UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

          [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended March 31, 2005

                                    033-15096
                            (Commission File Number)

                       TELESTONE TECHNOLOGIES CORPORATION
             (Exact name of registrant as specified in its charter)




           Delaware                                      84-1111224
(State or other jurisdiction of               (IRS Employer Identification  No.)
        Incorporation)



                              Floor 6, Saiou Plaza
                               No. 5 Haiying Road
                             Fengtai Technology Park
                   Beijing, People's Republic of China 100070
               (Address of principal executive offices) (Zip Code)


         Issuer telephone number, including area code: (86 10) 8367-0505





Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to the filing requirements for at least the past 90 days. [X]Yes [ ]No

As of May 13,  2005,  8,532,106  shares of the  Issuer's  $.001 par value common
stock were outstanding.

Transitional Small Business Disclosure Format: [ ]Yes  [X] No

<PAGE>

                                TABLE OF CONTENTS



PART I - FINANCIAL INFORMATION                                              PAGE


    ITEM 1.    CONSOLIDATED FINANCIAL STATEMENTS

       Consolidated Statement of Operations and Comprehensive Income
       For the Three Months Ended March 31, 2005  (Unaudited)                 3

       Consolidated Balance Sheets as of March 31, 2005 (Unaudited)           4

       Consolidated Cash Flow Statements for the Three Months
           Ended March 31, 2005 (Unaudited)                                   5

       Notes to Consolidated Financial Statements                             6


    ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS
               OR PLAN OF OPERATION                                          11

    ITEM 3.    CONTROLS AND PROCEDURES                                       18


PART II - OTHER INFORMATION

    ITEM 1.    LEGAL PROCEEDINGS                                             19

    ITEM 6.    EXHIBITS                                                      20


SIGNATURES










                                       2
<PAGE>
<TABLE>
<CAPTION>

Item 1.  Consolidated Financial Statements

Telestone Technologies Corporation

Condensed Consolidated Statements of Operations
===========================================================================================


                                                                         (Unaudited)
                                                                     Three months ended
                                                                           March 31,
                                                                  ------------------------
                                                                        2005          2004
                                                           Note      US$'000       US$'000
<S>                                                                    <C>           <C>
Operating revenues
    Net sales of equipment                                             2,852         3,212
    Service income                                                       681           430
                                                                  ----------    ----------

                                                                       3,533         3,642
                                                                  ----------    ----------
Operating expenses
   Equipment and services                                              1,546         1,683
   Sales and marketing                                                   590           277
   General and administrative                                            471           307
   Research and development                                                8            35
   Depreciation and amortization                                          43            25
                                                                  ----------    ----------

   Total operating expenses                                            2,658         2,327
                                                                  ----------    ----------

Operating income                                                         875         1,315
Interest expense                                                         (20)           (5)
Other income, net                                                          4          --
                                                                  ----------    ----------

Income before income taxes, minority interest and
  extraordinary item                                         5           859         1,310
Income taxes                                                            --             433
                                                                  ----------    ----------

Income before minority interest and extraordinary item                   859           877
Minority interest                                                       --            (368)
                                                                  ----------    ----------

Income before extraordinary item                                         859           509
Extraordinary gain                                                      --           2,773
                                                                  ----------    ----------

Net income                                                               859         3,282
                                                                  ==========    ==========
Earnings per share:                                          3

Weighted average number of shares outstanding
Basic                                                              8,310,995         1,708
Dilutive effect of warrants                                          341,186          --
                                                                  ----------    ----------

Diluted                                                            7,969,809         1,708
                                                                  ==========    ==========
Net income per share of common stock
Basic:
   Income before extraordinary gain                                     0.10           298
                                                                  ==========    ==========
   Net income                                                           0.10         1,922
                                                                  ==========    ==========
Diluted:
   Income before extraordinary gain                                     0.10           298
                                                                  ==========    ==========
   Net income                                                           0.10         1,922
                                                                  ==========    ==========
</TABLE>

The accompanying notes are an integral part of these condensed consolidated
financial statements.


                                       3
<PAGE>
<TABLE>
<CAPTION>

Telestone Technologies Corporation

Condensed Consolidated Balance Sheets
====================================================================================================

                                                                          (Unaudited)
                                                                                As of          As of
                                                                            March 31,   December 31,
                                                                                 2005           2004
                                                                    Note      US$'000        US$'000
<S>                                                                             <C>            <C>
ASSETS
Current assets
   Cash and cash equivalents                                                    2,029          2,230
   Accounts receivable                                                4        21,019         19,845
   Due from related parties                                           6         1,253          1,218
   Inventories - Finished goods                                                 4,184          2,502
   Prepayment                                                                     177             95
   Other current assets                                                           448            531
                                                                         ------------   ------------

   Total current assets                                                        29,110         26,421

Property, plant and equipment, net                                              1,061            790
                                                                         ------------   ------------

Total assets                                                                   30,171         27,211
                                                                         ============   ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
   Debts maturing within one year                                                 605            605
   Accounts payable - Trade                                                     5,802          3,952
   Customer deposits for sales of equipment                                        63             47
   Due to related parties                                             6         2,100          2,183
   Taxes payable                                                                6,263          6,447
   Accrued expenses and other accrued liabilities                                 950          1,243
                                                                         ------------   ------------

   Total current liabilities                                                   15,783         14,477
                                                                         ------------   ------------

Commitments and contingencies                                         8

Minority interests

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 March 31, 2005
      and December 31, 2004                                                      --             --
   Issued and outstanding - 8,450,106 shares as of March 31, 2005
      and 8,060,106 shares as of December 31, 2004                                  8              8
   Reserved and to be issued - 25,000 shares as of March 31, 2005
      and 150,000 shares as of December 31, 2004                                 --             --
Dedicated reserves                                                              1,642          1,642
Additional paid-in capital                                                      7,095          6,300
Retained earnings                                                               5,643          4,784
                                                                         ------------   ------------

    Total stockholders' equity                                                 14,388         12,734
                                                                         ------------   ------------

Total liabilities and stockholders' equity                                     30,171         27,211
                                                                         ============   ============
</TABLE>

The  accompanying  notes are an integral  part of these  condensed  consolidated
financial statements.



