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


                                   FORM 10-QSB


       [X] QUARTERLY REPORT UNDER SECTION 13 or 15 (D) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005


                        COMMISSION FILE NUMBER: 033-15096


                       TELESTONE TECHNOLOGIES CORPORATION
                       ----------------------------------
         (Exact name of small business issuer as specified its charter)


           Delaware                                       84-1111224

(State or other jurisdiction of                (IRS Employer Identification No.)
 incorporation or organization)


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

                                (86 10) 8367-0505
                           (Issuer's telephone number)


Check whether the issuer (1) filed all reports required 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
such filing requirements for the past 90 days. Yes [X] No [ ]

As of August 13, 2005, 8,577,106 shares of common stock, $.001 par value per
share, of the issuer were outstanding.


Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]


<PAGE>


                       TELESTONE TECHNOLOGIES CORPORATION

                                      INDEX


                                                                            Page

PART I.  FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements

Consolidated Statement of Operations and Comprehensive
Income for the Six Months ended June 30, 2005 (Unaudited)                      1

Consolidated Balance Sheets as of June 30, 2005                                2

Consolidated Cash Flow Statements for the Six Months Ended June 30, 2005       3

Notes to Consolidated Financial Statements                                     4


Item 2.  Management's Discussion and Analysis or Plan of Operation            12

Item 3.  Controls and Procedures                                              27


PART II. OTHER INFORMATION

Item 1.  Legal Proceedings                                                    29

Item 4.  Submission of Matters to a Vote of Security Holders                  29

Item 6.  Exhibits                                                             30


<PAGE>


TELESTONE TECHNOLOGIES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                             (UNAUDITED)                (UNAUDITED)
                                                          THREE MONTHS ENDED          SIX MONTHS ENDED
                                                               JUNE 30,                   JUNE 30,
                                                       ------------------------   ------------------------
                                                          2005         2004          2005         2004
                                                 Note    US$'000      US$'000       US$'000      US$'000
<S>                                               <C>   <C>          <C>           <C>          <C>
OPERATING REVENUES
   Net sales of equipment                                   2,783        3,317         5,635        6,529
   Service income                                           1,621          552         2,302          982
                                                       -----------  -----------   -----------  -----------

                                                            4,404        3,869         7,937        7,511
                                                       -----------  -----------   -----------  -----------
OPERATING EXPENSES
   Equipment and services                                   2,346        1,764         3,892        3,447
   Sales and marketing                                        630          436         1,220          713
   General and administrative                                 445          142           916          449
   Research and development                                   146           45           154           80
   Depreciation and amortization                               53           27            96           52
                                                       -----------  -----------   -----------  -----------

   Total operating expenses                                 3,620        2,414         6,278        4,741
                                                       -----------  -----------   -----------  -----------

OPERATING INCOME                                              784        1,455         1,659        2,770
Interest expense                                               (2)         (12)          (22)         (17)
Other income, net                                               2            -             6            -
                                                       -----------  -----------   -----------  -----------

INCOME BEFORE INCOME TAXES, MINORITY INTEREST
 AND EXTRAORDINARY ITEM                                       784        1,443         1,643        2,753
Income taxes                                      5             -            -             -          433
                                                       -----------  -----------   -----------  -----------

INCOME BEFORE MINORITY INTEREST AND
 EXTRAORDINARY ITEM                                           784        1,443         1,643        2,320
Minority interest                                               -            -             -         (368)
                                                       -----------  -----------   -----------  -----------

INCOME BEFORE EXTRAORDINARY ITEM                              784        1,443         1,643        1,952
Extraordinary gain                                              -            -             -        2,773
                                                       -----------  -----------   -----------  -----------

NET INCOME                                                    784        1,443         1,643        4,725
                                                       ===========  ===========   ===========  ===========

EARNINGS PER SHARE:                               3

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
Basic                                                   8,528,590    8,000,106     8,420,393    8,000,106
Dilutive effect of warrants                                 6,817            -       191,094            -
                                                       -----------  -----------   -----------  -----------

Diluted                                                 8,535,407    8,000,106     8,611,487    8,000,106
                                                       ===========  ===========   ===========  ===========

NET INCOME PER SHARE OF COMMON STOCK

BASIC:
   Income before extraordinary gain                          0.08         0.18          0.20         0.24
                                                       ===========  ===========   ===========  ===========
   Net income                                                0.08         0.18          0.20         0.59
                                                       ===========  ===========   ===========  ===========

DILUTED:
   Income before extraordinary gain                          0.08         0.18          0.19         0.24
                                                       ===========  ===========   ===========  ===========
   Net income                                                0.08         0.18          0.19         0.59
                                                       ===========  ===========   ===========  ===========


     The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>


                                        1
<PAGE>


TELESTONE TECHNOLOGIES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                          (UNAUDITED)
                                                                               AS OF          As of
                                                                             JUNE 30,   December 31,
                                                                                2005           2004
                                                                     Note     S$'000        US$'000
<S>                                                                   <C>     <C>          <C>
ASSETS
CURRENT ASSETS
   Cash and cash equivalents                                                   2,083        2,230
   Accounts receivable                                                4       23,248       19,845
   Due from related parties                                           6        1,273        1,218
   Inventories - Finished goods                                                3,001        2,502
   Prepayment                                                                    258           95
   Other current assets                                                          450          531
                                                                          -----------  -----------

   Total current assets                                                       30,313       26,421

Property, plant and equipment, net                                             1,074          790
                                                                          -----------  -----------

TOTAL ASSETS                                                                  31,387       27,211
                                                                          ===========  ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
   Debts maturing within one year                                                605          605
   Accounts payable - Trade                                                    4,552        3,952
   Customer deposits for sales of equipment                                       69           47
   Due to related parties                                             6        2,095        2,183
   Taxes payable                                                               6,652        6,447
   Accrued expenses and other accrued liabilities                              1,965        1,243
                                                                          -----------  -----------

   Total current liabilities                                                  15,938       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 June 30, 2005
    and December 31, 2004                                                          -            -
   Issued and outstanding - 8,567,106 shares as of June 30, 2005
    and 8,060,106 shares as of December 31, 2004                                   8            8
   Reserved and to be issued - Nil shares as of June 30, 2005 and
    150,000 shares as of December 31, 2004                                         -            -
Dedicated reserves                                                             1,642        1,642
Additional paid-in capital                                                     7,371        6,300
Retained earnings                                                              6,428        4,784
                                                                          -----------  -----------

   Total stockholders' equity                                                 15,449       12,734
                                                                          -----------  -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                    31,387       27,211
                                                                          ===========  ===========


