---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 10−Q

(Mark One)

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

For the quarterly period ended: September 30, 2010

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

For the transition period from ____________to _____________

Commission File Number: 333-139940

CHINA SKYRISE DIGITAL SERVICE
INC.(Exact Name of Registrant as Specified in Its
Charter)

|Nevada                          | 98-0554885                          
|------------------------------- | ------------------------------------
|(State or other jurisdiction of | (I.R.S. Employer Identification No.)
|incorporation or organization)  |                                     

4/F, M-3rd BuildingHi-tech Industrial ParkNanshan District, Shenzhen 518070People's Republic of
China(Address of principal executive offices, Zip Code)

(86) 755 26012511(Registrant's telephone number,
including area code)

_____________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)

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

Yes [X]      No [  ]

Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).

Yes [  ]      No [  ]

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

| | Large accelerated filer  [  ]                                               | Accelerated filer  [  ]      
| | --------------------------------------------------------------------------- | -----------------------------
| | Non-accelerated filer   (Do not check if a
      smaller reporting company) | Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ]      No [X]

The number of shares outstanding of each of the issuer's
classes of common stock, as of November 19, 2010 is as follows:

| | Class of Securities            |  | Shares Outstanding | 
| | ------------------------------ |  | ------------------ | 
| | Common Stock, $0.001 par value |  | 21,110,550         | 

---



CHINA SKYRISE DIGITAL SERVICE INC.

Quarterly Report on Form 10-QThree and Nine Months Ended September 30,
2010

TABLE OF CONTENTS

|PART I                |                                                                                              | 1 
|--------------------- | -------------------------------------------------------------------------------------------- | --
|FINANCIAL INFORMATION | 1                                                                                           
|ITEM 1.               | FINANCIAL STATEMENTS.                                                                        | 1 
|ITEM 2.               | MANAGEMENT'S DISCUSSION AND ANALYSIS OF
      FINANCIAL CONDITION AND RESULTS OF OPERATIONS. | 24
|ITEM 4.               | CONTROLS AND PROCEDURES.                                                                     | 36
|PART II               |                                                                                              | 36
|OTHER INFORMATION     | 36                                                                                          
|ITEM 1.               | LEGAL PROCEEDINGS.                                                                           | 36
|ITEM 1A.              | RISK FACTORS.                                                                                | 37
|ITEM 2.               | UNREGISTERED SALES OF EQUITY SECURITIES AND
      USE OF PROCEEDS.                           | 37
|ITEM 3.               | DEFAULTS UPON SENIOR
      SECURITIES.                                                       | 37
|ITEM 4.               | (REMOVED AND RESERVED).                                                                      | 37
|ITEM 5.               | OTHER INFORMATION.                                                                           | 37
|ITEM 6.               | EXHIBITS.                                                                                    | 37

---

PART IFINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

CHINA SKYRISE DIGITAL SERVICE INC.CONSOLIDATED
FINANCIAL STATEMENTSTHREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010
AND 2009

INDEX TO FINANCIAL STATEMENTS

|                                                                 | Page(s)
|---------------------------------------------------------------- | -------
|                                                                 |        
|Financial Statements                                             |        
|Consolidated Balance Sheets                                      | 3      
|Consolidated Statements of Income and
      Comprehensive Income | 4      
|Consolidated Statements of Cash Flows                            | 5      
|Notes to Consolidated Financial Statements                       | 6-23   

---

CHINA SKYRISE DIGITAL SERVICE INC.(Incorporated
in the State of Nevada, United States of America)CONSOLIDATED
BALANCE SHEETS

|                                                                     |   | September 30, |  |   | December 31, | 
|-------------------------------------------------------------------- | - | ------------- |  | - | ------------ | 
|                                                                     |   | 2010          |  |   | 2009         | 
|                                                                     |   | (Unaudited)   |  |   | (Audited)    | 
|                                                                     |   |               |  |   |              | 
|ASSETS                                                               |   |               |  |   |              | 
|Current assets                                                       |   |               |  |   |              | 
|Cash and cash equivalents                                            | $ | 338,507       |  | $ | 409,718      | 
|Accounts receivable                                                  |   | 4,149,692     |  |   | 3,089,672    | 
|Inventory                                                            |   | 2,115,188     |  |   | 1,373,733    | 
|Deposits and prepaid expenses                                        |   | 965,025       |  |   | 558,068      | 
|Other receivables                                                    |   | 472,746       |  |   | 536,013      | 
|Taxes recoverable                                                    |   | 69,453        |  |   | -            | 
|Total current assets                                                 |   | 8,110,611     |  |   | 5,967,204    | 
|Property, plant and equipment, net of accumulated
      depreciation |   | 329,943       |  |   | 340,616      | 
|Other assets                                                         |   |               |  |   |              | 
|Long term accounts receivable                                        |   | 108,246       |  |   | -            | 
|Intangible assets, net of accumulated
      amortization             |   | 123,802       |  |   | 122,650      | 
|Goodwill                                                             |   | 193,754       |  |   | 193,754      | 
|Total other assets                                                   |   | 425,802       |  |   | 316,404      | 
|                                                                     |   |               |  |   |              | 
|Total assets                                                         | $ | 8,866,356     |  | $ | 6,624,224    | 
|LIABILITIES AND STOCKHOLDERS' EQUITY                                 |   |               |  |   |              | 
|Current liabilities                                                  |   |               |  |   |              | 
|Accounts payable                                                     | $ | 1,331,991     |  | $ | 1,005,679    | 
|Unearned revenue                                                     |   | 279,124       |  |   | 81,009       | 
|Other payables and accrued expenses                                  |   | 633,121       |  |   | 541,767      | 
|Short term debt                                                      |   | 374,250       |  |   | 440,100      | 
|Taxes payable                                                        |   | 170,210       |  |   | 73,160       | 
|                                                                     |   | 2,788,696     |  |   | 2,141,715    | 
|Commitments and contingencies                                        |   | -             |  |   | -            | 
|Stockholders' equity                                                 |   |               |  |   |              | 
|Common stock: $0.001 par value                                       |   |               |  |   |              | 
|Authorized: 75,000,000
      common shares                           |   |               |  |   |              | 
|Issued and outstanding: 21,110,550 common
      shares               |   | 21,111        |  |   | 21,111       | 
|Additional paid-in capital                                           |   | 2,203,765     |  |   | 2,207,072    | 
|Statutory reserve                                                    |   | 2,791         |  |   | 2,791        | 
|Retained earnings                                                    |   | 3,703,128     |  |   | 2,218,197    | 
|Accumulated other comprehensive income                               |   | 146,865       |  |   | 33,338       | 
|Total stockholders' equity                                           |   | 6,077,660     |  |   | 4,482,509    | 
|Total liabilities and stockholders' equity                           | $ | 8,866,356     |  | $ | 6,624,224    | 

- 2 -

---

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

|                                               |   | Three months  |   |   | Three months  |   |   | Nine months   |   |   | Nine months   |  
|---------------------------------------------- | - | ------------- | - | - | ------------- | - | - | ------------- | - | - | ------------- | -
|                                               |   | ended         |   |   | ended         |   |   | ended         |   |   | ended         |  
|                                               |   | September 30, |   |   | September 30, |   |   | September 30, |   |   | September 30, |  
|                                               |   | 2010          |   |   | 2009          |   |   | 2010          |   |   | 2009          |  
|                                               |   | (Unaudited)   |   |   | (Unaudited)   |   |   | (Unaudited)   |   |   | (Unaudited)   |  
|                                               |   |               |   |   |               |   |   |               |   |   |               |  
|Revenues                                       | $ | 2,393,153     |   | $ | 2,363,104     |   | $ | 6,037,300     |   | $ | 3,998,618     |  
|Cost of goods sold                             |   | 1,140,305     |   |   | 1,985,879     |   |   | 3,388,046     |   |   | 2,931,042     |  
|Gross profit                                   |   | 1,252,848     |   |   | 377,225       |   |   | 2,649,254     |   |   | 1,067,576     |  
|Selling and marketing expenses                 |   | (132,984      | ) |   | (159,502      | ) |   | (371,570      | ) |   | (395,141      | )
|General and administrative expenses            |   | (265,083      | ) |   | (225,916      | ) |   | (761,180      | ) |   | (588,770      | )
|Net income (loss) from operations              |   | 854,781       |   |   | (8,193        | ) |   | 1,516,504     |   |   | 83,665        |  
|Other income (expenses)                        |   |               |   |   |               |   |   |               |   |   |               |  
|Other income                                   |   | (34,803       | ) |   | 57            |   |   | 1,481         |   |   | 908           |  
|Government grant                               |   | 74,501        |   |   | 72,061        |   |   | 158,802       |   |   | 193,697       |  
|Interest expense                               |   | (6,118        | ) |   | (4,785        | ) |   | (19,370       | ) |   | (16,478       | )
|Total other income (expenses)                  |   | 33,580        |   |   | 67,333        |   |   | 140,913       |   |   | 178,127       |  
|Income before provision for income taxes       |   | 888,361       |   |   | 59,140        |   |   | 1,657,417     |   |   | 261,792       |  
|Provision for income taxes                     |   | (133,568      | ) |   | (4,300        | ) |   | (169,332      | ) |   | (4,300        | )
|Net income                                     |   | 754,793       |   |   | 54,840        |   |   | 1,488,085     |   |   | 257,492       |  
|                                               |   |               |   |   |               |   |   |               |   |   |               |  
|Other comprehensive income                     |   |               |   |   |               |   |   |               |   |   |               |  
|Foreign currency
      translation gain        |   | 104,735       |   |   | 44,002        |   |   | 113,527       |   |   | 32,905        |  
|Total comprehensive income                     | $ | 859,528       |   | $ | 98,842        |   | $ | 1,601,612     |   | $ | 290,397       |  
|                                               |   |               |   |   |               |   |   |               |   |   |               |  
|Earnings per share                             |   |               |   |   |               |   |   |               |   |   |               |  
|Basic                                          | $ | 0.04          |   | $ | 0.0031        |   | $ | 0.07          |   | $ | 0.01          |  
|Diluted                                        | $ | 0.04          |   | $ | 0.0031        |   | $ | 0.07          |   | $ | 0.01          |  
|                                               |   |               |   |   |               |   |   |               |   |   |               |  
|Weighted average number of shares outstanding: |   |               |   |   |               |   |   |               |   |   |               |  
|Basic                                          |   | 21,110,550    |   |   | 21,110,550    |   |   | 21,110,550    |   |   | 21,110,550    |  
|Diluted                                        |   | 21,110,550    |   |   | 21,110,550    |   |   | 21,110,550    |   |   | 21,110,550    |  