                                       4
<PAGE>
<TABLE>
<CAPTION>

Telestone Technologies Corporation

Condensed Consolidated Statements of Cash Flows
=====================================================================================

                                                                  (Unaudited)
                                                          Three months ended March 31,
                                                          ----------------------------
                                                                  2005            2004
                                                               US$'000         US$'000
<S>                                                              <C>             <C>
Cash flows from operating activities
Net income                                                         859           3,282
Adjustments to reconcile net income to net cash used in
 operating activities:
   Depreciation and amortization                                    43              25
   Provision for doubtful accounts                                 249            --
   Extraordinary gain                                             --            (2,773)
   Minority interests                                             --               368
Changes in assets and liabilities:
   Accounts receivable                                          (1,423)         (3,058)
   Inventories, net                                             (1,682)          1,283
   Due from related parties                                        (35)           (304)
   Prepayment                                                      (82)           (230)
   Other current assets                                             83               4
   Accounts payable                                              1,850            (199)
   Due to related parties                                          (83)            (32)
   Customer deposits for sales of equipment                         16             251
   Taxes payable                                                  (184)            831
   Accrued expenses and other accrued liabilities                 (293)             78
                                                          ------------    ------------

   Net cash used in operating activities                          (682)           (474)
                                                          ------------    ------------
Cash flows from investing activities
Purchase of property, plant and equipment                         (314)            (37)
                                                          ------------    ------------

   Net cash used in investing activities                          (314)            (37)
                                                          ------------    ------------

Cash flows from financing activities
Proceeds from issuance of shares                                   795            --
                                                          ------------    ------------

   Net cash provided by financing                                  795            --
                                                          ------------    ------------

Net increase (decrease) in cash and cash equivalents              (201)           (511)

Cash and cash equivalents, beginning of the period               2,230           1,226
                                                          ------------    ------------

Cash and cash equivalents, end of the period                     2,029             715
                                                          ============    ============
</TABLE>



The accompanying notes are an integral part of these condensed consolidated
financial statements.

                                       5
<PAGE>

1.   ORGANIZATION AND PRINCIPAL ACTIVITIES

     Telestone Technologies Corporation ("TTC" or the "Company"), formerly known
     as Milestone  Capital,  Inc. was  organized  under the laws of the State of
     Colorado in February 1987 under the name Shield Enterprises, Inc. In August
     2004,  the Company  reincorporated  in the State of Delaware under the name
     Telestone Technologies Corporation.

     On  September  26,  2003,  the  Company  filed  a  voluntary  petition  for
     reorganization  under  Chapter 11 of the U.S.  Bankruptcy  Code in the U.S.
     Bankruptcy  Court for the  District of New Jersey,  in Newark.  Immediately
     prior to the  reorganization  with Success  Million  International  Limited
     ("SMI")  on August  23,  2004,  the  Company  had no  significant  business
     operations.

     Upon the completion of the reorganization, the Company assumed the business
     operations  of SMI as  primarily  undertaken  by  its  subsidiary,  Beijing
     Telestone Technology Company Limited ("Beijing  Telestone"),  an enterprise
     established in Beijing,  the People's Republic of China (the "PRC") that is
     engaged in the business of design, development, installation and trading of
     wireless  telecommunication coverage system equipment. In this report, TTC,
     SMI and Beijing Telestone are collectively referred to as the "Group".


2.   PREPARATION OF INTERIM FINANCIAL STATEMENTS

     The accompanying  unaudited condensed  consolidated financial statements as
     of March 31, 2005,  have been prepared  based upon  Securities and Exchange
     Commission ("SEC") rules that permit reduced disclosure for interim periods
     and include, in the opinion of management,  all adjustments  (consisting of
     normal recurring  adjustments and  reclassifications)  necessary to present
     fairly the financial  position,  results of operations and cash flows as of
     March 31, 2005 and for all periods presented.

     Certain information and footnote disclosures normally included in financial
     statements  prepared in accordance  with  accounting  principles  generally
     accepted in the United  States of America  ("USA")  have been  condensed or
     omitted.  These condensed  consolidated financial statements should be read
     in  conjunction  with the audited  financial  statements  and notes thereto
     incorporated  by reference in the Company's Form 10KSB/A for the year ended
     December 31, 2004 filed on April 1, 2005. The results of operations for the
     three-month  periods  ended  March  31,  2005 and 2004 are not  necessarily
     indicative of the operating results to be expected for the full year.

     The condensed  consolidated financial statements and accompanying notes are
     presented  in  United  States  dollars  and  prepared  in  conformity  with
     accounting  principles  generally  accepted  in the  USA  ("USGAAP")  which
     requires  management to make certain  estimates and assumptions that affect
     the reported amounts of assets and liabilities and disclosure of contingent
     assets and liabilities at the date of financial statements and the reported
     amounts of  revenues  and  expenses  during the  reporting  period.  Actual
     results could differ from those estimates.


                                       6
<PAGE>

3.   EARNINGS PER SHARE

     Basic earnings per share is computed based upon the weighted average number
     of shares of common stock  outstanding  during each period as restated as a
     result of the recapitalization and reverse split.

     Diluted  earnings per share is computed based on net income for the periods
     presented  attributable to  shareholders on the weighted  average number of
     common stock  outstanding  during the periods  presented,  adjusted for the
     effect of the dilutive  common  stock  equivalents  outstanding  during the
     periods presented. The dilutive effect of warrants to purchase common stock
     which were  outstanding  during the period is reflected in diluted earnings
     per share by application of the treasury stock method.



4.   ACCOUNTS RECEIVABLE


                                                      (Unaudited)
                                                            As of          As of
                                                        March 31,   December 31,
                                                             2005           2004
                                                          US$'000        US$'000

     Completed contracts                                   21,675         20,217
     Retentions                                             1,232          1,267
                                                     ------------   ------------

                                                           22,907         21,484
     Allowance for doubtful accounts                        1,888          1,639
                                                     ------------   ------------

                                                           21,019         19,845
                                                     ============   ============


     Of the  retentions  balance as of March 31,  2005 and  December  31,  2004,
     approximately  US$433,000  and US$449,000  respectively  are expected to be
     collected after one year.



5.   TAXATION

     TTC and its  subsidiaries are subject to income taxes on an entity basis on
     income  arising  in or  derived  from the tax  jurisdictions  in which each
     entity is domiciled.

     TTC  had a net  operating  loss  carry-forward  for  income  tax  reporting
     purposes that might be offset  against  future  taxable  income.  These net
     operating  loss  carry-forwards  are  severely  limited  when  the  Company
     experiences a change in control. Therefore, following the re-capitalization
     in August 2004,  the amount  available to offset future  taxable  income is
     limited.  No tax benefit has been  reported  in the  financial  statements,
     because  the  Company  believes  that it is more  likely  than not that the
     carry-forwards will expire unused. Accordingly,  the potential tax benefits
     of the loss  carry-forwards are offset by a valuation allowance of the same
     amount.

     No provision for withholding or United States federal or state income taxes
     or  tax  benefits  on  the  undistributed  earnings  and/or  losses  of the
     Company's   subsidiaries  has  been  provided  as  the  earnings  of  these
     subsidiaries,  in  the  opinion  of  the  management,  will  be  reinvested
     indefinitely.



                                       7
<PAGE>


5.   TAXATION (CONTINUED)

     Determination  of the  amount  of  unrecognized  deferred  taxes  on  these
     earnings is not practical,  however, unrecognized foreign tax credits would
     be available to reduce a portion of the tax liability.