 The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>


                                       2
<PAGE>


TELESTONE TECHNOLOGIES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                           (UNAUDITED)
                                                                    SIX MONTHS ENDED JUNE 30,
                                                                    -------------------------
                                                                      2005            2004
                                                                     US$'000         US$'000
<S>                                                                  <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME                                                            1,643           4,725
Adjustments to reconcile net income to net cash used in
 operating activities:
   Depreciation and amortization                                         96              52
   Provision for doubtful accounts                                      169               -
   Extraordinary gain                                                     -          (2,773)
   Minority interests                                                     -             368
Changes in assets and liabilities:
   Accounts receivable                                               (3,572)         (5,311)
   Inventories, net                                                    (499)            (70)
   Due from related parties                                             (55)           (215)
   Gain on disposal of PPE                                              (66)              -
   Prepayment                                                          (163)              -
   Other current assets                                                  82             317
   Accounts payable                                                     600           1,126
   Due to related parties                                               (88)            221
   Customer deposits for sales of equipment                              22             (88)
   Taxes payable                                                        205           1,126
   Accrued expenses and other accrued liabilities                       722             342
                                                                 -----------     -----------

   NET CASH USED IN OPERATING ACTIVITIES                               (904)           (180)
                                                                 -----------     -----------

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment                              (314)           (545)
                                                                 -----------     -----------

   NET CASH USED IN INVESTING ACTIVITIES                               (314)           (545)
                                                                 -----------     -----------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of shares                                      1,071             223
                                                                 -----------     -----------

   NET CASH PROVIDED BY FINANCING                                     1,071             223
                                                                 -----------     -----------

NET DECREASE IN CASH AND CASH EQUIVALENTS                              (147)           (502)

CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD                    2,230           1,226
                                                                 -----------     -----------

CASH AND CASH EQUIVALENTS, END OF THE PERIOD                          2,083             724
                                                                 ===========     ===========


The accompanying notes are an integral part of these condensed consolidated financial statements
</TABLE>


                                       3
<PAGE>


TELESTONE TECHNOLOGIES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

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.

     On June 17, 2005, Beijing Telestone established Beijing Telestone Wireless
     Telecommunication Company Limited ("BTWTC") in Beijing, the People's
     Republic of China (the "PRC") with an operating period of 20 years through
     Mr. Han Daqing and Mr. Luo Zhengbin, both are stockholders and directors of
     the Company. The registered capital of BTWTC amounts to RMB10 million
     (approximately US$1.2 million). On June 2, 2005, RMB6 million
     (approximately US$0.7m) was contributed in cash by Mr. Han and Mr. Luo as
     to 80% and 20% of BTWTC respectively. As of June 30, 2005, the paid-in
     capital of BTWTC was RMB6 million. On July 26, 2005 the remaining balance
     of RMB4 million (approximately US$0.5 million) was contributed by the two
     stockholders. BTWTC is established to be engaged in the business of
     wireless telecommunication networking and system integration and has had no
     business activities as of June 30, 2005.

     Pursuant to the revised Interpretation No.46, "Consolidation of Variable
     Interest Entities ("VIE")" ("FIN 46(R)) issued by the FASB in December
     2003, certain variable interest entities are required to be consolidated by
     the primary beneficiary of the entity if the equity investors in the entity
     do not have the characteristics of a controlling financial interest or do
     not have sufficient equity at risk for the equity to finance its activities
     without additional subordinated financial support from other parties.


                                       4
<PAGE>


TELESTONE TECHNOLOGIES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

1.   ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)

     In light of the above, BTWTC is a VIE owned by the Company's stockholders
     and directors. The Company does not have any ownership interest in BTWTC.
     Due to the restrictions on foreign ownership on the provision of certain
     wireless telecommunication services, Beijing Telestone, through its
     shareholders and directors, established BTWTC with a view to conduct such
     operations without violating the relevant rules and regulations. Pursuant
     to a proxy agreement entered into between Beijing Telestone and the two
     shareholders on June 12, 2005, both parties agreed that the shockholders
     only hold the shares of BTWTC on behalf of Beijing Telestone and that
     Beijing Telestone enjoys the rewards and bears the risks of the operation
     of BTWTC. Therefore Beijing Telestone generally has economic control of
     BTWTC and is considered the primary beneficiary of BTWTC. Accordingly, the
     financial statements of BTWTC are consolidated in the financial statements
     of the Company.

     The condensed consolidated financial statements include the financial
     statements of the Company, its subsidiaries and a VIE subsidiary for which
     the Company's subsidiary, Beijing Telestone is the primary beneficiary. All
     transactions and balances among the Company, its subsidiaries and VIE
     subsidiary have been eliminated upon consolidation.

     In this report, TTC, SMI, BTWTC 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 June 30, 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
     June 30, 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
     six-month periods ended June 30, 2005 and 2004 are not necessarily
     indicative of the operating results to be expected for the full year.


                                       5
<PAGE>


TELESTONE TECHNOLOGIES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

2.   PREPARATION OF INTERIM FINANCIAL STATEMENTS (CONTINUED)

     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.

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

<TABLE>
<CAPTION>
                                                    (UNAUDITED)
                                                         AS OF           As of
                                                       JUNE 30,    December 31,
                                                          2005            2004
                                                       US$'000         US$'000
<S>                                                     <C>             <C>
     Completed contracts                                24,073          20,217
     Retentions                                          1,232           1,267
                                                    -----------     -----------

                                                        25,305          21,484
     Less: Allowance for doubtful accounts              (2,057)         (1,639)
                                                    -----------     -----------

                                                        23,248          19,845
                                                    ===========     ===========
</TABLE>

     Of the retentions balance as of June 30, 2005 and December 31, 2004,
     approximately US$433,000 and US$449,000 respectively are expected to be
     collected after one year.


                                       6
<PAGE>


TELESTONE TECHNOLOGIES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

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 available to offset 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.

     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.


                                       7
<PAGE>


TELESTONE TECHNOLOGIES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

6.   RELATED PARTY TRANSACTIONS

     SUMMARY OF RELATED PARTY TRANSACTIONS

<TABLE>
<CAPTION>
                                                         (UNAUDITED)
                                                              AS OF           As of
                                                            JUNE 30,    December 31,
                                                               2005            2004
                                                            US$'000         US$'000
<S>                                                           <C>             <C>
     DUE FROM RELATED PARTIES
     Other employees (Note (a))                                  93              38
     Ex-stockholders of SMI (Note (b))                        1,180           1,180
                                                         -----------     -----------

                                                              1,273           1,218
                                                         ===========     ===========

     DUE TO RELATED PARTIES
     A director (Note (a))                                      837             925
     Ex-stockholders of Beijing Telestone (Note (b))          1,258           1,258
                                                         -----------     -----------

                                                              2,095           2,183
                                                         ===========     ===========

     GUARANTORS OF SHORT TERM LOANS
       A director                                               605             605
                                                         ===========     ===========
<FN>
     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 fully indemnified 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.
</FN>
</TABLE>


                                       8
<PAGE>


TELESTONE TECHNOLOGIES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

7.   SEGMENT INFORMATION

     During the quarter ended June 30, 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 six months ended
     June 30, 2005 and 2004 are shown as follows:

<TABLE>
<CAPTION>
                                        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                           7,574        7,511           363            -         7,937        7,511
     Cost of sales                     (3,836)      (3,447)          (56)           -        (3,892)      (3,447)
                                     ----------   ----------    ----------   ----------    ----------   ----------