- 3 -

---

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                        |   | Nine months   |   |   | Nine months   |  
|----------------------------------------------------------------------- | - | ------------- | - | - | ------------- | -
|                                                                        |   | ended         |   |   | ended         |  
|                                                                        |   | September 30, |   |   | September 30, |  
|                                                                        |   | 2010          |   |   | 2009          |  
|                                                                        |   | (Unaudited)   |   |   | (Unaudited)   |  
|Cash flows from operating activities                                    |   |               |   |   |               |  
|Net income for the period                                               | $ | 1,488,085     |   | $ | 257,492       |  
|Adjustments to reconcile
      net income to net cash from operations:  |   |               |   |   |               |  
|Depreciation                                                            |   | 62,668        |   |   | 43,864        |  
|Amortization of intangible
      assets                                 |   | 34,566        |   |   | 22,834        |  
|Changes in operating assets and liabilities:                            |   |               |   |   |               |  
|(Increase) decrease in
      inventory                                  |   | (741,455      | ) |   | 58,707        |  
|(Increase) decrease in deposits and prepaid
      expenses              |   | (406,957      | ) |   | 166,033       |  
|Increase in accounts
      receivable and long term accounts receivable |   | (1,168,266    | ) |   | (750,199      | )
|Increase in taxes recoverable                                           |   | (69,453       | ) |   | -             |  
|Decrease in other receivables                                           |   | 63,267        |   |   | 45,391        |  
|Increase in taxes payable                                               |   | 97,050        |   |   | 21,364        |  
|Increase in accounts payable                                            |   | 326,312       |   |   | 402,332       |  
|Increase in unearned revenue                                            |   | 198,115       |   |   | 17,662        |  
|Increase in other payables and
      accrued expenses                   |   | 91,354        |   |   | 261,613       |  
|Net cash (used in) provided by operating activities                     |   | (24,714       | ) |   | 547,093       |  
|Cash flows from investing activities                                    |   |               |   |   |               |  
|Purchases of property, plant and equipment                              |   | (41,262       | ) |   | (213,141      | )
|Purchase of intangible assets                                           |   | (33,210       | ) |   | (26,405       | )
|Net cash used in investing activities                                   |   | (74,472       | ) |   | (239,546      | )
|Cash flows from financing activities                                    |   |               |   |   |               |  
|Repayment of short term debt                                            |   | (65,850       | ) |   | (623,475      | )
|Common stock issued                                                     |   | -             |   |   | 4,106         |  
|Net cash used in financing activities                                   |   | (65,850       | ) |   | (619,369      | )
|Effects of exchange rate changes on cash                                |   | 93,825        |   |   | 272           |  
|Decrease in cash and cash equivalents                                   |   | (71,211       | ) |   | (311,550      | )
|Cash and cash equivalents, beginning of
      period                    |   | 409,718       |   |   | 508,272       |  
|Cash and cash equivalents, end of period                                | $ | 338,507       |   | $ | 196,722       |  
|Supplementary disclosures of cash flow
      information:               |   |               |   |   |               |  
|Cash paid for interest                                                  | $ | 19,370        |   | $ | 16,478        |  
|Cash paid for taxes                                                     | $ | 75,716        |   | $ | 4,300         |  

- 4 -

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Unaudited)

|1. | CORPORATE INFORMATION
|-- | ---------------------

China Skyrise Digital Service Inc. (the Company) (CSD)
(formerly known as Getpokerrakeback.com was incorporated on June 5, 2006 in the
State of Nevada. The Company commenced business by developing and launching its
website getpokerrakeback.com on which it offered rake backs a poker loyalty
program that rewards online poker players for playing online poker at a specific
online poker room.

On September 25, 2009, the Company completed a reverse
acquisition transaction through a share exchange with United Digital Home H.K.
Group Company Limited (UDH) whereby the Company acquired 100% of the issued
and outstanding capital stock of UDH, in exchange for 12,379,800 shares of the
Company's common stock, which shares constituted 72.8% of the Company's issued
and outstanding capital stock on a fully-diluted basis, as of and immediately
after the consummation of the reverse acquisition. As a result of the
acquisition of UDH, the Company now owns all of the issued and outstanding
capital stock of UDH, which in turn owns Shenzhen Skyrise Technology Co., Ltd
(SST) and Shenzhen Skyrise Digital Electronics Co., Ltd. (SSD). For
accounting purposes, the share exchange transaction with UDH was treated as a
reverse acquisition and recapitalization of CSD, with UDH as the acquirer and
China Skyrise Digital Service Inc. as the acquired party. Upon completion of the
exchange, UDH, SST and SSD became wholly owned subsidiaries of CSD.

UDH is a private corporation incorporated on December 11,
2007 in the Hong Kong Special Administrative Region of the People's Republic of
China ("Hong Kong"). It was principally established to serve as an investment
holding company and its operations are carried out in Hong Kong. On January 28,
2008, UDH acquired 100% of the equity interest in SST, a corporation
incorporated under the laws of the People's Republic of China ("PRC"), from
SST's shareholders, including Mr. Mingchun Zhou, the Company's Chairman and
Chief Executive Officer. SST was established on May 23, 2003 and its principal
activity is the sale and development of digital home security networks,
peripherals and software. On April 23, 2008, SST established SSD, a corporation
incorporated under the laws of the PRC. SSD's principal activity is sale and
development of computing networks and intelligence systems.

As a result of the reverse acquisition of UDH, the Company
entered into a new business. Through its Chinese subsidiaries, the Company is
now engaged in the sale and development of computing networks, intelligence
systems, digital home security networks and peripherals, and software.
References to the "Company" hereafter include the business and operations of CSD,
UDH, SST and SSD.

On September 25, 2009, the Company changed its name to China
Skyrise Digital Service Inc. to more accurately reflect its new business
operations.

|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- | ------------------------------------------
|   |                                           
|   | **2.1**                                   

The Company has adopted December 31 as its fiscal year end.

| | 2.2 | REPORTING ENTITIES
| | --- | ------------------

The accompanying consolidated financial statements include the
following entities:

- 5 -

---

Place of
    
    
    Registered
    
    
    
    
    
    Date of
    
    
    Percentage of
    
    
    PrincipalName of subsidiaries
    
    incorporation
    
    
    capital
    
    
    Paid - in capital
    
    
    incorporation
    
    
    interest
    
    
    activityUnited Digital Home H.K. Group Company
      Limited
    
    Hong Kong
    
    
    HK$10,000
    
    
    HK$10,000
    
    
    December 11, 2007
    
    
    100% directly
    
    
    Investment holdingShenzhen Skyrise Technology Co ., Limited
    
    People's Republic of China
    
    
    RMB8,000,000
    
    
    RMB8,000,000
    
    
    May 27, 2003
    
    
    100% directly
    
    
    Digital home security systemShenzhen Skyrise Digital Electronic Co .,
      Limited
    
    People's Republic of China
    
    
    RMB1,000,0000
    
    
    RMB1,000,0000
    
    
    April 23, 2008
    
    
    100% directly
    
    
    Computing network and
      intelligence system


| | 2.3 | BASIS OF CONSOLIDATION AND
  PRESENTATION
| | --- | -----------------------------------------

The consolidated financial statements are prepared in
accordance with generally accepted accounting principles in the United States of
America (US GAAP). In the opinion of management, the accompanying balance
sheets, and statements of income, and cash flows include all adjustments,
consisting only of normal recurring items, considered necessary to give a fair
presentation of operating results for the periods presented. All material
inter-company transactions and balances have been eliminated in consolidation.

For accounting purposes, the combination of CSD and UDH was
accounted for as a reverse merger with UDH as the acquirer and CSD as the
acquired party, and the acquisition of SST and SSD was accounted for under the
acquisition method with UDH as the immediate parent corporation of both
companies for legal purposes. Accordingly the Company's financial statements
have been prepared on a consolidated basis for the periods presented and the
consolidated balance sheets, consolidated statements of income and comprehensive
income, stockholders' equity and cash flows were presented as if the
recapitalization had occurred at the beginning of the earliest period presented
and the operations of the accounting acquired party from the date of stock
exchange transaction.