     All of the  Company's  income is generated in the PRC by Beijing  Telestone
     and is  subject  to PRC  income  taxes  at a rate  of  33%.  Since  Beijing
     Telestone has registered as a wholly-owned  foreign  investment  enterprise
     ("WOFIE"),  it is subject to tax laws applicable to WOFIE in the PRC and is
     fully  exempt  from  the PRC  enterprise  income  tax of 33% for two  years
     followed  by a 50%  reduction  for the next three  years,  commencing  with
     fiscal year 2004.


6.   RELATED PARTY TRANSACTION

     Summary of related party transactions

                                                       (Unaudited)
                                                            As of          As of
                                                        March 31,   December 31,
                                                             2005           2004
                                                          US$'000        US$'000

     Due from related parties
     Other employees (Note (a))                                73             38
     Ex-stockholders of SMI (Note (b))                      1,180          1,180
                                                     ------------   ------------

                                                            1,253          1,218
                                                     ============   ============
     Due to related parties
     A director (Note (a))                                    842            925
     Ex-stockholders of Beijing Telestone (Note (b))        1,258          1,258
                                                     ------------   ------------

                                                            2,100          2,183
                                                     ============   ============
     Guarantors of short term loans
       A director                                             605            605
                                                     ============   ============

     Note:

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

     (b)  The  amounts  due  to   ex-stockholders   of  Beijing   Telestone   of
          US$1,258,000 represent 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  arbitration  against SMI alleging  that the
          consideration  amount has not been  settled.  The amounts due from the
          ex-stockholders  of SMI thus  represent the amounts  recoverable  from
          those who have indemnified the Company from such claims and which will
          become due if the outcome of the abovementioned  arbitration is not in
          favor of the Company.


                                       8
<PAGE>
<TABLE>
<CAPTION>

7.   SEGMENT INFORMATION

     During the quarter ended March 31, 2005, the Group realigned its operations
     into two  business  segments,  being (i) the  installation  and  trading of
     wireless  telecommunication  coverage system and (ii) the sales of research
     and development technologies.

     There were no material transactions between the Company's business segments
     during any of the periods  presented.  Operating profit by business segment
     is defined as sales less  operating  costs and  expenses.  These  costs and
     expenses  do not include  unallocated  corporate  administrative  expenses.
     Identifiable  assets are those assets used  primarily in the  operations of
     each business segment.

     The Group  operates in the PRC and over 90% of its  revenue  and  operating
     profit are from the PRC. Accordingly no geographical analysis is presented.

     (a)  Business segments

     Selected  financial  information  by business  segment for the three months
     ended March 31, 2005 and 2004 are shown as follows:

                                    Telecommunication             Research and
                                     coverage system        development technologies             Total
                                ------------------------    -------------------------   ------------------------
                                      2005          2004          2005           2004         2005          2004
                                   US$'000       US$'000       US$'000        US$'000      US$'000       US$'000
<S>                                  <C>           <C>           <C>            <C>          <C>           <C>

     Turnover                        3,170         3,642           363           --          3,533         3,642
     Cost of sales                  (1,490)       (1,683)          (56)          --         (1,546)       (1,683)
                                ----------    ----------    ----------     ----------   ----------    ----------

                                     1,680         1,959           307           --          1,987         1,959

     Depreciation                      (42)          (25)           (1)          --            (43)          (25)
     Interest expenses                 (20)           (5)         --             --            (20)           (5)
     Other income, net                   4          --            --             --              4          --
     Other segment expenses
      attributable to segment       (1,048)         (619)          (21)          --         (1,069)         (619)
     Income taxes expenses            --            (433)         --             --           (433)
                                ----------    ----------    ----------     ----------   ----------    ----------

     Segment income                    574           877           285           --            859           877
                                ==========    ==========    ==========     ==========

     Minority interest                                                                        --            (368)
     Extraordinary gain                                                                       --           2,773
                                                                                        ----------    ----------

     Net income                                                                                859         3,282
                                                                                        ==========    ==========
</TABLE>




                                       9
<PAGE>

7.   SEGMENT INFORMATION (CONTINUED)

     The total assets of the Group by business  segment as of March 31, 2005 and
     December 31, 2004 are shown as follows:

                                                      (Unaudited)
                                                            As of          As of
                                                        March 31,   December 31,
                                                             2005           2004
                                                          US$'000        US$'000
                                                     ------------   ------------

     Telecommunication coverage system                     30,140         27,211
     Research and development technologies                     31           --
                                                     ------------   ------------

                                                           30,171         27,211
                                                     ============   ============


     (b)  Concentration of major customers and suppliers

     Major  customers and suppliers with revenues and purchases of more than 10%
     of the Company's sales and purchases are as follows:

                                                 (Unaudited) Three months ended
                                                            March 31,
                                                 ------------------------------
                                                          2005             2004
                                                       US$'000          US$'000
                                                 -------------    -------------
     Major customers with revenues of more
        than 10% of the Company's sales
          Sales to major customers                       2,824            3,160
          Percentage of sales                               80%              87%
          Number                                             3                4
                                                 =============    =============

     Major suppliers with purchases of more
        than  10% of the Company's purchases
          Purchases from major suppliers                 1,557              190
          Percentage of purchases                           48%              87%
          Number                                             1                2
                                                 =============    =============

     Accounts  receivable related to the Company's major customers comprised 84%
     and 87% of all accounts  receivables  as of March 31, 2005 and December 31,
     2004 respectively.


8.   COMMITMENTS AND CONTINGENCIES


     The Company recongnizes its revenue upon the completion of contract and has
     made full tax provision in accordance with relevant national and local laws
     and  regulations  of the PRC.  A  contract  is  considered  completed  upon
     completion of all essential  contract  work and the  installation  has been
     accepted  by the  customers.  It is the  common  practice  in the PRC  that
     invoices  are not issued to customers  until  payments  are  received.  The
     Company  follows the practice of reporting its revenue for PRC tax purposes
     when  invoices are issued.  All unbilled  revenue will become  taxable when
     invoices  are issued.  For PRC tax  reporting  purpose,  Beijing  Telestone
     recognized  revenue  on an  "invoice  basis"  instead  of  when  goods  are
     delivered and service are rendered.  This is not in strict  compliance with
     the  relevant  laws and  regulations.  Accordingly,  despite  the fact that
     Beijing Telestone has made full tax provision in the financial  statements,
     Beijing Telestone may be subject to a penalty for the deferred reporting of
     tax  obligations.  The exact amount of penalty cannot be estimated with any
     reasonable  degree of  certainty.  The board of  directors  considers it is
     unlikely that the tax penalty will be imposed.




