282.9 | % |
| Overseas      |   |   | 27           |   |   |                   | 0.1    | %      |   |         | 71     |   |                   |   | 0.4    | %      |       |   | -44    |   |   |   | -62.0 | % |
| Total         |   |   | 24337        |   |   |                   |   |   |   |         | 16619  |   |                   |   |   |   |       |   | 7718   |   |   |   | 46.4 | % |

|                            |   | 2011 Six months |        |   | 2010 Six months |                   |   | Growth |   |
|---------------------------------|--------|---------------------------|-------------|--------|---------------------------|------------------------|--------|--------|--------|
|                  |   |                      | $’000 |   |                      | % of revenue |   |   |   | $’000 |   |   | % of revenue |   |   | $ | ’000 |   |   | % |   |
| China Mobile     |   |                      | 19298       |   |                      |                   | 49.7   | %      |   |   | 17604 |   |   |   | 63.4 | % |   |   | 1694 |   |   |   | 9.6 | % |
| China Unicom     |   |                      | 13979       |   |                      |                   | 36.0   | %      |   |   | 5831 |   |   |   | 21.0 | % |   |   | 8148 |   |   |   | 139.7 | % |
| China Telecom    |   |                      | 2234        |   |                      |                   | 5.8    | %      |   |   | 3697 |   |   |   | 13.3 | % |   |   | -1463 |   |   |   | -39.6 | % |
| Others           |   |                      | 3239        |   |                      |                   | 8.3    | %      |   |   | 356 |   |   |   | 1.3 | % |   |   | 2883 |   |   |   | 809.8 | % |
| Overseas         |   |                      | 59          |   |                      |                   | 0.2    | %      |   |   | 263 |   |   |   | 1.0 | % |   |   | -204 |   |   |   | -77.6 | % |
| Total            |   |                      | 38809       |   |                      |                   |   |   |   |   | 27751 |   |   |   |   |   |   |   | 11058 |   |   |   | 39.8 | % |

----

|             |   | 2011 Q2 |        |   | 2010 Q2 |                   |   | Growth |   |
|----------------------------|--------|--------------|-------------|--------|--------------|------------------------|--------|--------|--------|
|             |   |         | $’000 |   |         | % of revenue |   |   | $'000  |   |   | % of revenue |   |   | $'000 |   |   | % |   |
| WFDSTM                     |   |         | 5683        |   |         |                   | 23.4   | %      |   |   | 4367 |   |   |   | 26.3 | % |   |   | 1316 |   |   |   | 30.1 | % |
| Traditional product   |   |         | 18654       |   |         |                   | 76.6   | %      |   |   | 12252 |   |   |   | 73.7 | % |   |   | 6402 |   |   |   | 52.3 | % |
| Total       |   |         | 24337       |   |         |                   | 100    | %      |   |   | 16619 |   |   |   | 100 | % |   |   | 7718 |   |   |   | 46.4 | % |

|            |   | 2011 Six months |        |   | 2010 Six months |                   |   | Growth |   |
|---------------------------|--------|---------------------------|-------------|--------|---------------------------|------------------------|--------|--------|--------|
|            |   |                      | $’000 |   |                      | % of revenue |   |   | $'000  |   |   | % of revenue |   |   | $'000 |   |   | % |   |
| WFDSTM                    |   |                      | 9013        |   |                      |                   | 23.2   | %      |   |   | 7297 |   |   |   | 26.3 | % |   |   | 1715 |   |   |   | 23.5 | % |
| Trditional product   |   |                      | 29796       |   |                      |                   | 77.8   | %      |   |   | 20454 |   |   |   | 73.7 | % |   |   | 9342 |   |   |   | 45.7 | % |
| Total      |   |                      | 38809       |   |                      |                   | 100    | %      |   |   | 27751 |   |   |   | 100 | % |   |   | 11058 |   |   |   | 39.9 | % |

|                         |   | 2011 Q2 |        |   | 2010 Q2 |                   |   | Growth |   |
|------------------------------|--------|--------------|-------------|--------|--------------|------------------------|--------|--------|--------|
|                         |   |         | $’000 |   |         | % of revenue |   |   | $'000  |   |   | % of revenue |   |   | $'000 |   |   | % |   |
| Revenue                      |   |         | 24337       |   |         |                   |   |   |   | 16619 |   |   |   |   |   |   | 7718 |   |   |   | 46.4 | % |
| Equipment and services costs |   |         | 13703       |   |         |                   | 56.3   | %      |   |   | 9121 |   |   |   | 54.9 | % |   |   | 4582 |   |   |   | 50.2 | % |
| Gross profit                 |   |         | 10634       |   |         |                   | 43.7   | %      |   |   | 7498 |   |   |   | 45.1 | % |   |   | 3136 |   |   |   | 41.8 | % |

|                                 |   | 2011 Six months |        |   | 2010 Six months |                   |   | Growth |   |
|------------------------------------------------|--------|---------------------------|-------------|--------|---------------------------|------------------------|--------|--------|--------|
|                                 |   |                      | $’000 |   |                      | % of revenue |   |   | $'000  |   |   | % of revenue |   |   | $'000 |   |   | % |   |
| Revenue                         |   |                      | 38809       |   |                      |                   |   |   |   | 27751 |   |   |   |   |   |   | 11058 |   |   |   | 39.8 | % |
| Equipment and services costs    |   |                      | 21577       |   |                      |                   | 55.6   | %      |   |   | 15314 |   |   |   | 55.2 | % |   |   | 6263 |   |   |   | 40.9 | % |
| Gross profit                    |   |                      | 17232       |   |                      |                   | 44.4   | %      |   |   | 12437 |   |   |   | 44.8 | % |   |   | 4795 |   |   |   | 38.6 | % |