Interim results are not necessarily indicative of results for a
full year. The information included in the Form 10-Q should be read in
conjunction with the information included in the Company's annual report on Form
10-K for the fiscal year ended December 31, 2009.

| | 2.4 | USE OF ESTIMATES
| | --- | ----------------

The preparation of financial statements in conformity with US
GAAP requires us to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results may differ
from those estimates.

| | 2.5 | ECONOMIC AND POLITICAL
RISK
| | --- | ---------------------------

The Company's business operations are conducted in the PRC and
are subject to special considerations and risks not typically associated with
companies in North America and Western Europe. China's political, economic and
legal environments may influence the Company's business, financial condition and
results of operations, including adverse effects by changes in governmental
policies in laws and regulations, anti-inflationary measures, and rates and
methods of taxation.

| | 2.6 | REVENUE RECOGNITION
| | --- | -------------------

Sales revenue is recognized when all of the following have
occurred: (i) persuasive evidence of an arrangement exists, (ii) delivery has
occurred or services have been rendered, (iii) the price is fixed or
determinable, (iv) the ability to collect is reasonably assured, and (v) customer acceptance through
successful testing of the products by the customer. These criteria are generally
satisfied at the time of shipment when risk of loss and title passes to the
customer.

- 6 -

---

Revenue from standalone maintenance service is recognized upon
delivery of services and customer acceptance. Revenue from period maintenance is
recognized over the life of the maintenance agreements. Revenue from maintenance
service of contracts of multiple element arrangements are recognized as each
element is earned based on the relative fair value of each element provided the
delivered elements have value to customers on a standalone basis. Amounts
allocated to each element are based on its objectively determined fair value,
such as the sales price for the product or service when it is sold separately or
competitor prices for similar products or services. We establish selling price
hierarchy for determining the selling price of a deliverable, which is based on:
(a) vendor-specific objective evidence, (b) third-party evidence, or (c)
estimates.

Software revenues are generated from fixed-price contracts
which include the development of software products, and services to customize
such software to meet customers' needs. Generally, when the services are
determined to be essential to the functionality of the delivered software,
revenue is recognized using the percentage of completion method of accounting in
accordance with ASC 605.35. The percentage of completion for each contract is
estimated based on the ratio of direct labor hours incurred to total estimated
direct labor hours. The Company provides post contract support (PCS), which
includes telephone technical support, that is not essential to the functionality
of the software. Although vendor-specific objective evidence does not exist for
PCS, because (1) the PCS fees are included in the total contract amount, (2) the
PCS service period is for less than one year, (3) the estimated cost of
providing PCS is not significant, and (4) unspecified upgrades/enhancements
offered are minimal and infrequent, the Company recognizes PCS revenue together
with the initial fee after delivery and customer acceptance of the software
products.

System integration revenues are generated from fixed-price
contracts which provide for software development and hardware integration, which
involves more than minor modifications to the functionality of the software and
hardware products. Accordingly, system integration revenues are accounted for in
accordance with FASB ASC 605.35, using the percentage of completion method of
accounting. The percentage of completion for each contract is estimated based on
the ratio of costs incurred to total estimated costs. Contract periods are
usually less than six months, and typical contract periods for PCS are 12
months.

System integration projects are billed in accordance with
contract terms, which typically require partial payment at the signing of the
contract, at delivery and customer acceptance dates, with the remainder due
within a stated period of time not exceeding 12 months. Occasionally, the
Company enters into contracts which allow a percentage of the total contract
price to be paid one to three years after completion of the system integration
project. Revenues on these extended payments are recognized upon completion of
the terms specified in the contract and when collectability is reasonably
assured.

No rights of return are allowed except for non-conforming
products, which have been insignificant based on historical experience. If
non-conforming products are returned due to software issues, the Company will
provide upgrades or additional customization to suit customers' needs. In cases
where non-conformity is a result of integrated hardware, the Company returns the
hardware to the original vendor for replacement.

Unbilled accounts receivable consist of estimated future
billings for work performed but not yet invoiced to the customer. Unbilled
accounts receivable are generally invoiced within one year of completion of the
work performed. Changes in estimates for revenues, costs and profits are
recognized in the period in which they are determinable. When the Company's
estimates indicate that the entire contract will be performed at a loss, a
provision for the entire loss is recorded in the current accounting period.

The Company recognizes revenue when the goods are delivered and
title has passed. Sales revenue represents the invoiced value of goods, net of a
value-added tax (VAT). All of the Company's products that are sold in the PRC
are subject to a Chinese VAT at a rate of 17% of the gross sales price or at a
rate approved by the Chinese local government. This VAT may be offset by the VAT
paid by the Company on raw materials and other materials included in the cost of
producing their finished product.

| | 2.7 | COST OF GOODS SOLD
| | --- | ------------------

Cost of goods sold consists primarily of direct material costs,
direct labor costs, direct depreciation and related direct expenses attributable
to the production of the products. Inbound shipping and handling costs and
purchasing are included in

- 7 -

---

direct material costs. Manufacturing overhead includes expenses
such as indirect labor, depreciation as it relates to the cost of production,
rent, utilities, receiving costs, and equipment maintenance and repairs.

| | 2.8 | SHIPPING AND HANDLING
| | --- | ---------------------

Shipping and handling costs related to costs of goods sold are
included in selling and marketing expenses, and general and administrative
expenses totaled $4,858 and $7,116 for the three months ended September 30, 2010
and September 30, 2009, respectively. Shipping and handling costs amounted to
$16,047and $13,700 for the nine months ended September 30, 2010 and September
30, 2009, respectively.

| | 2.9 | ADVERTISING
| | --- | -----------

Advertising costs are included in selling and marketing
expenses which totaled $1,986 and $1,832 for the three months ended September
30, 2010 and September 30, 2009, respectively. Advertisement costs amounted to
$5,018 and $3,225 for the nine months ended September 30, 2010 and September 30,
2009, respectively.

| | 2.10 | RESEARCH AND DEVELOPMENT
COSTS
| | ---- | ------------------------------

Research and development costs are included in general and
administrative expenses and include the cost to develop new products and are
expensed when incurred and totaled $158,415 and $109,988 for the three months
ended September 30, 2010 and September 30, 2009, respectively. Research and
development costs amounted to $383,452 and $300,075 for the nine months ended
September 30, 2010 and September 30, 2009, respectively. The costs for
development of new products and substantial enhancements to existing products
are expensed as incurred until technological feasibility has been established,
at which time any additional costs would be capitalized. The Company has
determined that technological feasibility is established at the time a working
model of products is completed. No costs have been capitalized to date.

| | 2.11 | GOVERNMENT GRANT
| | ---- | ----------------

Government grants represent local authority grants to the
company for software development. Grants are recognized when the local authority
approves the grant.

| | 2.12 | FOREIGN CURRENCY TRANSLATION AND OTHER COMPREHENSIVE
      INCOME
| | ---- | -----------------------------------------------------------------

The reporting currency of the Company is the United States
Dollars ($). The functional currencies of the Company and its subsidiaries UDH,
SST and SSD, are the United States Dollars ($) and Chinese Renminbi (RMB)
respectively.

For those entities whose functional currency is other than the
US dollars, all assets and liabilities are translated into US dollars at the
exchange rate on the balance sheet date; stockholders' equity is translated at
historical rates and items in the statements of income and of cash flows are
translated at the average rate for the year. Because cash flows are translated
based on the average translation rate, amounts related to assets and liabilities
reported in the statement of cash flows will not necessarily agree with changes
in the corresponding balances in the balance sheet. Translation adjustments
resulting from this process are included in accumulated other comprehensive
income in the consolidated statement of stockholders' equity. Transaction gains
and losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the functional currency are included in the
results of operations as incurred.

Accumulated other comprehensive income amounted to $146,865 as
of September 30, 2010. The balance sheet amounts with the exception of equity at
September 30, 2010 and September 30, 2009 were translated at RM6.68 to $1.00 and
RMB6.84 to $1.00, respectively. The average translation rates applied to the
statements of income and of cash flows for the nine months ended September 30,
2010 and September 30, 2009 were RMB 6.960 and RMB 6.84 to $1.00, respectively.

| | 2.13 | PROPERTY, PLANT AND
EQUIPMENT
| | ---- | -----------------------------

Property, plant and equipment are stated at cost less
accumulated depreciation and any accumulated impairment losses. Such costs
include the cost of replacing parts that are eligible for capitalization when
the cost of replacing the parts is incurred. Similarly, when each major
inspection is performed, its cost is recognized in the carrying amount of the
plant and equipment as a replacement only if it is eligible for capitalization.
The assets' residual values, useful lives and amortization methods are reviewed,
and adjusted if appropriate, at each financial year-end.

Depreciation is calculated on a straight-line basis over the
estimated useful life of the assets.

- 8 -

---

|Assets Classifications                   | Estimated useful life
|---------------------------------------- | ---------------------
|                                         |                      
|Furniture, fixtures and office equipment | 5 years              
|Plant and machinery                      | 5 years              
|Motor vehicles                           | 10 years             

|                                         |  | September 30, |   |  | December 31, |  
|---------------------------------------- |  | ------------- | - |  | ------------ | -
|                                         |  | 2010          |   |  | 2009         |  
|                                         |  | $             |   |  | $            |  
|                                         |  |               |   |  |              |  
|Furniture, fixtures and office equipment |  | 229,335       |   |  | 207,128      |  
|Plant and machinery                      |  | 254,190       |   |  | 226,273      |  
|Motor vehicles                           |  | 39,080        |   |  | 38,296       |  
|                                         |  | 522,605       |   |  | 471,697      |  
|                                         |  |               |   |  |              |  
|Less: Accumulated depreciation           |  | (192,662      | ) |  | (131,081     | )
|Net carrying amount                      |  | 329,943       |   |  | 340,616      |  

Depreciation expense was $38,916 and $9,020 for the three
months ended September 30, 2010 and September 30, 2009 respectively.
Depreciation expense was $62,668 and $43,864 for the nine months ended September
30, 2010 and September 30, 2009, respectively.