                                        3,738        4,064           307            -         4,045        4,064

     Depreciation                         (93)         (52)           (3)           -           (96)         (52)
     Interest expenses                    (22)         (17)            -            -           (22)         (17)
     Other income, net                      6            -             -            -             6            -
     Other segment expenses
      attributable to segment          (2,161)      (1,242)         (129)           -        (2,290)      (1,242)
     Income taxes expenses                  -         (433)            -            -             -         (433)
                                     ----------   ----------    ----------   ----------    ----------   ----------

     Segment income                     1,468        2,320           175            -         1,643        2,320
                                     ==========   ==========    ==========   ==========

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

     Net income                                                                               1,643        4,725
                                                                                           ==========   ==========
</TABLE>


                                       9
<PAGE>


TELESTONE TECHNOLOGIES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

7.   SEGMENT INFORMATION (CONTINUED)

     The total assets of the Group by business segment as of June 30, 2005 and
     December 31, 2004 are shown as follows:

<TABLE>
<CAPTION>
                                                                 (UNAUDITED)
                                                                      AS OF          As of
                                                                    JUNE 30,   December 31,
                                                                       2005           2004
                                                                    US$'000        US$'000
<S>                                                                  <C>            <C>
     Telecommunication coverage system                               31,298         27,211
     Research and development technologies                               89              -
                                                                 -----------    -----------

                                                                     31,387         27,211
                                                                 ===========    ===========
</TABLE>

     (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:

<TABLE>
<CAPTION>
                                                                (UNAUDITED) SIX MONTHS ENDED
                                                                          JUNE 30,
                                                                ----------------------------
                                                                      2005           2004
                                                                     US$'000        US$'000
<S>                                                                   <C>            <C>
     Major customers with revenues of more than 10% of the
      Company's sales
        Sales to major customers                                      5,913          2,305
        Percentage of sales                                              75%            94%
        Number                                                            2              2
                                                                 ===========    ===========

     Major suppliers with purchases of more than 10% of the
      Company's purchases
        Purchases from major suppliers                                2,296            627
        Percentage of purchases                                          70%            43%
        Number                                                            3              2
                                                                 ===========    ===========
</TABLE>

     Accounts receivable related to the Company's major customers comprised 88%
     and 87% of all accounts receivables as of June 30, 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 when 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


                                       10
<PAGE>


TELESTONE TECHNOLOGIES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

8.   COMMITMENTS AND CONTINGENCIES (CONTINUED)

     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.

9.   STOCK OPTION PLAN

     On June 27, 2005, a Stock Option Plan was approved at the 2005 annual
     meeting of stockholders. The purpose of the Plan is to promote the growth
     and general prosperity of the Company by permitting the Company to grant
     options to purchase common stock and restricted stock of the Company to key
     employees, non-employee directors, and advisors. The Plan is designed to
     help the Company and its subsidiaries and affiliates attract and retain
     superior personnel for positions of substantial responsibility and to
     provide key employees, non-employee directors, and advisors with an
     additional incentive to contribute to the success of the Company.

     There have been no options granted to any parties so far up as of the date
     of these condensed financial statements.


                                       11
<PAGE>


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

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 People's
Republic of China (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 OVERVIEW

Our net revenues during the six months period ended June 30, 2005 were derived
from wireless coverage solution, including product and system integration
service sales, 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
Netcom and China Telecom. The majority of our revenues for the period were
generated from telecom carriers, while revenues from system integration
providers and wireless equipment manufacturers were comparatively small.


                                       12
<PAGE>

We had a new revenue source from our R&D technologies sales to wireless
equipment manufacturers in 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 focusing on invention and further
advances in wireless communications technology. Due to our strong R&D
capabilities, we entered into a Memorandum of Cooperation (the "Memorandum")
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 mid-2004, but we began to generate revenues from the R&D technologies sales
during the first quarter of 2005. In the second quarter of 2005, however, no
revenue was generated from R&D technologies sales as our R&D center was
developing 3G related technologies and applications, which are expected to be
sold upon later 3G deployment.

Chinese telecom carriers' capital investment plans for wireless networks
construction were influenced by a delay in the launch of the 3G network and the
possible reorganization of China Unicom during 2005. This has caused a temporary
fluctuation in Chinese telecom carriers' capital investment patterns, which led
to a less than expected increase in our revenues for the second quarter 2005
reporting period as compared to the same period of 2004. Our net revenues for
the six month period ended June 30, 2005 were $7,937,000, up from $7,511,000 for
the corresponding period of last year. We believe that the fluctuations are
temporary as Chinese carriers' total capital investment in 2005 will not be less
than that of 2004, and could potentially be greater with the expected launch of
the 3G network in early 2006.

For the six months ended June 30, 2005, we endeavored to provide new products
and innovative solutions, and 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 are now developing overseas
markets in Southeast Asia, specifically Vietnam, Indonesia and India. We have
established business relationships with local telecom carriers in these regions.
In addition, we will open a California-based office to explore and evaluate
opportunities for participation in the U.S. wireless infrastructure market in
late 2005. We expect that new products, solutions and markets will enhance our
business prospects in the near future.

On June 17, 2005, we established Beijing Telestone Wireless Telecommunication
Company Limited ("BTWTC") in Beijing, through Mr. Han Daqing and Mr. Luo
Zhengbin, whom are both stockholders and directors of Telestone. BTWTC was
established to expand our business of wireless telecommunication networking and
system integration. It has had no business activities as of June 30, 2005.

Telestone does not have any ownership interest in BTWTC. Due to the restrictions
on foreign ownership on the provision of certain wireless telecommunication
services, Telestone, through its shareholders and directors, established BTWTC
with a view to conduct such operations without violating the relevant rules and
regulations. Pursuant to a proxy agreement entered into between us and the two
shareholders on June 12, 2005, both parties agreed that the stockholders only
hold the shares of BTWTC on behalf of Telestone and that Telestone enjoys the
rewards and bears the risks of the operation of BTWTC. Therefore, Telestone


                                       13
<PAGE>


generally has economic control of BTWTC and is considered the primary
beneficiary of BTWTC.

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 six months ended June 30, 2005 compared to those discussed in our
Annual Report on Form 10-KSB/A for the year ended December 31, 2004.

RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
Three months ended June 30, 2005
                                              2005                    2004           Increase/Decrease
                                     ----------------------  ----------------------  -----------------
                                      $'000   % of Revenue    $'000   % of Revenue    $'000      %
                                     ----------------------  ----------------------  -----------------
<S>                                    <C>           <C>       <C>           <C>        <C>    <C>
Revenues                               4,404                   3,869                     535    13.83
------------------------------------------------------------------------------------------------------
Cost of equipments and services        2,346         53.27     1,764         45.59       582    32.99
------------------------------------------------------------------------------------------------------
Sales and marketing expenses             630         14.31       436         11.27       194    44.50
------------------------------------------------------------------------------------------------------
General and administrative expenses      445         10.10       142          3.67       303   213.38
------------------------------------------------------------------------------------------------------
Research and development expenses        146          3.32        45          1.16       101   224.44
------------------------------------------------------------------------------------------------------
Depreciation and amortization             53          1.20        27          0.70        26    96.30
------------------------------------------------------------------------------------------------------
Interest expenses                          2          0.05        12          0.31       -10   -83.33
------------------------------------------------------------------------------------------------------
Other income                               2          0.05         0             0         2        -
------------------------------------------------------------------------------------------------------
Income before tax                        784         17.80     1,443         37.30      -659   -45.67
------------------------------------------------------------------------------------------------------
Income tax                                 0             0         0             0         0        0
------------------------------------------------------------------------------------------------------
Minority interest                          0             0         0             0         0        0
------------------------------------------------------------------------------------------------------
Extraordinary gain                         0             0         0             0         0        0
------------------------------------------------------------------------------------------------------
Net income                               784         17.80     1,443         37.30      -659   -45.67
------------------------------------------------------------------------------------------------------
</TABLE>


                                       14
<PAGE>


<TABLE>
<CAPTION>
Six months ended June 30, 2005
                                              2005                    2004           Increase/Decrease
                                     ----------------------  ----------------------  -----------------
                                      $'000   % of Revenue    $'000   % of Revenue    $'000      %
                                     ----------------------  ----------------------  -----------------
<S>                                    <C>           <C>       <C>           <C>      <C>      <C>
Revenues                               7,937                   7,511                     426     5.67
------------------------------------------------------------------------------------------------------
Cost of equipments and services        3,892         49.04     3,447         45.89       445    12.91
------------------------------------------------------------------------------------------------------
Sales and marketing expenses           1,220         15.37       713          9.49       507    71.11
------------------------------------------------------------------------------------------------------
General and administrative expenses      916         11.54       449          5.98       467   104.01
------------------------------------------------------------------------------------------------------
Research and development expenses        154          1.94        80          1.07        74    92.50
------------------------------------------------------------------------------------------------------
Depreciation and amortization             96          1.21        52          0.69        44    84.62
------------------------------------------------------------------------------------------------------
Interest expenses                         22          0.28        17          0.23         5    29.41
------------------------------------------------------------------------------------------------------
Other income                               6          0.08         0             0         6        -
------------------------------------------------------------------------------------------------------
Income before tax                      1,643         20.70     2,753         36.65    -1,110   -40.32
------------------------------------------------------------------------------------------------------
Income tax                                 0             0       433          5.76      -433    -1.00
------------------------------------------------------------------------------------------------------
Minority interest                          0             0       368          4.90      -368    -1.00
------------------------------------------------------------------------------------------------------
Extraordinary gain                         0             0     2,773         36.92    -2,773    -1.00
------------------------------------------------------------------------------------------------------
Net income                             1,643         20.70     4,725         62.91    -3,082   -65.23
------------------------------------------------------------------------------------------------------
</TABLE>

REVENUES
--------

For the three months and six months ended June 30, 2005, net revenues were
$4,404,000 and $7,937,000, representing an increase of 13.83% and 5.67%,
respectively, when compared to the corresponding periods of 2004. The increase


                                       15
<PAGE>


in net revenues was due to a mixed effect of: (1) China Unicom boosting its
capital investment again after slowing down in the first quarter of 2005; and
(2) on the contrary, China Mobile temporarily lowering its capital expenditure
on the 2G network for the period, in anticipation of the launch of the 3G
network.

For the second quarter 2005 reporting period, we managed to expand our revenue
stream from sales of the PHS coverage solution, which included products and
system integration services, to China Netcom and China Telecom. This revenue
stream offset some of the negative effect on our revenues caused by China
Mobile's drop in capital expenditure, which resulted in a slight increase in
total revenues for the second quarter of 2005.

We believe that our revenues in year 2005 will continue to improve and have the
potential to eventually exceed our total revenues of fiscal 2004 based on the
contribution from new products, solutions and geographical markets. These
revenue opportunities also include expected construction of a 3G network in the
PRC as well greater visibility on China Unicom's scheduled reorganization.

BREAKDOWN BY NATURE

<TABLE>
<CAPTION>
Three months ended June 30, 2005
                                              2005                    2004           Increase/Decrease
                                     ----------------------  ----------------------  -----------------
                                      $'000   % of Revenue    $'000   % of Revenue    $'000      %
                                     ----------------------  ----------------------  -----------------
<S>                                    <C>           <C>       <C>           <C>      <C>      <C>
Product sales                          2,782         63.17     3,317         85.73    -535     -16.13
------------------------------------------------------------------------------------------------------
System integration service sales       1,622         36.83       552         14.27    1070     193.84
------------------------------------------------------------------------------------------------------
R&D technologies sales                     0             0         0             0       0          0
------------------------------------------------------------------------------------------------------
Total                                  4,404           100     3,869           100     535      13.83
------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
Six months ended June 30, 2005
                                              2005                    2004           Increase/Decrease
                                     ----------------------  ----------------------  -----------------
                                      $'000   % of Revenue    $'000   % of Revenue    $'000      %
                                     ----------------------  ----------------------  -----------------
<S>                                    <C>           <C>       <C>           <C>      <C>      <C>
Product sales                          5,634         70.98     6,529         86.93    -895     -13.71
------------------------------------------------------------------------------------------------------
System integration service sales       1,940         24.44       982         13.07     958      97.56
------------------------------------------------------------------------------------------------------
R&D technologies sales                   363          4.57         0             0     363          -
------------------------------------------------------------------------------------------------------
Total                                  7,937           100     7,511           100     426       5.67
------------------------------------------------------------------------------------------------------
</TABLE>

For the three months and six months ended June 30, 2005, revenues generated from
product sales were $2,782,000 and $5,634,000, which represented a decrease of
16.13% and 13.71%, respectively, compared to the corresponding periods of 2004.
For the aforesaid periods, revenues generated from system integration service
sales were $1,622,000 and $1,940,000, which represented an increase of 193.84%
and 97.56% respectively, compared to the same periods of 2004.


                                       16
<PAGE>


For the three months and six months ended June 30, 2005, revenues generated from
product sales accounted for 63.17% and 70.98% of total revenues, respectively,
compared to 85.73% and 86.93% for the corresponding periods of 2004. For the
aforesaid periods, revenues generated from system integration service sales
accounted for 36.83% and 24.44% of total revenues, respectively, compared to
14.27% and 13.07% for the same periods of 2004.

The decrease in product sales was primarily caused by the decision of China
Mobile to reduce infrastructure investments in the 2G network for the six month
2005 period, in anticipation of the launch of the 3G network. The increase in
system integration service income was mainly contributed by the $1,377,000
wireless signal improvement service contract provided to the Guangxi branch of
China Unicom. In this period, no revenue was generated from R&D technologies
sales as our R&D center was developing 3G related technologies and applications,
which will be sold upon later 3G deployment.