                                       10
<PAGE>
<TABLE>
<CAPTION>

Item 2.  Management's Discussion and Analysis or Plan of Operation

MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS

The following is  management's  discussion  and analysis of certain  significant
factors which have affected our financial  position and operating results during
the periods included in the accompanying  consolidated financial statements,  as
well as information relating to the plans of our current management. This report
includes   forward-looking   statements.   Generally,   the  words   "believes,"
"anticipates,"   "may,"  "will,"  "should,"  "expect,"   "intend,"   "estimate,"
"continue,"  and  similar  expressions  or the  negative  thereof or  comparable
terminology are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties,  including the matters set forth
in this report or other  reports or  documents we file with the  Securities  and
Exchange  Commission  from time to time,  which  could cause  actual  results or
outcomes to differ materially from those projected. Undue reliance should not be
place  on  these  forward-looking  statements  which  speak  only as of the date
hereof. We undertake no obligation to update these forward-looking statements.

Unless  we  indicate  otherwise,  references  below to "we",  "us ",  "our"  and
"Telestone" mean Telestone Technologies Corporation and its subsidiaries.

BUSINESS DESCRIPTION

We are a wireless  communications  coverage  solutions  provider  in the PRC. We
principally  provide integrated wireless coverage solutions through our national
sales and services network to our customers in the PRC.

Our wireless coverage solutions  business is comprised of research,  development
and application of wireless communications  technology.  In addition to sales of
our internally designed wireless  communications  equipment including repeaters,
antennas  and radio  frequency  accessories,  we also  provide  project  design,
project management, installation,  maintenance and other after-sales services in
accordance with our customers' requirements. Our wireless coverage solutions are
designed  to expand  and  enhance  the  coverage  of  mobile  telecommunications
networks so as to improve the quality of reception for mobile phone users. These
solutions  are used in a variety  of indoor  and  outdoor  environments  such as
hotels,  residential estates,  office buildings,  airports,  exhibition centers,
underground stations, highways and tunnels.

BUSINESS REVIEW

Three months ended March 31, 2005
--------------------------------- -------------------------------- ---------------------------------- ----------------------
                                  2005                             2004                               Growth
--------------------------------- -------------------------------- ---------------------------------- ----------------------
                                      $'000        % of revenue         $'000         % of revenue      $'000        %
--------------------------------- -------------- ----------------- ---------------- ----------------- ---------- -----------
<S>                               <C>            <C>               <C>              <C>               <C>        <C>
Revenues                                  3,533                              3,642                         -109       -2.99
--------------------------------- -------------- ----------------- ---------------- ----------------- ---------- -----------
Cost of equipments and services           1,546             43.76            1,683             46.21       -137       -8.14
--------------------------------- -------------- ----------------- ---------------- ----------------- ---------- -----------
Sales and marketing expenses                590             16.70              277              7.61        313      113.00
--------------------------------- -------------- ----------------- ---------------- ----------------- ---------- -----------
General and administrative
expenses                                    471            113.33              307              8.43        164       53.42
--------------------------------- -------------- ----------------- ---------------- ----------------- ---------- -----------
Research and development
expenses                                      8              0.23               35              0.96        -27      -77.14
--------------------------------- -------------- ----------------- ---------------- ----------------- ---------- -----------
Depreciation and Amortization                43              1.22               25              0.69         18       72.00
--------------------------------- -------------- ----------------- ---------------- ----------------- ---------- -----------
Interest expenses                            20              0.57                5              0.14         15         300
--------------------------------- -------------- ----------------- ---------------- ----------------- ---------- -----------
Other income                                  4              0.11                0                 0          4           -
--------------------------------- -------------- ----------------- ---------------- ----------------- ---------- -----------
Income before tax                           859             24.31            1,310             35.97       -451      -34.43
--------------------------------- -------------- ----------------- ---------------- ----------------- ---------- -----------
Income tax                                    0                 0              433             11.89       -433        -100
--------------------------------- -------------- ----------------- ---------------- ----------------- ---------- -----------
Minority Interest                             0                 0              368             10.10       -368        -100
--------------------------------- -------------- ----------------- ---------------- ----------------- ---------- -----------
Extraordinary gain                            0                 0            2,773             76.14     -2,773        -100
--------------------------------- -------------- ----------------- ---------------- ----------------- ---------- -----------
Net income                                  859             24.31            3,282             90.12     -2,423      -73.83
--------------------------------- -------------- ----------------- ---------------- ----------------- ---------- -----------
</TABLE>



                                       11
<PAGE>

Our net  revenues  during the three  months  period  ended  March 31,  2005 were
derived from system  integration  service to domestic telecom  carriers,  direct
product sales to system  integration  providers and R & D technologies  sales to
wireless  equipment  manufacturers.  Our major  customers  include China Mobile,
China Unicom,  China Telecom and China Netcom.  The majority of our revenues for
the period were  generated  from mobile  operators,  while  revenues from system
integration providers were comparatively small.

We had a new revenue  source from our R & D technologies  to wireless  equipment
manufacturers  for the first quarter of 2005. We maintain an extensive  research
and  development  center in the Shi Jiazhuang,  where we employ a highly trained
staff of engineers and scientists  focused on invention and further  advances in
wireless  communications  technology.  Due to our strong R & D capabilities,  we
entered  a  Memorandum  of  Cooperation  with  Shi  Jiazhuang  Spectrum  Digital
Communication  Co.,  Ltd  ("Spectrum"),  based  on  which,  we  sell  our  R & D
technologies  to Spectrum.  The Memorandum was effective in the mid of 2004, but
we begun to  generate  revenues  from the R & D  technologies  sales  during the
reporting period,  which represented 10.27% of our total revenues.  We expect we
will derive revenues from the technologies sales in the coming quarters.

Chinese  telecommunication  carriers'  capital  investment  plans  for  wireless
networks  construction  was  influenced  by the  delay in the  launch  of the 3G
networks and the possible  reorganization  of China Unicom during calendar 2005.
This has caused a slight  decrease in our revenues for this reporting  period as
compared to the same period in 2004. Our net revenues for the three month period
ended March 31, 2005 were $3,533,000, down from $3,642,000 for the corresponding
period of the previous  year.  Nevertheless,  we believe that Chinese  carriers'
total  capital  investment  in year  2005  will not be less  than 2004 and could
potentially be greater with the expected launch of the 3G network.

For the reporting  period we  endeavored to provide new products and  innovative
solutions,  we also  developed  new leads  into other  mobile  telecommunication
markets.  We continue to deepen our penetration in the domestic markets where we
already have a strong  presence and now we are  developing  overseas  markets in
south-east Asia, specifically Vietnam,  Indonesia and India. In these regions we
have  established  business  relationships  with  the  local   telecommunication
carriers.  We expect that new  products,  solutions and markets will enhance our
business prospects.

Along with our strong R & D  capabilities  in developing  new products,  we have
also  implemented  a  series  of  effective  cost  control  measures,  including
implementing price controls, optimizing our supply chain, and decreasing the use
of raw materials, which we expect will improve our gross margin.