Expenditures for maintenance and repairs are charged to expense
as incurred, whereas major improvements are capitalized as additions to
property, plant and equipment. The Company reviews its property, plant and
equipment whenever events or changes in circumstances indicate that the carrying
value of certain assets might not be recoverable. In these instances, the
Company recognizes an impairment loss when it is probable that the estimated
cash flows are less than the carrying value of the asset. To date, no such
impairment losses have been recorded.

| | 2.14 | LONG LIVED ASSETS
| | ---- | ------------------

The Company reviews the carrying amount of its long-lived
assets, including intangibles, for impairment, each reporting period in
accordance with ASC Topic 360 Property, Plant, and Equipment. An asset is
considered impaired when estimated future cash flows are less than the carrying
amount of the asset. In the event the carrying amount of such asset is
considered not recoverable, the asset is adjusted to its fair value. Fair value
is generally determined based on discounted future cash flow. As of September
30, 2010 and December 31, 2009, the Company determined no impairment charges
were necessary.

| | 2.15 | CAPITALIZED INTERNAL USE
SOFTWARE
| | ---- | ---------------------------------

The Company capitalizes certain costs incurred to purchase or
create internal-use software in accordance with ASC Topic 350-40, Internal Use
Software. To date, such costs have included external direct costs of materials
and services incurred in the implementation of internal-use software and are
included within computer hardware and software. Once the capitalization criteria
have been met, such costs are classified as software and are amortized on a
straight-line basis over five years once the software has been put into use.
Subsequent additions, modifications, or upgrades to internal-use software are
capitalized only to the extent that they allow the software to perform a task it
previously did not perform. Software maintenance and training costs are expensed
in the period in which they are incurred.

| | 2.16 | INTANGIBLE ASSETS
| | ---- | -----------------

The Company records identifiable intangible assets in other
assets at cost less accumulated amortization and impairment. These assets
consist primarily of software licenses. The Company amortizes them over the
shorter of their stated or statutory duration or their estimated useful lives on
a straight-line basis over five years.

- 9 -

---

September 30,
    
    
    December 31,2010
    
    
    2009$
    
    
    $Patent
    
    8,229
    
    
    7,058Software system
    
    207,354
    
    
    171,660215,583
    
    
    178,718Less: Accumulated amortization
    
    (91,781
    )
    
    (56,068
    )Net carrying amount
    
    123,802
    
    
    122,650


Amortization expense was $11,618 and $9,064 for the three
months ended September 30, 2010 and September 30, 2009, respectively.
Amortization expense was $34,566 and $22,834 for the nine months ended September
30, 2010 and September 30, 2009, respectively.

| | 2.17 | GOODWILL
| | ---- | --------

Goodwill represents the fair value of the assets acquired in
the acquisitions over the cost of the assets acquired. Goodwill is tested for
impairment on an annual basis of the end of the company's fiscal year, or when
impairment indicators arise. The Company uses a fair-value-based approach to
test for impairment. The Company indirectly acquired two separate companies, SST
and SSD. SST is engaged in the sale and development of digital home security
networks, peripherals and software and SSD is engaged in the sale and
development of computing network and intelligence systems. As a result of these
acquisitions, the Company recorded goodwill in the amount of $193,754. This
goodwill represents the fair value of the assets acquired in these acquisitions
over the cost of the assets acquired.

| | 2.18 | INVENTORY
| | ---- | ---------

Inventory consists primarily of raw materials, components,
finished goods and low value consumable goods. Raw materials, components and low
value consumable cost are stated at cost. Cost comprises direct materials and,
where applicable, direct labor costs and those overheads that have been incurred
in bringing the inventory to their present location and condition. Finished
goods are stated at the lower of cost (determined on weighted average method) or
net realizable value.

|                           |  | September 30, |  |  | December 31, | 
|-------------------------- |  | ------------- |  |  | ------------ | 
|                           |  | 2010          |  |  | 2009         | 
|                           |  | $             |  |  | $            | 
|                           |  |               |  |  |              | 
|Raw materials              |  | 473,589       |  |  | 472,280      | 
|Consumable stores          |  | 129,238       |  |  | 126,647      | 
|Components                 |  | 348,108       |  |  | 156,399      | 
|Work in progress           |  | 89,438        |  |  | -            | 
|Finished goods-in-transits |  | 486,996       |  |  | 166,336      | 
|Finished goods             |  | 587,819       |  |  | 452,071      | 
|                           |  | 2,115,188     |  |  | 1,373,733    | 

The Company provides for inventory losses based on obsolescence
and levels in excess of forecasted demand. In these cases, inventory is reduced
to estimated realizable value based on historical usage and expected demand.
Inherent in the Company's estimates of market value in determining inventory
valuation are estimates related to economic trends, future demand for the
Company's products, and technical obsolescence of products. When products have
been delivered, but the product revenue associated with the arrangement has been
deferred as a result of not meeting the revenue recognition criteria. The
Company includes the costs for the delivered items in inventory until
recognition of the related revenue occurs.

| | 2.19 | ALLOWANCE FOR DOUBTFUL
ACCOUNTS
| | ---- | -------------------------------

The Company reduces gross trade accounts receivable by an
allowance for doubtful accounts. The allowance for doubtful accounts is the
Company's best estimate of the amount of probable credit losses in the Company's
existing accounts receivable. The Company reviews its allowance for doubtful
accounts on a regular basis and all past due balances are reviewed individually
for collectability. Account balances are charged off against the allowance after
all means of collection have been exhausted and the potential for recovery is
considered remote. Provisions for doubtful accounts for the three months ended
September 30, 2010 and year ended December 31, 2009 are $nil. Bad debts written
off for the three months ended September 30, 2010 and September 30, 2009 and for
the nine months ended September 30, 2010 and September 30, 2009 are $nil.

- 10 -

---

Aging of accounts receivable of the company is as follows:

|                                                          |  | Septembter 30, |   |  | December 31, | 
|--------------------------------------------------------- |  | -------------- | - |  | ------------ | 
|                                                          |  | 2010           |   |  | 2009         | 
|                                                          |  | $              |   |  | $            | 
|                                                          |  |                |   |  |              | 
|within 1 year                                             |  | 4,149,692      |   |  | 2,988,032    | 
|over 1 year and within 2 years                            |  | 13,456         |   |  | 101,063      | 
|over 2 years                                              |  | 94,790         |   |  | 577          | 
|                                                          |  | 4,257,938      |   |  | 3,089,672    | 
|Less: reclassified as long term accounts
      receivable |  | (108,246       | ) |  | -            | 
|                                                          |  | 4,149,692      |   |  | 3,089,672    | 

| | 2.20 | DEPOSITS AND PREPAID
EXPENSES
| | ---- | -----------------------------

|                 |  | September 30, |  |  | December 31, | 
|---------------- |  | ------------- |  |  | ------------ | 
|                 |  | 2010          |  |  | 2009         | 
|                 |  | $             |  |  | $            | 
|                 |  |               |  |  |              | 
|Trade deposits   |  | 929,388       |  |  | 508,660      | 
|Prepaid expenses |  | 35,637        |  |  | 49,408       | 
|                 |  | 965,025       |  |  | 558,068      | 

Trade deposits are the payments of deposits to suppliers for
procurement of goods.

| | 2.21 | OTHER RECEIVABLES
| | ---- | -----------------

|                                    |  | September 30, |  |  | December 31, | 
|----------------------------------- |  | ------------- |  |  | ------------ | 
|                                    |  | 2010          |  |  | 2009         | 
|                                    |  | $             |  |  | $            | 
|                                    |  |               |  |  |              | 
|Project tender and other deposits   |  | 69,314        |  |  | 69,924       | 
|Rental and utility deposits         |  | 10,942        |  |  | 14,288       | 
|Loan due from employees             |  | 267,105       |  |  | 211,721      | 
|Due from employees                  |  | 69,220        |  |  | 213,848      | 
|Samples loaned to customers         |  | -             |  |  | 14,202       | 
|Temporary payments to third parties |  | 56,165        |  |  | 12,030       | 
|                                    |  | 472,746       |  |  | 536,013      | 

Project tender deposits are refundable on the completion of the
entire tender process. Amounts due from employees are the amounts advanced for
handling business transactions on behalf of the Company and will be reconciled
by the Company on the completion of the business transactions. Samples loaned to
customers are physical samples advanced to customers for exhibition and
promotion purposes. Temporary payments to third parties are deposits paid by the
Company to suppliers and service providers in anticipation of their delivery of
products and services of the Company. Such deposits are unsecured, interest free
and have no fixed repayment terms.