BREAKDOWN BY CUSTOMERS

<TABLE>
<CAPTION>
Three months ended June 30, 2005
                                        2005                    2004           Increase/Decrease
                               ----------------------  ----------------------  -----------------
                                $'000   % of Revenue    $'000   % of Revenue    $'000      %
                               ----------------------  ----------------------  -----------------
<S>                              <C>           <C>       <C>           <C>      <C>      <C>
Total for major carriers         4,278         97.14     3,695         95.50       583    15.78
------------------------------------------------------------------------------------------------
     - China Mobile                532         12.08     1,934         49.99    -1,402   -72.49
------------------------------------------------------------------------------------------------
     - China Unicom              2,979         67.64     1,521         39.31     1,458    95.86
------------------------------------------------------------------------------------------------
     - China Netcom                295          6.70         0             0       295        -
------------------------------------------------------------------------------------------------
     - China Telecom               472         10.72       240          6.20       232    96.67
------------------------------------------------------------------------------------------------
System integrators                 126          2.86       174          4.50       -48   -27.59
------------------------------------------------------------------------------------------------
Equipment manufacturer               0             0         0             0         0        0
------------------------------------------------------------------------------------------------
Total                            4,404           100     3,869           100       535    13.83
------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
Six months ended June 30, 2005
                                        2005                    2004           Increase/Decrease
                               ----------------------  ----------------------  -----------------
                                $'000   % of Revenue    $'000   % of Revenue    $'000      %
                               ----------------------  ----------------------  -----------------
<S>                              <C>           <C>       <C>           <C>      <C>      <C>
Total for major carriers         6,993         88.11     7,337         97.68      -344    -4.69
------------------------------------------------------------------------------------------------
     - China Mobile                783          9.87     2,304         30.68    -1,521   -66.02
------------------------------------------------------------------------------------------------
     - China Unicom              4,635         58.40     4,793         63.81      -158    -3.30
------------------------------------------------------------------------------------------------
     - China Netcom                297          3.74         0             0       297        -
------------------------------------------------------------------------------------------------
     - China Telecom             1,278         16.10       240          3.20     1,038   432.50
------------------------------------------------------------------------------------------------
System integrators                 581          7.32       174          2.32       407   233.91
------------------------------------------------------------------------------------------------
Equipment Manufacturer             363          4.57         0             0       363        -
------------------------------------------------------------------------------------------------
Total                            7,937           100     7,511           100       426     5.67
------------------------------------------------------------------------------------------------
</TABLE>


                                       17
<PAGE>


For the three months and six months ended June 30, 2005, revenues generated from
China Mobile were $532,000 and $783,000, which represented a decrease of 72.49%
and 66.02%, respectively, compared to the corresponding periods of 2004. For the
aforesaid periods, revenues generated from China Unicom were $2,979,000 and
$4,635,000, which represented an increase of 95.86% and a decrease of 3.30%
respectively, compared to the same periods of 2004. The decrease in revenues
from China Mobile was due to the carrier's decision to temporary reduce its
capital expenditure in anticipation of the launch of the 3G network. However,
China Unicom has boosted its infrastructure investment again after slowing down
in the first quarter of 2005. Chinese telecom carriers' capital investment plans
for wireless network construction were primarily influenced by their
anticipation of the launch of a the 3G network and the possible reorganization
of China Unicom during year 2005. Given the delay of both events, there was a
temporary reduction in the telecom carriers' investment patterns that directly
affected our revenues for this reporting period as compared to the same period
in 2004. Nevertheless, we believe that these fluctuations are temporary and that
Chinese carriers' total capital investment in 2005 will not be less than that of
2004, and could potentially be greater with the expected launch of 3G in early
2006.

For the three months and six months ended June 30, 2005, revenues generated from
China Netcom were $295,000 and $297,000. No revenue was derived from China
Netcom for the corresponding periods of 2004. For the aforesaid periods,
revenues generated from China Telecom were $472,000 and $1,278,000, which
represented an increase of 96.67% and 432.50% respectively, compared to the same
periods of 2004. Our PHS sales to China Netcom and China Telecom began in April
2004. We expect that the revenue contribution by these telecom carriers will
gradually increase, as they continue to invest in their PHS network and also
after they obtain 3G operating licenses, which will further stimulate their
infrastructure investment.

For the three months and six months ended June 30, 2005, direct product sales
derived from system integrators were $126,000 and $581,000, which represented a
decrease of 27.59% and an increase of 233.91%, respectively, compared to the
corresponding periods of 2004. In this period, no revenue was made by R&D
technologies sales as our R&D center was developing 3G related technologies and
applications that will be sold upon later 3G deployment.

Our revenues from carriers, system integrators and manufacturers for the six
months ended June 30, 2005 accounted for 88.11%, 7.32% and 4.57% of total
revenues, respectively, compared to 97.68%, 2.32% and 0% for the same period of
2004. Our revenues from China Mobile, China Unicom, China Netcom and China
Telecom for the aforesaid period, accounted for 9.87%, 58.40%, 3.74% and 16.10%
of total revenues, respectively, compared to 30.68%, 63.81%, 0% and 3.20% for
the same period of last year.


                                       18
<PAGE>


Revenues from telecom carriers were our major revenue source for the six month
2005 period and China Mobile, China Unicom and China Telecom accounted for the
majority. Compared to the corresponding period in 2004, the change in the
composition ratio of revenues was primarily driven by the following factors: (1)
a decrease in revenues received from China Mobile; and (2) additional revenues
derived from new sources and new customers.

BREAKDOWN BY SOLUTIONS

<TABLE>
<CAPTION>
Three months ended June 30, 2005

                          2005                    2004           Increase/Decrease
                 ----------------------  ----------------------  -----------------
                  $'000   % of Revenue    $'000   % of Revenue    $'000      %
                 ----------------------  ----------------------  -----------------
<S>                <C>           <C>       <C>           <C>      <C>    <C>
Indoor             3,469         78.77     2,570         66.43       899    34.98
----------------------------------------------------------------------------------
Outdoor              711         16.14        40          1.03       671 1,677.50
----------------------------------------------------------------------------------
Others               224          5.09     1,259         32.54    -1,035   -82.21
----------------------------------------------------------------------------------
Total              4,404           100     3,869           100       535    13.83
----------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
Six months ended June 30, 2005

                          2005                    2004           Increase/Decrease
                 ----------------------  ----------------------  -----------------
                  $'000   % of Revenue    $'000   % of Revenue    $'000      %
                 ----------------------  ----------------------  -----------------
<S>                <C>           <C>       <C>           <C>      <C>      <C>
Indoor             6,152         77.51     5,360         71.36     792      14.78
----------------------------------------------------------------------------------
Outdoor              743          9.36       892         11.88    -149     -16.70
----------------------------------------------------------------------------------
Others             1,042         13.13     1,259         16.76    -217     -17.24
----------------------------------------------------------------------------------
Total              7,937           100     7,511           100     426       5.67
----------------------------------------------------------------------------------
</TABLE>

For the three months and six months ended June 30, 2005, revenues generated from
indoor wireless coverage solutions were $3,469,000 and $6,152,000, which
represented an increase of 34.98% and 14.78%, respectively, compared to the
corresponding periods of 2004. For the aforesaid periods, revenues generated
from outdoor wireless coverage solutions were $711,000 and $743,000, which
represented an increase of 1677.50% and a decrease of 16.70% respectively,
compared to the same periods of 2004.