CRITICAL ACCOUNTING POLICIES AND MANAGEMENT ESTIMATES

Our discussion and analysis of our financial condition and results of operations
are based upon our consolidated  financial statements,  which have been prepared
in  accordance  with  accounting  principles  generally  accepted  in the United
States.  The  preparation  of these  financial  statements  requires  us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues  and  expenses,   and  related  disclosure  of  contingent  assets  and
liabilities. On an on-going basis, we evaluate our estimates based on historical
experience and on various other  assumptions  that are believed to be reasonable
under  the  circumstances,  the  results  of which  form the  basis  for  making
judgments  about the  carrying  values of assets  and  liabilities  that are not
readily  apparent  from other  sources.  Actual  results  may differ  from these
estimates  under  different  assumptions  or  conditions.  We  believe  critical
accounting  policies as disclosed in our Annual  Report on Form 10-KSB/A for the
year  ended  December  31,  2004  reflect  the more  significant  judgments  and
estimates used in preparation of our financial statements. We believe there have
been no material  changes to our  critical  accounting  policies  and  estimates
during the three months ended March 31, 2005 compared to those  discussed in our
Annual Report on Form 10-KSB/A for the year ended December 31, 2004.

RESULTS OF OPERATION

Revenues

Our  revenues  were $  3,533,000  for the three  months  ended  March 31,  2005,
representing  a decrease of 2.99% as  compared  to the same period in 2004.  The
slight  decrease in our revenues was  primarily  due to: (i).  telecommunication


                                       12
<PAGE>
<TABLE>
<CAPTION>

carriers decreasing their capital expenditures on 2G networks in anticipation of
the launch of the 3G networks in 2005; and (ii). China Unicom's decision to slow
down  its  infrastructure  investment  as a  result  of its  potential  business
reorganization also projected for later this year.

In the same period we managed to develop a new revenue  stream from the sales of
our R&D technologies  which  contributed  $363,000 in revenues and accounted for
10.27% of our net revenues.  This new revenue stream offset some of the negative
effect  on our  revenues  caused  by the  domestic  mobile  carriers'  temporary
decrease in capital expenditures, which caused a slight decrease in revenues for
the first quarter of 2005.

We believe that our revenues in year 2005 will  improve and  eventually  eclipse
fiscal 2004's revenue totals with the application of our continuously  developed
new products,  solutions and the contribution of our newly  developing  markets,
especially as the expected 3G network begins its  construction  and the schedule
for China Unicom reorganization becomes clear.

Our revenues were primarily derived from products sales and service income.

Three months ended March 31, 2005

--------------------------------------- ----------------------- ------------------------------ -----------------------
                                                 2005                       2004                      Increase
--------------------------------------- ----------------------- ------------------------------ -----------------------
                                        $ ,000   % of Revenue       $ ,000      % of Revenue      $,000         %
--------------------------------------- -------- -------------- --------------- -------------- ------------ ----------
<S>                                     <C>      <C>            <C>             <C>            <C>          <C>
Products sales                            2,852          80.72           3,212          88.19         -360     -11.21
--------------------------------------- -------- -------------- --------------- -------------- ------------ ----------
Total Service Income                        681          19.28             430          11.81          251      58.37
--------------------------------------- -------- -------------- --------------- -------------- ------------ ----------
System integration                          318           9.00             430          11.81         -112     -26.05
--------------------------------------- -------- -------------- --------------- -------------- ------------ ----------
Sales of R&D technologies                   363          10.27               0              0          363          -
--------------------------------------- -------- -------------- --------------- -------------- ------------ ----------
Total                                     3,533                          3,642
--------------------------------------- -------- -------------- --------------- -------------- ------------ ----------
</TABLE>

For the three months ended March 31, 2005,  our revenues  generated from product
sales were  $2,852,000,  representing  a decrease  of 11.21% as  compared to the
corresponding  period of last year.  For the three  months ended March 31, 2005,
our  revenues  generated  from  service  income were  $681,000,  representing  a
growth of 58.37% as compared to the same period in 2004.

For the three months ended March 31, 2005, our products sales and service income
accounted for 80.72% and 19.28% of our total revenues, respectively, compared to
88.19% and 11.81% for the same period in 2004.

The decrease in product sales was caused by the decision of telecom  carriers to
reduce  infrastructure  investments in 2G networks in anticipation of the launch
of the 3G  network.  The  increase  in  service  income was  resulting  from the
development of our new revenue stream, the sales of R&D technologies contributed
$363,000 to our net revenues.

Breakdown by customers

Three months ended March 31, 2005

<TABLE>
<CAPTION>
-------------------------- --------------------------- ------------------------- ----------------------------
                                      2005                       2004                     Increase
-------------------------- --------------------------- ------------------------- ----------------------------
                             $ ,000     % of Revenue    $ ,000    % of Revenue         $,000           %
-------------------------- ------------ -------------- ---------- -------------- ------------------ ---------
<S>                        <C>          <C>            <C>        <C>            <C>                <C>
Total for Major Carriers         2,715          76.85      3,642           100%               -927    -25.45
-------------------------- ------------ -------------- ---------- -------------- ------------------ ---------
             China Mobile          251           7.10        370          10.16               -119    -32.16
-------------------------- ------------ -------------- ---------- -------------- ------------------ ---------
             China Unicom        1,656          46.86      3,272          89.84             -1,616    -49.40
-------------------------- ------------ -------------- ---------- -------------- ------------------ ---------
             China Netcom            2           0.07          0              0                  2         -
-------------------------- ------------ -------------- ---------- -------------- ------------------ ---------
            China Telecom          806          22.82          0              0                806         -
-------------------------- ------------ -------------- ---------- -------------- ------------------ ---------
System Integrators                 455          12.88          0              0                455         -
-------------------------- ------------ -------------- ---------- -------------- ------------------ ---------
Manufacturer                       363          10.27          0              0                363         -
-------------------------- ------------ -------------- ---------- -------------- ------------------ ---------
Total                            3,533                     3,642
-------------------------- ------------ -------------- ---------- -------------- ------------------ ---------
</TABLE>

For the three  months ended March 31, 2005,  our revenues  generated  from China
Mobile and China Unicom were $251,000 and $1,656,000 respectively,  representing
a decrease of 32.18% and 49.40%, respectively, as compared to the same period in


                                       13
<PAGE>

2004.  The  decrease  in our  revenues  from China  Mobile and China  Unicom was
primarily due to the carriers'  decision to reduce their capital  expenditure in
anticipation  of the launch of the 3G networks  and China  Unicom's  anticipated
reorganization.

For the three  months ended March 31, 2005,  our revenues  generated  from China
Netcom and China Telecom were $2,000 and $806,000, respectively,  compared to no
revenues  derived  from China  Netcom and China  Telecom  for the same period in
2004. Our PHS business with China Netcom and China Telecom began in April, 2004.

For the three months ended March 31, 2005,  our direct  products  sales  derived
from system  integrators were $455,000,  compared to no revenues  generated from
direct products sales for the corresponding period of the previous year.