- 11 -

---

| |      |                  
| | ---- | -----------------
| | 2.22 | TAXES RECOVERABLE

|    |  | September 30, |  |  | December 31, | 
|--- |  | ------------- |  |  | ------------ | 
|    |  | 2010          |  |  | 2009         | 
|    |  | $             |  |  | $            | 
|    |  |               |  |  |              | 
|VAT |  | 69,453        |  |  | -            | 

| | 2.23 | TAXES PAYABLE
| | ---- | -------------

|                                      |  | September 30, |  |  | December 31, | 
|------------------------------------- |  | ------------- |  |  | ------------ | 
|                                      |  | 2010          |  |  | 2009         | 
|                                      |  | $             |  |  | $            | 
|                                      |  |               |  |  |              | 
|VAT                                   |  | 70,290        |  |  | 70,455       | 
|City maintenance and construction tax |  | 809           |  |  | 879          | 
|Individual income tax                 |  | 5,335         |  |  | 1,826        | 
|Educaional and other levies           |  | 160           |  |  | -            | 
|Enterprise income tax                 |  | 93,616        |  |  | -            | 
|                                      |  | 170,210       |  |  | 73,160       | 

| | 2.24 | OTHER PAYABLES AND ACCRUED EXPENSES
| | ---- | -----------------------------------

|                                                  |  | September 30, |  |  | December 31, | 
|------------------------------------------------- |  | ------------- |  |  | ------------ | 
|                                                  |  | 2010          |  |  | 2009         | 
|                                                  |  | $             |  |  | $            | 
|                                                  |  |               |  |  |              | 
|Wages and professional fees accruals              |  | 22,102        |  |  | 16,962       | 
|Due to employees                                  |  | 3,212         |  |  | 14,421       | 
|Due to related party                              |  | 555,861       |  |  | 447,554      | 
|Security deposits for samples loaned to customers |  | 32,642        |  |  | 27,654       | 
|Sundries                                          |  | 13,645        |  |  | 13,171       | 
|Temporary receipts from third parties             |  | 5,659         |  |  | 22,005       | 
|                                                  |  | 633,121       |  |  | 541,767      | 

Wages and professional fee accruals are amounts due to
employees and professional firms. Amounts due to related party represented the
amount due to Mr. Mingchun Zhou, Chief Executive Officer of the Company. SST has
borrowed funds from Mr. Zhou at intervals commencing in fiscal year 2008. Until
July 10, 2009, these loans were unsecured, interest free and had no fixed
repayment term. On July 10, 2009, the Company entered into a Repayment Agreement
with Mr. Zhou, pursuant to which the Company acknowledged and memorialized its
obligation to repay an outstanding balance of RMB 1,937,000 (approximately,
$284,158) to Mr. Zhou. According to the agreement, the loan remains unsecured,
and is interest free, but the Company is obligated to repay the loan on or
before July 10, 2011, the second anniversary of execution date. Security
deposits for samples loaned to customers received are deposits paid by customers
in order to safeguard that
samples will be returned to the Company. Temporary receipts from third parties represent temporary deposits provided to the Company in anticipation of the Company's delivery of products and services to third parties in the future. This is a
usual and customary way to show a good faith intent to conduct business with the Company in the future. Such deposits are unsecured advances, interest free and without a fixed term of repayment.

- 12 -

---

| |      |                                    
| | ---- | -----------------------------------
| | 2.25 | FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph
820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands
disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques
used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three
(3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:

Level 1     Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

Level 2     Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

Level 3     Pricing inputs that are generally observable inputs and not corroborated by market data.

| | 2.26 | STOCK COMPENSATION
| | ---- | ------------------

The Company adopts both ASC Topic 718, “Compensation - Stock Compensation” and ASC Topic 505-50, “Equity-Based Payments to Non-Employees” using the fair value method. Under ASC Topic 718 and ASC Topic 505-50, stock
compensation expenses is measured at the grant date on the value of the option or restricted stock and is recognized as expenses, less expected forfeitures, over the requisite service period, which is generally the vesting period.

| | 2.27 | RETIREMENT BENEFIT COSTS
| | ---- | ------------------------

PRC state managed retirement benefit programs are defined contribution plans and the payments to the plans are charged as expenses when employees have rendered service entitling them to the contribution.

| | 2.28 | INCOME TAXES
| | ---- | ------------

The Company adopted ASC Topic 740, “Income Taxes” that requires recognition of deferred income tax liabilities and assets for the expected future tax consequences of temporary differences between income tax basis and financial reporting
basis of assets and liabilities. Provision for income taxes consist of taxes currently due plus deferred taxes. Since the Company had no operations within the United States there is no provision for US income taxes and there are no deferred tax
amounts as of September 30, 2010 and December 31, 2009.

The charge for taxation is based on the results for the year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is
accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the
computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent that it is probably that taxable profit will be available against
which deductible temporary differences can be utilized.

Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it related to items credited or
charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company intends to settle its
current tax assets and liabilities on a net basis.

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of
tax benefit that is greater than 50% likely of being realized on
examination. For tax positions not meeting the more likely than not test, no
tax benefit is recorded. The adoption had no affect on the Company's financial
statements.

- 13 -

---

| |      |                   
| | ---- | ------------------
| | 2.29 | PRODUCT WARRANTIES

Substantially all of the Company's products are covered by a
standard warranty of 2 years for products. In the event of a failure of products
covered by this warranty, the Company must repair or replace the software or
products or, if those remedies are insufficient, and at the discretion of the
Company, provide a refund. The sales contracts encompass its warranty
obligations. Occurrence of the failure of products within warranty period is few
and insignificant; therefore, the Company provides nil% of sales income for
product warranties for the three months ended September 30, 2010 and September
30, 2009. The product warranty reserve was $nil at September 30, 2010 and
December 31, 2009.

| | 2.30 | RELATED PARTIES
| | ---- | ---------------

Parties are considered to be related to the Company if the
Company has the ability, directly or indirectly, to control the party, or
exercise significant influence over the party in making financial and operating
decisions, or vice versa, or where the Company and the party are subject to
common control or common significance. Related parties may be individuals (being
members of key management personnel, significant shareholders and/or their close
family members) or other entities which are under the significant influence of
related parties of the company where those parties are individuals, and
post-employment benefit plans which are for the benefits of employees of the
Company or of any entity that is a related party of the Company.

| | 2.31 | CASH AND CASH EQUIVALENTS
| | ---- | -------------------------

Cash and cash equivalents comprise cash at bank and on hand,
demand deposits with banks and other financial institutions, and short-term,
highly liquid investments which are readily convertible into known amounts of
cash and which are subject to an insignificant risk of changes in value, and
have a short maturity of generally within three months when acquired.

|                       |  | September 30, |  |  | December 31, | 
|---------------------- |  | ------------- |  |  | ------------ | 
|                       |  | 2010          |  |  | 2009         | 
|                       |  | $             |  |  | $            | 
|                       |  |               |  |  |              | 
|Cash and bank balances |  | 338,507       |  |  | 409,718      | 

| | 2.32 | Concentrations of credit risk
| | ---- | -----------------------------

The Company's operations are carried out in the PRC.
Accordingly, its business, financial condition and results of operations may be
influenced by the political, economic and legal environment in the PRC, and by
the general state of the PRC's economy. The Company's operations in the PRC are
subject to specific considerations and significant risks not typically
associated with companies in North America and Western Europe. The Company's
results may be adversely affected by changes in governmental policies with
respect to laws and regulations, anti-inflationary measures, currency conversion
and remittance abroad, and rates and methods of taxation, among other
things.

Cash includes cash on hand and demand deposits in accounts
maintained with state owned banks within the People's Republic of China. Total
cash (not including restricted cash balances) in these banks on September 30,
2010 and December 31, 2009 amounted to $332,947 and $409,718, respectively, of
which no deposits are covered by insurance. The Company has not experienced any
losses in such accounts and believes it is not exposed to any risks on its cash
in bank accounts.

The Company had 5 major customers whose revenue individually
represented of the Company's total revenue as follows:

- 14 -

---

|           |  | Three months  |  |  | Three months  |  |  | Nine months   |  |  | Nine months   | 
|---------- |  | ------------- |  |  | ------------- |  |  | ------------- |  |  | ------------- | 
|           |  | ended         |  |  | ended         |  |  | ended         |  |  | ended         | 
|           |  | September 30, |  |  | September 30, |  |  | September 30, |  |  | September 30, | 
|           |  | 2010          |  |  | 2009          |  |  | 2010          |  |  | 2009          | 
|           |  |               |  |  |               |  |  |               |  |  |               | 
|Customer A |  | -             |  |  | 35.94%        |  |  | 23.64%        |  |  | 24.98%        | 
|Customer B |  | 36.40%        |  |  | 8.87%         |  |  | 14.37%        |  |  | 5.24%         | 
|Customer C |  | 19.89%        |  |  | -             |  |  | 7.85%         |  |  | -             | 
|Customer D |  | 5.43%         |  |  | -             |  |  | 7.73%         |  |  | -             | 
|Customer E |  | -             |  |  | -             |  |  | 7.50%         |  |  | -             | 
|Customer F |  | 3.75%         |  |  | -             |  |  | -             |  |  | -             | 
|Customer G |  | 17.31%        |  |  | -             |  |  | -             |  |  | -             | 
|Customer H |  | -             |  |  | 15.85%        |  |  | -             |  |  | 11.93%        | 
|Customer I |  | -             |  |  | 13.25%        |  |  | -             |  |  | 7.83%         | 
|Customer J |  | -             |  |  | -             |  |  | -             |  |  | 5.36%         | 
|Customer K |  | -             |  |  | 6.99%         |  |  | -             |  |  | -             | 
|           |  | 82.78%        |  |  | 80.90%        |  |  | 61.09%        |  |  | 55.34%        | 