For the three months and six months ended June 30, 2005, revenues generated from
indoor wireless coverage solutions accounted for 78.77% and 77.51% of total
revenues, respectively, compared to 66.43% and 71.36% for the corresponding
periods of 2004. For the aforesaid periods, revenues generated from outdoor
wireless coverage solutions accounted for 16.14% and 9.36% of total revenues,
respectively, compared to 1.03% and 11.88% for the same periods of 2004.

The significant increase in outdoor coverage revenues in the second quarter of
2005 was due to sales made to China Netcom and China Telecom that focused on the
enhancement of the PHS wireless signal in rural outdoor areas.


                                       19
<PAGE>


BREAKDOWN BY REGIONS

<TABLE>
<CAPTION>
Three months ended June 30, 2005

                          2005                    2004           Increase/Decrease
                 ----------------------  ----------------------  -----------------
                  $'000   % of Revenue    $'000   % of Revenue    $'000      %
                 ----------------------  ----------------------  -----------------
<S>                <C>           <C>       <C>           <C>      <C>      <C>
North              1,601         36.35     2,554         66.01     -953    -37.31
----------------------------------------------------------------------------------
South              2,690         61.08       713         18.43    1,977    277.28
----------------------------------------------------------------------------------
East                 113          2.57       602         15.56     -489    -81.23
----------------------------------------------------------------------------------
Total              4,404           100     3,869           100      535     13.83
----------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
Six months ended June 30, 2005

                          2005                    2004           Increase/Decrease
                 ----------------------  ----------------------  -----------------
                  $'000   % of Revenue    $'000   % of Revenue    $'000      %
                 ----------------------  ----------------------  -----------------
<S>                <C>           <C>       <C>           <C>      <C>      <C>
North              3,093         38.97     5,016         66.78    -1,923   -38.34
----------------------------------------------------------------------------------
South              4,165         52.48     1,523         20.28     2,642   173.47
----------------------------------------------------------------------------------
East                 679          8.55       972         12.94      -293   -30.14
----------------------------------------------------------------------------------
Total              7,937           100     7,511           100       426     5.67
----------------------------------------------------------------------------------
</TABLE>

For the three months and six months ended June 30, 2005, revenues generated from
the North (covering areas such as Beijing, Tianjin, Xinjiang and etc.) were
$1,601,000 and $3,093,000, which represented a decrease of 37.31% and 38.34%,
respectively, compared to the corresponding periods of 2004. For the aforesaid
periods, revenues generated from the South (covering areas such as Guangdong,
Fujian, Sichuan and etc.) were $2,690,000 and $4,165,000, which represented an
increase of 277.28% and 173.47% respectively, compared to the same periods of
2004. For the identical periods, revenues generated from the East (covering
areas such as Shanghai, Nanjing and etc.) were $113,000 and $679,000, which
represented a decrease of 81.23% and 30.14%, respectively, compared to the
corresponding periods of 2004.

For the three months and six months ended June 30, 2005, revenues generated from
the North accounted for 36.35% and 38.97% of total revenues, respectively,
compared to 66.01% and 66.78% for the corresponding periods of 2004. For the
aforesaid periods, revenues generated from the South accounted for 61.08% and
52.48% of total revenues, respectively, compared to 18.43% and 20.28% for the
same periods of 2004. For the identical periods, revenues generated from the
East accounted for 2.57% and 8.55% of total revenues, respectively, compared to
15.56% and 12.94% for the corresponding periods of 2004.

For the six month 2005 reporting period, revenue reduction in the North and the
East was mainly affected by a drop in sales made to China Mobile as China Mobile
temporary altered its capital expenditure budget in anticipation of the launch
of the 3G network. On the other hand, the revenue increase in the South was
primarily due to several factors: (1) the contribution made by our newly
established branches, such as branches in Sichuan, Yunan and Guizhou Provinces;
and (2) a $1,377,000 wireless signal improvement service contract with the
Guangxi branch of China Unicom.


                                       20
<PAGE>


COSTS OF REVENUES

<TABLE>
<CAPTION>
Three months ended June 30, 2005
                                         2005                      2004            Increase/Decrease
                               ------------------------  ------------------------  -----------------
                                $'000  % of Total costs   $'000  % of Total costs   $'000      %
                               ------------------------  ------------------------  -----------------
<S>                              <C>           <C>         <C>           <C>         <C>      <C>
Costs of product sales           1,283         54.69       1,561         88.49       -278     -17.81
----------------------------------------------------------------------------------------------------
Costs of system integration      1,063         45.31         203         11.51        860     423.65
service sales
----------------------------------------------------------------------------------------------------
Costs of R&D technologies            0             0           0             0          0          0
sales
----------------------------------------------------------------------------------------------------
Total                            2,346           100       1,764           100        582      32.99
----------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
Six months ended June 30, 2005
                                         2005                      2004            Increase/Decrease
                               ------------------------  ------------------------  -----------------
                                $'000  % of Total costs   $'000  % of Total costs   $'000      %
                               ------------------------  ------------------------  -----------------
<S>                              <C>           <C>         <C>           <C>         <C>      <C>
Costs of product sales           2,620         67.32       3,118         90.46       -498     -15.97
----------------------------------------------------------------------------------------------------
Costs of system integration      1,216         31.24         329          9.54        887     269.60
service sales
----------------------------------------------------------------------------------------------------
Costs of R&D technologies           56          1.44           0             0         56          -
sales
----------------------------------------------------------------------------------------------------
Total                            3,892           100       3,447           100        445      12.91
----------------------------------------------------------------------------------------------------
</TABLE>

For the three months and six months ended June 30, 2005, our total costs of
revenues were $2,346,000 and $3,892,000, which represented an increase of 32.99%
and 12.91%, respectively, as compared to the corresponding periods of 2004.

Costs of revenues include costs of product sales, costs of system integration
service sales and costs of R&D technologies sales.

For the three months and six months ended June 30, 2005, our costs of product
sales were $1,283,000 and $2,620,000, which represented a decrease of 17.81% and
15.97%, respectively, as compared to the same periods of 2004. The percentage
decrease in costs of product sales corresponded with the percentage drop in
revenues generated from product sales of 16.13% and 13.71%, respectively, for
the aforesaid periods. We are continuously working to lower our costs of product
sales through a series of effective cost control measures, including reducing
purchasing costs through large scale procurement, decreasing the use of raw
materials through system design optimization, regularly improving our system
integration technologies, and optimizing our supply chain to in turn receive
better terms from suppliers.