For the three months ended March 31, 2005, the sales of R&D technologies derived
income  from a  wireless  equipment  manufacturer,  Spectrum,  in the  amount of
$363,000,  compared to no revenues for the corresponding  period in the previous
year. This income was our new revenue stream for the first quarter of this year.

Our revenues from carriers,  system  integrators and manufacturers for the three
months ended March 31, 2005 accounted for 76.85%, 12.88% and 10.27% of our total
revenues,  respectively,  compared  to 100%,  0%and 0% for the same  period last
year.  Our revenues  from China  Mobile,  China  Unicom,  China Netcom and China
Telecom  accounted for 7.10%,  46.86%,  0.07% and 22.82% of our total  revenues,
respectively,  compared to 10.16%,  89.84%,  0% and 0%% for the same period last
year.

From the  composition  of our  revenues,  revenue  from  carriers  was our major
revenue source, of which China Mobile and China Unicom constituted the majority.
Compared  to the  corresponding  period in 2004,  the change in the  composition
ratio of our revenues was primarily  driven by the following  factors:  (i). the
decrease in revenues  from China  Mobile and China  Unicom;  and (2)  additional
revenues derived from new sources and new customers.

Breakdown by solutions

Three months ended March 31, 2005

---------- ---------------------- ----------------------- -----------------
                   2005                   2004                 Increase
---------- ---------------------- ----------------------- -----------------
            $ ,000  % of Revenue   $ ,000  % of Revenue    $,000     %
---------- -------- ------------- -------- -------------- ------- ---------
Indoor       2,683         75.94    2,790          76.61    -107     -3.84
---------- -------- ------------- -------- -------------- ------- ---------
Outdoor         32          0.91      852          23.39    -820    -96.24
---------- -------- ------------- -------- -------------- ------- ---------
Others         818         23.15        0              0     818         -
---------- -------- ------------- -------- -------------- ------- ---------
Total        3,533                   3,642
---------- -------- ------------- -------- -------------- ------- ---------

For the three  months  ended  March 31,  2005,  revenues  generated  from indoor
wireless coverage solutions were $2,683,000, representing a decrease of 3.84% as
compared to the corresponding period of last year. For the reporting period, our
revenues  generated  from outdoor  wireless  coverage  solutions  were  $32,000,
representing  a decrease of 96.42% as  compared to the same period in 2004.  Our
indoor coverage revenues and outdoor coverage revenues  accounted for 75.94% and
0.91%  of our  total  revenues  for the  three  months  ended  March  31,  2005,
respectively, compared to 76.61% and 23.39% for the same period in 2004.

The significant  decrease in outdoor coverage  revenues is due to China Unicom's
completion  of  a  majority  of  outdoor  coverage  solutions  for  2G  and  the
anticipation  of 3G  implementation.  China  Unicom has also altered its capital
expenditure structure to focus on indoor coverage optimization and solutions.

Breakdown by regions

Three months ended March 31, 2005

---------- ---------------------- ----------------------- -----------------
                   2005                   2004                 Increase
---------- ---------------------- ----------------------- -----------------
            $ ,000  % of Revenue   $ ,000  % of Revenue    $,000     %
---------- -------- ------------- -------- -------------- ------- ---------
North        1,492         42.23    2,462          67.60    -970    -39.40
---------- -------- ------------- -------- -------------- ------- ---------
South        1,475         41.75      810          22.24     665     82.10
---------- -------- ------------- -------- -------------- ------- ---------
East           566         16.02      370          10.16     196     52.97
---------- -------- ------------- -------- -------------- ------- ---------
Total        3,533                  3,642
---------- -------- ------------- -------- -------------- ------- ---------



                                       14
<PAGE>
<TABLE>
<CAPTION>

For the three months ended March 31, 2005, our revenues generated from the North
(covering areas like Beijing, Tianjin, Xinjiang and etc.), South (covering areas
like Guangdong,  Fujian, Hubei and etc.) and East (covering areas like Shanghai,
and etc.) were $1,492,000,  $1,475,000 and $566,000,  respectively,  compared to
$2,462,000, $810,000 and $370,000 for the corresponding period of last year.

Our  revenues  derived  from the North,  South and East  accounted  for  42.23%,
41.75%and  16.02% of our total  revenues  for the three  months  ended March 31,
2005, respectively, compared to 67.60%, 22.24% and 10.16% for the same period in
2004.

For the reporting  period,  most wireless  coverage  projects in major  northern
areas were still in the bidding stage,  which resulted in a decrease in revenues
in the North. Revenue increases in the East were generated from the rapid growth
of our PHS network business in this area.  While revenue  increases in the South
was  due to the  contribution  made by our  newly  established  branches  in the
region, such as in Sichuan and Yunan Provinces.

Costs of Revenues

Three months ended March 31, 2005

--------------------- ------------------------- --------------------------- ----------------------------
                                2005                       2004                      Increase
--------------------- ------------------------- --------------------------- ----------------------------
                       $ ,000     % of Total      $ ,000      % of Total      % of Revenue      $ ,000
                                     costs                       costs
--------------------- ---------- -------------- ------------ -------------- ------------------ ---------
<S>                       <C>            <C>          <C>            <C>                  <C>     <C>
Products sales costs      1,337          86.48        1,557          92.51               -220    -14.13
--------------------- ---------- -------------- ------------ -------------- ------------------ ---------
Service costs               209          13.52          126           7.49                 83     65.87
--------------------- ---------- -------------- ------------ -------------- ------------------ ---------
Total                     1,546                       1,683                              -137     -8.14
--------------------- ---------- -------------- ------------ -------------- ------------------ ---------
</TABLE>

For the three  months  ended March 31,  2005,  our total costs of revenues  were
$1,546,000,  representing  a decrease of 8.14% as compared to the  corresponding
period of last year.  The  decrease  in our total costs is  attributable  to the
following  cost control  measures taken during the reporting  period:  1. Reduce
purchasing  costs  through large scale  procurement;  2. Decrease the use of raw
materials  through  system  design  optimization;  3.  Regularly  improve our SI
technologies;  and 4. Optimize our supply chain to in turn receive  better terms
from suppliers.

Our costs of revenues include product sales costs and service costs.

For the three  months  ended  March 31,  2005,  our  product  sales  costs  were
$1,337,000,  representing a decrease of 14.13% as compared to the same period in
2004, which resulted from our effective cost control measures.

For the three  months  ended March 31, 2005,  our service  costs were  $209,000,
representing  a increase of 65.87% as  compared to the same period in 2004.  The
increase in service costs was mainly due to the reclassification of the expenses
of our R & D Center.  In the previous  year, as our R & D Center was regarded as
our R&D cost entity, its total expenses were regarded as reseach and development
expenses.  However,  during the 1st  quarter of 2005,  because the nature of the
entity has been  changed to  profit-making  organization,  the  expenses  of the
entity were re-classified as different specific expenses:  the main R&D expenses
were  regarded as cost of sales and the rest of the  expenses  were  regarded as
depreciation and amortization, and other net income.