----

|                                |   | 2011 Q2 |        |   | 2010 Q2 |                   |   | Growth |   |
|-------------------------------------|--------|--------------|-------------|--------|--------------|------------------------|--------|--------|--------|
|                                |   |         | $’000 |   |         | % of revenue |   |   | $'000  |   |   | % of revenue |   |   | $'000 |   |   | % |   |
| Sales and Marketing expenses        |   |         | 3026        |   |         |                   | 12.4   | %      |   |   | 4176 |   |   |   | 25.1 | % |   |   | -1150 |   |   |   | -27.5 | % |
| General and Administrative expenses |   |         | 1360        |   |         |                   | 5.6    | %      |   |   | 882 |   |   |   | 5.3 | % |   |   | 478 |   |   |   | 54.2 | % |
| Research and Development expenses   |   |         | 620         |   |         |                   | 2.5    | %      |   |   | 191 |   |   |   | 1.1 | % |   |   | 429 |   |   |   | 224.6 | % |
| Depreciation and Amortization       |   |         | 120         |   |         |                   | 0.5    | %      |   |   | 81 |   |   |   | 0.5 | % |   |   | 39 |   |   |   | 48.1 | % |
| Total                               |   |         | 5126        |   |         |                   | 21.0   | %      |   |   | 5330 |   |   |   | 32.1 | % |   |   | -204 |   |   |   | -3.8 | % |

|                                |   | 2011 Six months |        |   | 2010 Six months |                   |   | Growth |   |
|-------------------------------------|--------|---------------------------|-------------|--------|---------------------------|------------------------|--------|--------|--------|
|                                |   |                      | $’000 |   |                      | % of revenue |   |   | $'000  |   |   | % of revenue |   |   | $'000 |   |   | % |   |
| Sales and Marketing expenses        |   |                      | 5157        |   |                      |                   | 13.3   | %      |   |   | 6904 |   |   |   | 24.9 | % |   |   | -1747 |   |   |   | -25.3 | % |
| General and Administrative expenses |   |                      | 3365        |   |                      |                   | 8.7    | %      |   |   | 3816 |   |   |   | 13.8 | % |   |   | -451 |   |   |   | -11.8 | % |
| Research and Development expenses   |   |                      | 868         |   |                      |                   | 2.2    | %      |   |   | 415 |   |   |   | 1.5 | % |   |   | 453 |   |   |   | 109.2 | % |
| Depreciation and Amortization       |   |                      | 222         |   |                      |                   | 0.6    | %      |   |   | 152 |   |   |   | 0.5 | % |   |   | 70 |   |   |   | 46.1 | % |
| Total                               |   |                      | 9612        |   |                      |                   | 24.8   | %      |   |   | 11287 |   |   |   | 40.7 | % |   |   | -1675 |   |   |   | -14.8 | % |

----

|              |   | 2011 Q2 |        |   | 2010 Q2 |                   |   | Growth |   |
|-------------------|--------|--------------|-------------|--------|--------------|------------------------|--------|--------|--------|
|              |   |         | $’000 |   |         | % of revenue |   |   | $'000  |   |   | % of revenue |   |   | $'000 |   |   | % |   |
| Interest expenses |   |         | 187         |   |         |                   | 0.77   | %      |   |   | 134 |   |   |   | 0.81 | % |   |   | 53 |   |   |   | 39.60 | % |

|              |   | 2011 Six months |        |   | 2010 Six months |                   |   | Growth |   |
|-------------------|--------|---------------------------|-------------|--------|---------------------------|------------------------|--------|--------|--------|
|              |   |                      | $’000 |   |                      | % of revenue |   |   | $'000  |   |   | % of revenue |   |   | $'000 |   |   | % |   |
| Interest expenses |   |                      | 336         |   |                      |                   | 0.87   | %      |   |   | 260 |   |   |   | 0.94 | % |   |   | 76 |   |   |   | 29.23 | % |

----

----

----

| 31.1   |   | Chief Executive Officer Certification furnished pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|--------|--------|-----------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                      |
| 31.2   |   | Chief Financial Officer Certification furnished pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|   |   |                                                                                                      |
| 32.1   |   | Chief Executive Officer Certification furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|   |   |                                                                                                      |
| 32.2   |   | Chief Financial Officer Certification furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |

----

|                  | TELESTONE TECHNOLOGIES CORPORATION |                                |
|-----------------------|-----------------------------------------|-------------------------------------|
|                  |                                    |                                |   |
| Date: August 15, 2011 | By:                           | /s/ Han Daqing                      |   |
|                  |                                    | Han Daqing, Chief Executive Officer |   |
|                  |                                    | (Principal Executive Officer)       |   |

| Date: August 15, 2011 | By:  | /s/ Yu Xiaoli                      |   |
|-----------------------|-----------|------------------------------------|--------|
|                  |      | Yu Xiaoli, Chief Financial Officer |   |
|                  |      | (Principal Financial Officer)      |   |

----