For the three months and six months ended June 30, 2005, our costs of system
integration service sales were $1,063,000 and $1,216,000, representing an
increase of 423.65% and 269.60%, respectively, as compared to the same periods
of 2004. Compared to the percentage increase of revenues generated from system
integration service sales of 193.84% and 97.56%, respectively, for the aforesaid


                                       21
<PAGE>


periods, the additional rise in costs of service sales was mainly due to the
$1,377,000 wireless signal improvement service contract provided to the Guangxi
branch of China Unicom. Under this service contract, we were required to employ
a designated contractor to perform the construction work. The costs paid to the
contractor were higher than the average costs paid in other projects, and as a
result, the percentage increase of costs of service sales exceeded that of
revenues generated from service sales.

The costs of R&D technologies sales were associated with R&D technologies sales
made in the first quarter of 2005. No costs of R&D technologies were incurred in
this period as no R&D technologies sales were made.

Our costs of product sales, costs of system integration service sales and costs
of R&D technologies sales for the six months ended June 30, 2005, accounted for
67.32%, 31.24% and 1.44% of total costs, respectively, compared to 90.46%, 9.54%
and 0% for the corresponding period in 2004.

GROSS PROFIT AND GROSS MARGIN
-----------------------------

For the three months and six months ended June 30, 2005, our gross profit was
$2,058,000 and $4,045,000, which represented a decrease of 2.23% and 0.47%,
respectively, as compared to the same periods of 2004. Our gross margin for the
aforesaid periods was 46.73% and 50.96%, a drop from 54.41% and 54.11%,
respectively, for the same periods of last year.

For the three months and six months ended June 30, 2005, gross margin of product
sales was 53.88% and 53.50%, representing an increase of 1.78% and 2.41%,
respectively, as compared to the corresponding periods of 2004. For the
aforesaid periods, gross margin of system integration service sales was 34.46%
and 37.27%, representing a decrease of 45.49% and 43.95%, respectively, as
compared to the same periods of last year.

For gross margin of product sales, we achieved a slight gross profit growth
during the reporting period, which was 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 (3) our continued efforts in exercising cost control.

The decrease in gross margin of system integration service sales was mainly due
to the $1,377,000 wireless signal improvement service contract with the Guangxi
branch of China Unicom. Under this service contract, we were required to employ
a designated contractor to perform the construction work. The costs paid to the
contractor were higher than the average costs paid in other projects, and as a
result, the percentage increase of costs of service sales exceeded that of
revenues generated from service sales.


                                       22
<PAGE>


OPERATING EXPENSES
------------------

<TABLE>
<CAPTION>
Three months ended June 30, 2005
                                              2005                    2004           Increase/Decrease
                                     ----------------------  ----------------------  -----------------
                                      $'000   % of Revenue    $'000   % of Revenue    $'000      %
                                     ----------------------  ----------------------  -----------------
<S>                                    <C>           <C>       <C>           <C>      <C>      <C>
Sales and marketing expenses             630         14.31     436           11.27    194       44.50
------------------------------------------------------------------------------------------------------
General and administrative expenses      445         10.10     142            3.67    303      213.38
-------------------------------------------------------------------------------------------------------
Research and development expenses        146          3.32      45            1.16    101      224.44
-------------------------------------------------------------------------------------------------------
Total                                  1,221         27.72     623           16.10    598       95.99
-------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
Six months ended June 30, 2005
                                              2005                    2004           Increase/Decrease
                                     ----------------------  ----------------------  -----------------
                                      $'000   % of Revenue    $'000   % of Revenue    $'000      %
                                     ----------------------  ----------------------  -----------------
<S>                                    <C>           <C>       <C>           <C>      <C>      <C>
Sales and marketing expenses           1,220         15.37       713          9.49       507    71.11
------------------------------------------------------------------------------------------------------
General and administrative expenses      916         11.54       449          5.98       467   104.01
------------------------------------------------------------------------------------------------------
Research and development expenses        154          1.94        80          1.07        74    92.50
------------------------------------------------------------------------------------------------------
Total                                  2,290         28.85     1,242         16.54     1,048    84.38
------------------------------------------------------------------------------------------------------
</TABLE>

Operating expenses mainly include sales and marketing expenses, general and
administrative expenses and research and development 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 and six months ended June 30, 2005, sales and marketing
expenses were $630,000 and $1,220,000, accounting for 14.31% and 15.37% of total
revenues, as compared to $436,000 and $713,000, or 11.27% and 9.49% of total
revenues, respectively, for the corresponding periods of 2004. Sales and
marketing expenses for the aforesaid periods increased by 44.50% and 71.11%,
respectively, as compared to the same periods of last year.


                                       23
<PAGE>


Sales and marketing expenses increased due to our efforts to expand our product
range, penetrate into new markets, opening new branches and representative
offices, as well as investments related to business expansion in new markets. We
have opened 6 domestic branches and offices since the second quarter of 2004 and
now have 21 branches and offices in total as of June 30, 2005. We have begun to
develop into overseas markets, such as Vietnam, Indonesia and India since the
end of 2004. Additional expenses have also been incurred in connection with the
development of our relationships with new customers, such as China Netcom and
China Telecom. We expect that the increase in sales and marketing expenses
during the reporting period will benefit our income growth in the coming
quarters.

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 allowance for doubtful
accounts.

For the three months and six months ended June 30, 2005, general and
administrative expenses were $445,000 and $916,000, accounting for 10.10% and
11.54% of total revenues, as compared to $142,000 and $449,000, or 3.67% and
5.98% of total revenues, respectively, for the corresponding periods of 2004.
General and administrative expenses for the aforesaid periods increased by
213.38% and 104.01%, respectively, as compared to the same periods of last year.

The major reasons for the increase in general and administrative expenses were
as follows:

(1)  An allowance for doubtful accounts of $169,000 was taken in the second
     quarter of 2005, totaling $418,000 as of June 30, 2005. We have never
     experienced write-offs but opted to take the allowance - in this case - due
     to the significant amounts involved and the long outstanding period of
     receivables. We have conservatively and carefully assessed the
     recoverability of accounts receivable on an individual customer basis.
     Consequently, we set the allowance to receivables aged over 12 months with
     no significant settlements during the year and no contract in hand.

(2)  Another $171,000 was paid as of June 30, 2005 for legal and professional
     fees paid in relation to our listing on the American Stock Exchange on May
     17, 2005. No such expenses were paid for the same period of 2004.

Excluding the allowance for doubtful debts and legal and professional fees in
related to the listing, general and administrative expenses were $327,000
representing a 27.17% decline from the same period of 2004, which was primarily
due to our efforts to strengthen our control over expenses, reduce
administrative staff and strictly implement our internal expense control
procedures.


                                       24
<PAGE>


RESEARCH AND DEVELOPMENT EXPENSES

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

For the three months and six months ended June 30, 2005, R&D expenses were
$146,000 and $154,000, accounting for 3.32% and 1.94% of total revenues, as
compared to $45,000 and $80,000, or 1.16% and 1.07% of total revenues,
respectively, for the corresponding periods of 2004. R&D expenses for the
aforesaid periods increased by 224.44% and 92.50%, respectively, as compared to
the same periods of last year.

Including R&D expenditure classified as costs of R&D technologies sales, total
R&D expenses for the six months ended June 30, 2005 in fact amounted to
$210,000, which represented an increase of 162.50%, as compared to the same
period of 2004.