Our product sales costs and our service costs accounted for 86.48% and 13.52% of
the total costs, respectively, for the first quarter in 2005, compared to 92.51%
and 7.49%, respectively, for the corresponding period in 2004.

Gross Profit and Gross Margin

For the three  months ended March 31,  2005,  our gross  profit was  $1,987,000,
which  represented  an increase of 1.43% as compared to the same period in 2004.
Our gross  margin for the  reporting  period was 56.24%,  up from 53.79% for the
same period last year.

Even though our revenues decreased slightly, we still achieved gross profit
growth during the reporting period, which is attributable to:

1.   Our ability to develop and  regularly  introduce  new models to meet market
     needs;
2.   Our  increased  bargaining  power with  suppliers  as a result of increased
     scale of operations; and



                                       15
<PAGE>
<TABLE>
<CAPTION>

3.   Our continued efforts in exercising cost control.


Operating expenses

------------------------------------------- ---------------------------- ----------------------- ----------------------
                                                       2005                       2004                 Increase
------------------------------------------- ---------------------------- ----------------------- ----------------------
                                              $ ,000      % of Revenue    $ ,000       % of        $ ,000        %
                                                                                      Revenue
------------------------------------------- ------------ --------------- ---------- ------------ ------------ ---------
<S>                                                 <C>           <C>          <C>         <C>           <C>    <C>
Sales and marketing expenses                        590           16.70        277         7.61          313    113.00
------------------------------------------- ------------ --------------- ---------- ------------ ------------ ---------
General and administrative expenses                 471           13.33        307         8.43          164     53.42
------------------------------------------- ------------ --------------- ---------- ------------ ------------ ---------
Research and development expenses                     8            0.23         35         0.96          -27    -77.14
------------------------------------------- ------------ --------------- ---------- ------------ ------------ ---------
Total                                             1,069           30.26        619        17.00          450     72.70
------------------------------------------- ------------ --------------- ---------- ------------ ------------ ---------
</TABLE>

Operating  expenses  mainly  include sales and marketing  expenses,  general and
administrative expenses and R & D expenses.

Sales and marketing expenses
----------------------------

Sales and marketing  expenses include all related expenses and remunerations for
sales personnel and travel expenses related to sales of products and development
of market.

For the three months ended March 31, 2005,  sales and  marketing  expenses  were
$590,000,  accounting for 16.70% of the total revenues, as compared to $277,000,
or 7.61% of total  revenues  for the  corresponding  period  in 2004.  Sales and
marketing expenses had a period-to-period increase of 113.00%.

Sales and  marketing  expenses  increased  because of our  efforts to expand our
business   range,   penetrate   into  new  markets  and  set  up  branches   and
representative  offices  therein,  as well as  investments  related to  business
expansion  in new  markets.  We have  increased 6 domestic  branches and offices
since the second quarter of 2004, and had 21 branches and offices in total as of
the  reporting  date. We have begun to develop into  overseas  markets,  such as
Vietnam,  Indonesia and India, since the end of 2004.  Additional  expenses were
also incurred in connection with the development of our  relationships  with new
customers,  such as China  Telecom and China  Netcom.  We expect the increase in
sales and marketing expenses during the reporting period will benefit our income
growth in the coming quarters.

R & D expenses
--------------

R&D expenses include  remunerations  for R&D staff,  material  expenses,  travel
expenses and facilities.

For the  three  months  ended  March  31,  2005,  R & D  expenses  were  $8,000,
accounting for 0.23% of the total revenues,  as compared to $35,000, or 0.96% of
the total  revenues for the  corresponding  period in 2004. R & D expenses had a
period-to-period decrease of 77.14%.

In the previous  year,  as our R & D Center was regarded as our R&D cost entity,
its total expenses were regarded as reseach and development  expenses.  However,
during  the 1st  quarter  of 2005,  because  the  nature of the  entity has been
changed to profit-making  entity,  the expenses of the entity were re-classified
as different specific  expenses:  the main R&D expenses were regarded as cost of
sales and the rest of the expenses  included as depreciation  and  amortization,
and other net income.  The above mentioned fact resulted in the sharp decease in
R & D expenses for the reporting period. Taking into the R & D expenditure which
was re-classified as other expenses,  our R & D expenditure actually experienced
an increase during the period. We expect our research activities will strengthen
our  technologies,  reduce the costs of existing  products and will also provide
future revenue streams through the launch of new products.

General and administrative expenses
-----------------------------------

General and  administrative  expenses  consist  primarily  of  compensation  for
personnel,   travel   expenses,   materials   expenses   related   to   ordinary
administration,  fees for  professional  services,  and  provisions for doubtful
accounts.



                                       16
<PAGE>

For the three months ended March 31, 2005, general and  administrative  expenses
were  $471,000,  accounting  for 13.33% of the total  revenues,  as  compared to
$307,000,  or 8.43% of the total revenues for the corresponding  period in 2004.
General and administrative expenses had a period-to-period increase of 53.42%.

The major reason for the increase in general and administrative expenses was due
to allowances for doubtful  accounts of $249,000 taken in the reporting  period.
Historically, no significant bad debts were experienced, but the allowances were
made in view of the significant amounts involved and the long outstanding period
of the receivables.  We have critically  assessed the recoverability of accounts
receivable  on an  individual  customer  basis.  Allowances  were  made  in  the
receivables aged over 12 months with no significant  settlements during the year
and no contract in hand.  Not taking into  account the  allowance  for  doubtful
debts,  the general and  administrative  expenses were $222,000,  representing a
27.69%  decline  from the same  period in 2004,  which was due to our efforts to
strengthen our control over expenses , reduce  administrative staff and strictly
implement our internal expense control procedures.

Net Income

For the three months ended March 31, 2005,  our net income was  $859,000,  which
represented  a decrease of 73.83% as  compared  to the same period in 2004.  The
period-to-period  decrease  in net income  was  primarily  due to an  additional
extraordinary  gain of  $2,773,000  arising  from  our  reorganization  that was
reported as net income for the first quarter of 2004.

Our net income before extraordinary gain was $859,000 for the three months ended
March 31, 2005, as compared to $509,000 for the corresponding  period last year,
which  represented  growth of 68.76%.  The  increase  in the net  income  before
extraordinary  gain was  primarily  due to no minority  interest  and income tax
incurred for the reporting  period,  in contrast to a $368,000 minority interest
and  $433,000  in  income  taxes  incurred  for the same  period  in 2004.  As a
wholly-owned  foreign investment  enterprise,  we are fully exempted from income
tax for  two  years  followed  by a 50%  reduction  for the  next  three  years,
commencing with fiscal year 2004.