The company had 5 major customers whose accounts receivable
balance individually represented of the Company's total accounts receivable as
follows:

|           |  | September 30, |  |  | December 31, | 
|---------- |  | ------------- |  |  | ------------ | 
|           |  | 2010          |  |  | 2009         | 
|           |  |               |  |  |              | 
|Customer A |  | 13.93%        |  |  | -            | 
|Customer B |  | 11.31%        |  |  | -            | 
|Customer C |  | 7.20%         |  |  | 9.90%        | 
|Customer D |  | 7.15%         |  |  | -            | 
|Customer E |  | 7.06%         |  |  | 13.35%       | 
|Customer F |  | -             |  |  | 9.13%        | 
|Customer G |  | -             |  |  | 9.11%        | 
|Customer H |  | -             |  |  | 8.76%        | 
|           |  | 46.65%        |  |  | 50.25%       | 

|3. | WEIGHTED AVERAGE NUMBER OF SHARES
|-- | ---------------------------------

In September 2009, the Company entered into share exchange
transaction which has been accounted for as a reverse merger since there has
been a change of control. The Company computes the weighted-average number of
common shares outstanding in accordance with ASC Topic 805 Business
Combination which states that in calculating the weighted average shares when a
reverse merger takes place in the middle of the year, the number of common
shares outstanding from the beginning of that period to the acquisition date
shall be computed on the basis of the weighted-average number of common shares
of the legal acquiree (the accounting acquirer) outstanding during the period
multiplied by the exchange ratio established in the merger agreement. The number
of common shares outstanding from the acquisition date to the end of that period
shall be the actual number of common shares of the legal acquirer (the
accounting acquiree) outstanding during that period.

- 15 -

---

|4. | EARNINGS PER COMMON SHARE
|-- | -------------------------

The Company reports earnings per share in accordance with the
provisions of ASC Topic 260 Earning per Share, which requires presentation of
basic and diluted earnings per share in conjunction with the disclosure of the
methodology used in computing such earnings per share. Basic earnings per share
excludes dilution and is computed by dividing income available to common
stockholders by the weighted average common shares outstanding during the
period. Diluted earnings per share takes into account the potential dilution
(using the treasury stock method) that could occur if securities or other
contracts to issue common stock were exercised and converted into common stock.

For the three months ended September 30, 2010 and September 30,
2009, basic and diluted earnings per share amount to $0.04 and $0.01,
respectively. For the nine months ended September 30, 2010 and September 30,
2009, basic and diluted earnings per share amount to $0.07 and $0.01,
respectively.

|5. | ACCUMULATED OTHER COMPREHENSIVE INCOME
|-- | --------------------------------------

ASC Topic 220 Comprehensive Income establishes standards for
reporting and displaying comprehensive income and its components in financial
statements. Comprehensive income is defined as the change in stockholders'
equity of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources. The comprehensive income for
all periods presented includes both the reported net income and net change in
cumulative translation adjustments.

|6. | RECENT ACCOUNTING PRONOUNCEMENTS
|-- | --------------------------------

In June 2009, the FASB approved the FASB Accounting Standards
Codification (the Codification) as the single source of authoritative
nongovernmental U.S. GAAP to be launched on July 1, 2009. The Codification does
not change current U.S. GAAP, but is intended to simplify user access to all
authoritative U.S. GAAP by providing all the authoritative literature related to
a particular topic in one place. All existing accounting standard documents will
be superseded and all other accounting literature not included in the
Codification will be considered non-authoritative. The Codification is effective
for interim and annual periods ending after September 15, 2009.

In August 2009, the FASB issued the FASB Accounting Standards
Update No. 2009-04 Accounting for Redeemable Equity Instruments - Amendment to
Section 480-10-S99 which represents an update to section 480-10-S99,
distinguishing liabilities from equity, per EITF Topic D-98, Classification and
Measurement of Redeemable Securities . The Company does not expect the adoption
of this update to have a material impact on its consolidated financial position,
results of operations or cash flows.

In August 2009, the FASB issued the FASB Accounting Standards
Update No. 2009-05 Fair Value Measurement and Disclosures Topic 820  Measuring
Liabilities at Fair Value, which provides amendments to subtopic 820-10, Fair
Value Measurements and Disclosures  Overall, for the fair value measurement of
liabilities. This update provides clarification that in circumstances in which a
quoted price in an active market for the identical liability is not available, a
reporting entity is required to measure fair value using one or more of the
following techniques: 1. A valuation technique that uses: a. The quoted price of
the identical liability when traded as an asset b. Quoted prices for similar
liabilities or similar liabilities when traded as assets. 2. Another valuation
technique that is consistent with the principles of topic 820; two examples
would be an income approach, such as a present value technique, or a market
approach, such as a technique that is based on the amount at the measurement
date that the reporting entity would pay to transfer the identical liability or
would receive to enter into the identical liability. The amendments in this
update also clarify that when estimating the fair value of a liability, a
reporting entity is not required to include a separate input or adjustment to
other inputs relating to the existence of a restriction that prevents the
transfer of the liability. The amendments in this update also clarify that both
a quoted price in an active market for the identical liability when traded as an
asset in an active market when no adjustments to the quoted price of the asset
are required are Level 1 fair value measurements. The Company does not expect
the adoption of this update to have a material impact on its consolidated
financial position, results of operations or cash flows

In September 2009, the FASB issued the FASB Accounting
Standards Update No. 2009-08 Earnings Per Share  Amendments to Section
260-10-S99, which represents technical corrections to topic 260-10-S99,
Earnings per share, based on EITF Topic D-53, Computation of Earnings Per Share
for a Period that includes a Redemption or an Induced Conversion of a Portion of
a Class of Preferred Stock and EITF Topic D-42, The Effect of the Calculation
of Earnings per Share for the Redemption or Induced Conversion of Preferred
Stock. The Company does not expect the adoption of this update to have a
material impact on its consolidated financial position, results of operations or
cash flows.

- 16 -

---

In September 2009, the FASB issued FASB Accounting Standards
Update No. 2009-09 Accounting for Investments -Equity Method and Joint Ventures
and Accounting for Equity-Based Payments to Non-Employees. This update
represents a correction to Section 323-10-S99-4, Accounting by an Investor for
Stock-Based Compensation Granted to Employees of an Equity Method Investee.
Additionally, it adds observer comment Accounting Recognition for Certain
Transactions Involving Equity Instruments Granted to Other Than Employees to
the Codification. The Company does not expect the adoption to have a material
impact on its consolidated financial position, results of operations or cash
flows.

In September 2009, the FASB issued the FASB Accounting
Standards Update No. 2009-12 Fair Value Measurements and Disclosures Topic 820
 Investment in Certain Entities That Calculate Net Assets Value Per Share (or
Its Equivalent), which provides amendments to Subtopic 820-10, Fair Value
Measurements and Disclosures-Overall, for the fair value measurement of
investments in certain entities that calculate net asset value per share (or its
equivalent). The amendments in this update permit, as a practical expedient, a
reporting entity to measure the fair value of an investment that is within the
scope of the amendments in this update on the basis of the net asset value per
share of the investment (or its equivalent) if the net asset value of the
investment (or its equivalent) is calculated in a manner consistent with the
measurement principles of Topic 946 as of the reporting entity's measurement
date, including measurement of all or substantially all of the underlying
investments of the investee in accordance with Topic 820. The amendments in this
update also require disclosures by major category of investment about the
attributes of investments within the scope of the amendments in this update,
such as the nature of any restrictions on the investor's ability to redeem its
investments a the measurement date, any unfunded commitments (for example, a
contractual commitment by the investor to invest a specified amount of
additional capital at a future date to fund investments that will be make by the
investee), and the investment strategies of the investees. The major category of
investment is required to be determined on the basis of the nature and risks of
the investment in a manner consistent with the guidance for major security types
in U.S. GAAP on investments in debt and equity securities in paragraph
320-10-50-1B. The disclosures are required for all investments within the scope
of the amendments in this update regardless of whether the fair value of the
investment is measured using the practical expedient. The Company does not
expect the adoption to have a material impact on its consolidated financial
position, results of operations or cash flows.

In October 2009, the Financial Accounting Standards Board
issued an Accounting Standards Update (ASU) regarding accounting for own-share
lending arrangements in contemplation of convertible debt issuance or other
financing. This ASU requires that at the date of issuance of the shares in a
share-lending arrangement entered into in contemplation of a convertible debt
offering or other financing, the shares issued shall be measured at fair value
and be recognized as an issuance cost, with an offset to additional paid-in
capital. Further, loaned shares are excluded from basic and diluted earnings per
share unless default of the share-lending arrangement occurs, at which time the
loaned shares would be included in the basic and diluted earnings-per-share
calculation. This ASU is effective for fiscal years beginning on or after
December 15, 2009, and interim periods within those fiscal years for
arrangements outstanding as of the beginning of those fiscal years. The Company
is currently assessing the impact of this ASU on its consolidated financial
statements.