We are investing progressively into our wireless telecommunication research and
development, especially 3G related technologies and applications. We expect that
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.

LIQUIDITY AND SOURCE OF CAPITAL

We generally finance our operations from cash flows generated internally and
through bank loans. As of June 30, 2005, we had current assets of $30,313,000
and current liabilities of $15,938,000. Current assets are comprised of cash and
cash equivalents of $2,083,000, accounts receivable of $23,248,000, prepayments,
deposits and other receivables of $1,981,000, and inventories of $3,001,000.
Current liabilities are comprised of accounts payable of $4,552,000, tax
payables of $6,652,000, other payables and accruals of $4,129,000 and debts
maturing within one year of $605,000.

As of June 30, 2005, our cash and bank balances were mainly denominated in
Renminbi ("RMB") and United States Dollars ("US$") while our bank borrowings
were mainly denominated in RMB. Our revenues and expenses, assets and
liabilities are mainly denominated in RMB and US$. Since the exchange
fluctuations amongst these currencies are low, we believe that there is no
significant exchange risk.

Our trading terms with our customers are mainly on credit. As of June 30, 2005,
our accounts receivable was $23,248,000, compared to $21,019,000 as of March 31,
2005 and $19,845,000 as of December 31, 2004, which represented an increase of
10.60% and 17.15%, respectively. The credit period is generally less than one
year. The gradual increase in the accounts receivable since 2002 is mainly due
to (1) revenue growth resulting from an expansion in the scale of our business,
and (2) a change in the settlement pattern of the telecom carriers. In light of
the rapid growth of the wireless telecom market in the PRC, there has been an
increase in the number of wireless coverage services providers operating since
2003. Consequently, given the supply of wireless coverage providers, telecom
carriers in the PRC have leverage in negotiating payment terms. Telecom carriers
currently make partial payments after the completion of a contract, with


                                       25
<PAGE>


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 that these receivables are recoverable in the coming quarters since our
major customers - namely, China Mobile, China Unicom and China Telecom - are
reputable and sizeable telecom carriers in the PRC. Additionally, we have always
recovered our bad debt. Notwithstanding this, we will pay special attention to
lowering the turnover period of our accounts receivable balances and have taken
the following measures:

(1)  A special team has been established to monitor the collection of
     receivables. The team members include finance officers, marketing managers
     and executive officers of branches. The CEO is responsible for assessing
     the team's performance. An incentive program coupling the team's
     performance to compensation was also established.

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

(3)  We may also consider offering one-off special discounts to existing debtors
     with prolonged balances to encourage their settlement of these debts.

We strongly believe that the above-mentioned measures should improve our
accounts receivable turnover performance in the coming quarters as well as
create an internal control environment that will enable us to better cope with
the fast growing telecom industry in the PRC.

As of June 30, 2005, our other payables and accruals were $4,129,000, as
compared to $3,113,000 as of March 31, 2005 and $3,473,000 as of December 31,
2004, which represented an increase of 32.64% and 18.89%, respectively. The
increase in other payables and accruals was primarily due to the accrual of
costs paid to the designated contractor employed in connection to the wireless
signal improvement service contract with the Guangxi branch of China Unicom.

We have experienced negative cash flows from operating activities for the six
months ended June 30, 2005 and 2004, which were primarily due to the accounts
receivable issues mentioned above. In order to address this liquidity issue,
apart from the implementation of the above-mentioned measures to reduce the
debtor turnover period, we are also exploring the possibility of obtaining third
party financing and considering other capital markets alternatives. However, we
do believe that our liquidity position will improve once the measures mentioned
earlier are deployed.

Our gearing ratio, calculated as total debts over total assets, was 50.78% as of
June 30, 2005, 52.31% as of March 31, 2005 and 53.20% as of December 31, 2004.


                                       26
<PAGE>


CONTINGENT LIABILITIES

As of June 30, 2005, we had not entered into any guaranteed contracts nor any
non-disclosed contracts which will affect stockholders' equity or share
structure.

We recognize our revenue upon the completion of contract and have 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 when the installation has been accepted by the customer. It is
common practice in the PRC that invoices are not issued to customers until
payments are received. We follow the practice of reporting our revenue for PRC
tax purposes when invoices are issued. All unbilled revenue will become taxable
when invoices are issued. For PRC tax reporting purposes, we recognize revenue
on an "invoice basis" instead of when goods are delivered and services are
rendered. This is not in strict compliance with the relevant laws and
regulations. Accordingly, despite the fact that we have made full tax provision
in the financial statements, we may be subject to a penalty for the deferred
reporting of tax obligations. The exact amount of any penalty cannot be
estimated with any reasonable degree of certainty. Management considers it
unlikely that the tax penalty will be imposed.

EMPLOYMENT AND REMUNERATIONS

As of June 30, 2005, we had 419 employees. Total employee expenses reported for
the three months and six months ended June 30, 2005 were $305,000 and $556,000,
respectively. We offer competitive remuneration schemes to our employees based
on industry practices as well as employee performance.

STOCK OPTION PLAN

On June 27, 2005, a Stock Option Plan was approved at the 2005 annual meeting of
stockholders. The purpose of the Plan is to promote the growth and general
prosperity of Telestone by permitting us to grant options to purchase common
stock and restricted stock of Telestone to key employees, non-employee
directors, and advisors. The Plan is designed to help us attract and retain
superior personnel for positions of substantial responsibility and to provide
key employees, non-employee directors, and advisors with an additional incentive
to contribute to the success of Telestone. There have been no options granted to
any parties as of June 30, 2005.

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


                                       27
<PAGE>


them to material information relating to us (including our consolidated
subsidiaries) required to be included in our periodic SEC filings.

There were no changes in our internal control over financial reporting
identified in connection with the evaluation performed that occurred during the
fiscal quarter covered by this report that has materially affected or is
reasonably likely to materially affect, our internal control over financial
reporting.


                                       28
<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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

As discussed fully in the Company's Proxy Statement, filed with the Securities
and Exchange Commission on June 3, 2005, at the Annual Meeting of Stockholders,
held on June 27, 2005, the stockholders of the Company voted in favor of the
election of seven nominees for director and the approval of the Company's Stock
Option Plan.


                                       29
<PAGE>


ITEM 6. EXHIBITS.

Exhibit
Number         Description of Document
------         -----------------------

31.1         Rule 13a-14(a)/15d-14(a) Certification (CEO)**
31.2         Rule 13a-14(a)/15d-14(a) Certification (CFO)**
32.1         Section 1350 Certification (CEO)**
32.2         Section 1350 Certification (CFO)**

**Filed herewith.


                                       30
<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


Date: August 13, 2005                      By: /s/ Han Daqing
                                               --------------
                                               Name: Han Daqing
                                               Title: Chief Executive Officer


Date: August 13, 2005                      By: /s/ Liu Dongping
                                               ----------------
                                               Name: Liu Dongping
                                               Title: Chief Financial Officer


                                       31