LIQUIDITY AND SOURCE OF CAPITAL

We generally  finance our  operations  from cash flow  generated  internally and
through bank loans.  As of March 31, 2005, we had current assets of $29,110,000.
Current assets are comprised of inventories of $4,184,000,  accounts  receivable
of $21,019,000,  prepayments,  deposits and other receivables of $1,878,000, and
cash and cash equivalents of $2,029,000.  Current liabilities comprised accounts
payable of $5,802,000,  tax payables of $6,263,000,  other payables and accruals
of $3,113,000 and debts maturing within one year of $605,000.

Our trading terms with our customers are mainly on credit. As of March 31, 2005,
our accounts receivable were $21,019,000, compared to $19,845,000 as of December
31, 2004.  The credit  period is  generally  less than one year.  The  gradually
increase in the accounts receivable since 2002 is mainly due to 1) steady growth
in  revenues  resulting  from  growth in  business  scale,  and 2) change in the
settlement pattern of the mobile operators.  Owing to the fast growing in market
of  wireless   telecommunication   coverage  system   services,   more  wireless
telecommunication  coverage system service providers are available and have been
available to the marketplace since 2003. The keen competition  caused the mobile
operators have stronger  bargaining  power in the  negotiation of payment terms.
Mobile  operators  currently  make partial  payments  after the  completion of a
contract,  with  additional  credit terms,  rather than payment in advance as in
2003 and before.

Although we have  experienced a long accounts  receivable  turnover  period,  we
believe the accounts  receivable could be recovered because our major customers,
namely China Unicom and China Mobile are reputable and sizeable mobile operators
in the  PRC.  Additionally,  we  have  not  experienced  significant  bad  debts
historically.  Notwithstanding  this, we would pay special attention to lowering
the  turnover  period of our  accounts  receivable  balances  and have taken the
following measures:

(i) A  specialized  team was  established  to  responsible  for the  receivables
collection.  The team members involve finance officers,  marketing  managers and
executive  officers of branches.  The CEO will be responsible for the assessment
of  performance  of the  team.  An  incentive  and  punishment  system  will  be
established to increase the motivation of receivables collection.



                                       17
<PAGE>

(ii) We will strengthen our credit control  procedures.  In particular,  we will
closely  monitor the long  outstanding  receivables  and  critically  assess the
recoverability  on an  individual  customer  basis.  For those  debtors who have
unsatisfactory  credit  records,  we may  consider  taking legal  proceeding  in
recovering the debts,  or even consider  terminating  our business  relationship
with them.

(iii) We will also  consider  offering  one-off  special  discount  to  existing
debtors with prolonged balances to encourage their settlement of these debts.

We believe the  above-mentioned  measures could improve our accounts  receivable
turnover period and provide a better internal control environment for us to cope
with the fast growing  telecommunication  industry in the PRC that we are facing
in the coming future.

As of March 31, 2005, our inventories were $4,184,000, as compared to $2,502,000
as of December 31, 2004, which  represented an increase of 67.23%.  The increase
in the inventories is due to the following factors: (i). inventory  reservations
based on  anticipated  growth in the second  quarter;  and (ii).  our ability to
acquire a lower purchasing  pricing through large scale  procurement.  We expect
that we will have a period-to-period  growth in our revenues at 26% next quarter
this year,  based on which we increased  our  inventories  during the  reporting
period.

As of March 31, 2005,  our cash and bank  balances  were mainly  denominated  in
Renminbi  ("RMB") and United States  dollars  ("US$") while our bank  borrowings
were mainly denominated in RMB. Our revenue and expenses, assets and liabilities
are mainly denominated in RMB and US$. Since the exchange  fluctuations  amongst
these currencies are low, we believe there is no significant exchange risk.

We have  experienced  negative  cash flows  from  operating  activities  for the
periods ended March 31, 2005 and 2004, which is primarily the result of extended
turnover  periods  related to our accounts  receivable,  as mentioned  above.  A
continuation of this situation could negatively impact our liquidity and in turn
our overall  results of operations.  In order to address this issue,  apart from
the  implementation  of the  above-mentioned  measures  to reduce  the  turnover
period,  we are also  exploring  the  possibility  of  obtaining  third  parties
financing and  considering  raising  additional  capital  through debt or equity
financings.

Our gearing ratio,  calculated as total debts  (including  short-term bank loans
and finance lease  payables) over total assets,  was 52.31% as of March 31, 2005
and 53.20% as of December 31, 2004, respectively.

CONTINGENT LIABILITIES

As of March 31, 2005,  we had not entered into any  guarantee  contracts nor any
non-disclosed   contracts  which  will  affect  stockholders'  equity  or  share
structure.

EMPLOYMENT AND REMUNERATIONS

As of March 31, 2005, we had 409  employees.  Total employee  expenses  reported
during the reporting  period was  $251,000.  We offer  competitive  remuneration
schemes  to our  employees  based  on  industry  practices  as well as  employee
performance.


Item 3.  Controls and Procedures

Prior to the conclusion of the period covered by this report,  we carried out an
evaluation,  under the supervision and with the participation of our management,
including  our Chief  Executive  Officer  and Chief  Financial  Officer,  of the
effectiveness  of the  design  and  operation  of our  disclosure  controls  and
procedures   pursuant  to  Exchange  Act  Rule  13(a)-14(c).   Based  upon  that
evaluation,  our Chief Executive  Officer and Chief Financial  Officer concluded
that our disclosure  controls and  procedures  are effective in timely  alerting
them  to  material  information  relating  to  us  (including  our  consolidated
subsidiaries) required to be included in our periodic SEC filings.

There have been no  significant  changes in our  internal  controls  or in other
factors that could significantly affect internal controls subsequent to the date
we carried out this evaluation.



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<PAGE>

PART II  OTHER INFORMATION

Item 1.  Legal Proceedings


Except as discussed below, we are not a party to any pending legal  proceedings,
and no such  proceedings  are known to be  contemplated.  None of our directors,
executive officers or affiliates or owner of record or beneficially of more than
five  percent  of our  common  stock is a party  adverse to us or has a material
interest adverse to us in any proceeding.

A former stockholder of Telestone has initiated  arbitration  proceedings in the
People's Republic of China against SMI alleging the failure of SMI to settle the
payment  of the  consideration  owed  to said  stockholder  as a  result  of the
transaction  pursuant to which SMI acquired all of the outstanding share capital
of  Telestone.  The  value of the above  claim is  approximately  $1.2  million.
Management  believes  that the claim is without  merit and will be  resolved  in
SMI's favor during fiscal 2005. Item 6. Exhibits

The following documents are filed as part of this report:

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














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<PAGE>

                                   SIGNATURES

         In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.



                                           TELESTONE TECHNOLOGIES CORPORATION

                                           (Registrant)




Date: May 13, 2005                                  /s/ Han Daqing
                                           -------------------------------------
                                           Han Daqing, Chief Executive Officer



Date: May 13, 2005                                  /s/ Liu Dongping
                                           -------------------------------------
                                           Liu Dongping, Chief Financial Officer
















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