In January 2010, FASB issued ASU No. 2010-01, Accounting for
Distributions to Shareholders with Components of Stock and Cash. The amendments
in this Update clarify that the stock portion of a distribution to shareholders
that allows them to elect to receive cash or stock with a potential limitation
on the total amount of cash that all shareholders can elect to receive in the
aggregate is considered a share issuance that is reflected in EPS prospectively
and is not a stock dividend for purposes of applying Topics 505 and 260 (Equity
and Earnings Per Share). The amendments in this Update are effective for interim
and annual periods ending on or after December 15, 2009, and should be applied
on a retrospective basis. The Company adopted this standard and has determined
the standard does not have material effect on the Company's consolidated
financial statements.

In January 2010, FASB issued ASU No. 2010-02 regarding
accounting and reporting for decreases in ownership of a subsidiary. Under this
guidance, an entity is required to deconsolidate a subsidiary when the entity
ceases to have a controlling financial interest in the subsidiary. Upon
deconsolidation of a subsidiary, and entity recognizes a gain or loss on the
transaction and measures any retained investment in the subsidiary at fair
value. In contrast, an entity is required to account for a decrease in its
ownership interest of a subsidiary that does not result in a change of control
of the subsidiary as an equity transaction. This ASU clarifies the scope of the
decrease in ownership provisions, and expands the disclosures about the
deconsolidation of a subsidiary or de-recognition of a group of assets. This ASU
is effective for beginning in the first interim or annual reporting period
ending on or after December 31, 2009. The Company does not expect the adoption
of this ASU to have a material impact on its consolidated financial statements
In January 2010, FASB issued ASU No. 2010-02  Accounting and Reporting for
Decreases in Ownership of a Subsidiary  a Scope Clarification. The amendments
in this Update affect accounting and reporting by an entity that experiences a decrease in ownership in a subsidiary that is a
business or nonprofit activity. The amendments also affect accounting and
reporting by an entity that exchanges a group of assets that constitutes a
business or nonprofit activity for an equity interest in another entity. The
amendments in this Update are effective beginning in the period that an entity
adopts SFAS No. 160, Non-controlling Interests in Consolidated Financial
Statements  An Amendment of ARB No. 51. If an entity has previously adopted
SFAS No. 160 as of the date the amendments in this update are included in the
Accounting Standards Codification, the amendments in this update are effective
beginning in the first interim or annual reporting period ending on or after
December 15, 2009. The amendments in this update should be applied
retrospectively to the first period that an entity adopted SFAS No. 160. The
Company adopted this standard and has determined it does not have material
effect on the Company's consolidated financial statements.

- 17 -

---

In January 2010, FASB issued ASU No. 2010-06  Improving
Disclosures about Fair Value Measurements. This Update provides amendments to
Subtopic 820-10 that requires new disclosure as follows: 1) Transfers in and out
of Levels 1 and 2. A reporting entity should disclose separately the amounts of
significant transfers in and out of Level 1 and Level 2 fair value measurements
and describe the reasons for the transfers. 2) Activity in Level 3 fair value
measurements. In the reconciliation for fair value measurements using
significant unobservable inputs (Level 3), a reporting entity should present
separately information about purchases, sales, issuances, and settlements (that
is, on a gross basis rather than as one net number). This Update provides
amendments to Subtopic 820-10 that clarify existing disclosures as follows: 1)
Level of disaggregation. A reporting entity should provide fair value
measurement disclosures for each class of assets and liabilities. A class is
often a subset of assets or liabilities within a line item in the statement of
financial position. A reporting entity needs to use judgment in determining the
appropriate classes of assets and liabilities. 2) Disclosures about inputs and
valuation techniques. A reporting entity should provide disclosures about the
valuation techniques and inputs used to measure fair value for both recurring
and nonrecurring fair value measurements. Those disclosures are required for
fair value measurements that fall in either Level 2 or Level 3. The new
disclosures and clarifications of existing disclosures are effective for interim
and annual reporting periods beginning after December 15, 2009, except for the
disclosures about purchases, sales, issuances, and settlements in the roll
forward of activity in Level 3 fair value measurements. Those disclosures are
effective for fiscal years beginning after December 15, 2010, and for interim
periods within those fiscal years. The Company is currently evaluating the
impact of this ASU, however, the Company does not expect the adoption of this
ASU to have a material impact on its consolidated financial statements.

In February 2010, the FASB issued Accounting Standards Update
2010-09, Subsequent Events (Topic 855): Amendments to Certain Recognition and
Disclosure Requirements, or ASU 2010-09. ASU 2010-09 primarily rescinds the
requirement that, for listed companies, financial statements clearly disclose
the date through which subsequent events have been evaluated. Subsequent events
must still be evaluated through the date of financial statement issuance,
however, the disclosure requirement has been removed to avoid conflicts with
other SEC guidelines. ASU 2010-09 was effective immediately upon issuance and
was adopted in February 2010.

In April 2010, the FASB issued Accounting Standards Update
2010-13, CompensationStock Compensation (Topic 718): Effect of Denominating
the Exercise Price of a Share-Based Payment Award in the Currency of the Market
in Which the Underlying Equity Security Trades, or ASU 2010-13. ASU 2010-13
provides amendments to Topic 718 to clarify that an employee share-based payment
award with an exercise price denominated in currency of a market in which a
substantial porting of the entity's equity securities trades should not be
considered to contain a condition that is not a market, performance, or service
condition. Therefore, an entity would not classify such an award as a liability
if it otherwise qualifies as equity. The amendments in this Update are effective
for fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2010. The Company does not expect the adoption of ASU 2010-17
to have a significant impact on its consolidated financial statements.

In April 2010, the FASB issued Accounting Standard Update
2010-17, Revenue RecognitionMilestone Method (Topic 605): Milestone Method of
Revenue Recognition or ASU 2010-17.This Update provides guidance on the
recognition of revenue under the milestone method, which allows a vendor to
adopt an accounting policy to recognize all of the arrangement consideration
that is contingent on the achievement of a substantive milestone (milestone
consideration) in the period the milestone is achieved. The pronouncement is
effective on a prospective basis for milestones achieved in fiscal years and
interim periods within those years, beginning on or after June 15, 2010. The
adoption of ASU 2010-17 does not have any significant impacts on the
consolidated financial statements.]

- 18 -

---

|7. | INCOME TAXES
|-- | ------------

No Hong Kong corporate income tax has been provided in the
financial statements, as UDH did not have any assessable profits for the three
months ended September 30, 2010 and September 30, 2009 and for the nine months
ended September 30, 2010 and September 30, 2009.

The Company's subsidiaries are governed by the income tax law
of the PRC concerning foreign investment enterprises and foreign enterprises and
various local income tax laws. Beginning January 1, 2008, the new enterprise
income tax law (New EIT Law) replaced the prior tax laws for domestic
enterprises and foreign invested enterprises (FIEs). The new standard
enterprise income tax (EIT) rate of 25% replaced the 33% rate applicable to
both domestic enterprises and FIEs. Prior to 2008, under the existing Chinese
income tax laws, FIEs generally were subject to an income tax at an effective
rate of 33% (30% state income taxes plus 3% local income taxes) on income as
reported in their statutory financial statements after appropriate tax
adjustments unless the enterprise is located in specially designated regions for
which more favorable effective tax rates apply.

Despite these changes, the New EIT Law gives the FIEs
established before March 16, 2007 (Old FIEs) a five-year grandfather period
during which they can continue to enjoy their existing preferential tax
treatments. During this five-year grandfather period, the Old FIEs which enjoyed
tax rates lower than 25% under the original EIT law will be subject to gradually
increased EIT rates over a 5-year period until their tax rate reaches 25%. In
addition, the Old FIEs that are eligible for other preferential tax treatments
by the PRC government under the original EIT law are allowed to continue
enjoying their preference until these preferential treatment periods expire.

Under the old EIT law, SST was entitled to certain tax
exemptions and reductions available to software companies. Under these tax
holidays, SST is entitled to exemption from EIT for 3 years and reduced tax
rates for 2 years after that, effective as of 2007. Therefore, SST incurred no
income tax expenses during fiscal years 2007, 2008 and 2009. SSD is subject to
the New EIT Law and is not entitled to certain tax exemptions and reductions
available to software companies. Provision for income tax is made at 25% on
monthly reported profits. No deferred tax has been provided in the financial
statements as there are no material temporary differences.

In addition, the New EIT Law and its implementing rules
generally provide that a 10% withholding tax applies to China-sourced income
derived by non-resident enterprises for PRC enterprise income tax purposes
unless the jurisdiction of incorporation of such enterprises' shareholder has a
tax treaty with China that provides for a different withholding arrangement. SST
is considered an FIE and is directly held by UDH, a Hong Kong company. According
to a 2006 tax treaty between the Mainland and Hong Kong, dividends payable by an
FIE in China to the company in Hong Kong who directly holds at least 25% of the
equity interests in the FIE will be subject to a no more than 5% withholding
tax.

The following table reconciles the U.S. statutory rates to the
company's effective tax rate for the nine months ended September 30, 2010:

|U.S. statutory rate                       |  | 34%    |  
|----------------------------------------- |  | ------ | -
|Foreign income not recognized in USA      |  | (34%   | )
|China Enterprise income taxe rate         |  | 25%    |  
|Hong Kong profits tax rate                |  | 16.5%  |  
|Offshore subsidiary income not recognized |  | (16.5% | )
|Total provision for income taxes          |  | 25%    |  

- 19 -

---

Provision for income taxes is as follows:

|               |  | Three months  |  |  | Three months  |  |  | Nine months   |  |  | Nine months   | 
|-------------- |  | ------------- |  |  | ------------- |  |  | ------------- |  |  | ------------- | 
|               |  | ended         |  |  | ended         |  |  | ended         |  |  | ended         | 
|               |  | September 30, |  |  | September 30, |  |  | September 30, |  |  | September 30, | 
|               |  | 2010          |  |  | 2009          |  |  | 2010          |  |  | 2009          | 
|               |  | $             |  |  | $             |  |  | $             |  |  | $             | 
|Income tax     |  |               |  |  |               |  |  |               |  |  |               | 
|CSD            |  | -             |  |  | -             |  |  | -             |  |  | -             | 
|UDH            |  | -             |  |  | -             |  |  | -             |  |  | -             | 
|SST- China EIT |  | 132,178       |  |  | -             |  |  | 168,493       |  |  | -             | 
|SSD- China EIT |  | 1,390         |  |  | 4,300         |  |  | 839           |  |  | 4,300         | 
|Deferred tax   |  | -             |  |  | -             |  |  | -             |  |  | -             | 
|               |  | 133,568       |  |  | 4,300         |  |  | 169,332       |  |  | 4,300         | 

|8. | SHORT TERM DEBT
|-- | ---------------

There are no provisions in the Company's bank borrowings that
would accelerate repayment of debt as a result of a change in credit ratings or
a material adverse change in the Company's business. Under certain agreements,
the Company has the option to retire debt prior to maturity, either at par or at
a premium over par.

|                                                                                                                                    |  | September 30, |  |  | December 31, | 
|----------------------------------------------------------------------------------------------------------------------------------- |  | ------------- |  |  | ------------ | 
|                                                                                                                                    |  | 2010          |  |  | 2009         | 
|                                                                                                                                    |  | $             |  |  | $            | 
|Short term debt Loan from Ping An Bank,
      Shenzhen Branch         Interest
      rate 5.5755% per annum and personnal guarantee |  | 374,250       |  |  | 440,100      | 

|9. | COMMON STOCK
|-- | ------------

The Company has authorized 75,000,000 shares of common stock,
par value of $0.001 per share. No preferred shares have been authorized or
issued.

On September 25, 2009, the Company issued 12,379,800 shares of
common stock to the shareholders of UDH. The total consideration for the
12,379,800 shares was 10,000 shares of UDH, which is all the issued and
outstanding capital stock of UDH. As a result of the reverse merger, the equity
account of the Company, prior to the share exchange date, has been retroactively
restated so that the ending outstanding share balance as of the share exchange
date is equal to the number of post share-exchange shares.

On September 25, 2009, the Company issued 4,105,750 shares of
common stock to certain individuals for services to be rendered to the Company
in connection with the reverse acquisition of UDH. These services per agreement
with the Company are to be provided over 5 year period and were valued at
$41,057 or $0.01 per share. Stock based compensation expenses will be recognized
pro-rata over the life of the agreement.

As of September 30, 2010, and December 31, 2009, the Company
has outstanding 21,110,550 issued common shares with a par value of $0.001 per
share.

|10. | STOCK OPTIONS
|--- | -------------

The Company has not granted any stock options and has not
recorded any stock-based compensation as of September 30, 2010. The Company does
not have a formal stock option plan, however, options may be granted with terms
and conditions at the discretion of the Company's board of directors.

- 20 -

---

On September 25, 2009, Mr. Lai, the owner of approximately
65.75% of the Company's issued and outstanding common stock, entered into an
option agreement with Mr. Mingchun Zhou, our Chairman and Chief Executive
Officer and an original shareholder of SST, pursuant to which Mr. Zhou was
granted an option to purchase all shares of the Company's common stock currently
owned or later acquired by Mr. Lai. Mr. Zhou may exercise this option, in whole
but not in part, during the period commencing on the 365th day following of the
date of the option agreement and ending on the second anniversary of the date
thereof. Other than the foregoing, we do not currently have any arrangements
which if consummated may result in a change of control of our Company.

|11. | STOCK BASED COMPENSATION
|--- | ------------------------

On September 25, 2009, the Company issued 4,105,750 shares of
common stock to certain individuals who provided services for the benefit of the
Company and/or its subsidiaries in connection with reverse acquisition of UDH.
The fair value of the common stock issued is determined using the fair value of
the Company's common stock on the grant date at $0.01 per share. The Company
calculated a stock based compensation of $41,058 and recognized $2,053 and $nil,
for the three months ended September 30, 2010 and September 30, 2009,
respectively; and recognized $6,159 and $nil for the nine months ended September
30, 2010 and September 30, 2009 respectively. As of September 30, 2010 and
December 31, 2009, the deferred compensation balances were $26,687 and $32,846
respectively, with an amortization period of four years beginning on 1 January
2010.

|12. | COMMITMENTS AND CONTINGENCIES
|--- | -----------------------------

The future minimum lease payments as of September 30, 2010, are
as follows:

|                            |  | Septembter 30, |  |  | December 31, | 
|--------------------------- |  | -------------- |  |  | ------------ | 
|                            |  | 2010           |  |  | 2009         | 
|                            |  | $              |  |  | $            | 
|                            |  |                |  |  |              | 
|Year ended December 31,2010 |  | 41,989         |  |  | 124,666      | 
|Year ended December 31,2011 |  | 75,488         |  |  | 58,225       | 
|Thereafter                  |  | -              |  |  | -            | 
|                            |  | 117,477        |  |  | 182,891      | 

From time to time and in the ordinary course of business, the
Company may be subject to various claims, damages and litigation. As of
September 30, 2010 and December 31, 2009 the Company did not have any pending
claims, charges, or litigation that it expects would have material adverse
effects on its consolidated balance sheets, consolidated statements of income
and other comprehensive income or cash flows.

|13. | PRODUCT LINE INFORMATION
|--- | ------------------------

The Company sells software and hardware. There are no segment
managers who are held accountable for operations, operating results and plans
for levels or components below the consolidated unit level. The Company
considers itself to be operating within one reportable segment. The Company does
not have long-lived assets located in foreign countries. The Company's net
revenue from external customers by main product lines is as follows:

- 21 -

---

|                     |  | Three months  |  |  | Three months  |  |  | Nine months   |  |  | Nine months   | 
|-------------------- |  | ------------- |  |  | ------------- |  |  | ------------- |  |  | ------------- | 
|                     |  | ended         |  |  | ended         |  |  | ended         |  |  | ended         | 
|                     |  | September 30, |  |  | September 30, |  |  | September 30, |  |  | September 30, | 
|                     |  | 2010          |  |  | 2009          |  |  | 2010          |  |  | 2009          | 
|                     |  | $             |  |  | $             |  |  | $             |  |  | $             | 
|Local sales Hardware |  |               |  |  |               |  |  |               |  |  |               | 
|- system             |  | 525,890       |  |  | 2,117,363     |  |  | 1,395,727     |  |  | 3,163,577     | 
|- chips              |  | 96,665        |  |  | -             |  |  | 2,613,593     |  |  | -             | 
|                     |  | 622,555       |  |  | 2,117,363     |  |  | 4,009,320     |  |  | 3,163,577     | 
|Software             |  | 1,770,598     |  |  | 245,741       |  |  | 1,855,485     |  |  | 682,881       | 
|                     |  | 2,393,153     |  |  | 2,363,104     |  |  | 5,864,805     |  |  | 3,846,458     | 
|Export sales         |  |               |  |  |               |  |  |               |  |  |               | 
|- Hardware           |  | -             |  |  | -             |  |  | 172,495       |  |  | 152,160       | 
|                     |  | 2,393,153     |  |  | 2,363,104     |  |  | 6,037,300     |  |  | 3,998,618     | 

|14. | RELATED PARTIES TRANSACTIONS
|--- | ----------------------------

For the three months ended September 30, 2010 and September 30,
2009 and nine months ended September 30, 2010 and September 30, 2009, there was
cash and non-cash compensation of $5,735, $5,735, $17,205 and $17,205,
respectively, awarded to, earned by, or paid to any of our executive officers or
directors. In addition to the transactions and balances as disclosed elsewhere
in these consolidated financial statements, during the period, the company had
the following significant related party transactions:

|Name of related party | Nature of transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Mr. Mingchun Zhou     | Included in other payables, due to Mr. Mingchun Zhou is
      $555,861 and $447,554 as of September 30, 2010 and December 31, 2009,
      respectively. SST has borrowed funds from Mr. Mingchun Zhou at intervals
      commencing in fiscal year 2008. Until July 10, 2009, these loans were
      unsecured, interest free and had no fixed repayment term. On July 10,
      2009, the Company entered into a Repayment Agreement with Mr. Zhou,
      pursuant to which the Company acknowledged and memorialized its obligation
      to repay an outstanding balance of RMB 1,937,000 (approximately, $284,158)
      to Mr. Zhou. According to the agreement, the loan remains unsecured, and
      is interest free, but the Company is obligated to repay the loan on or
      before July 10, 2011, the second anniversary of execution date.
|                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Mr. Kin Keung Lai     | On September 25, 2009, the company entered into a side
      letter regarding share allocation and distribution with the shareholders
      of UDH, Asia Regal and Mr. Kin Keung Lai, and certain service providers of
      the Company, pursuant to which Asia Regal agreed to transfer to Mr. Lai
      485,576 of the shares issuable to Asia Regal in connection with the
      reverse acquisition of UDH.                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Ms. Hai Yan Huang     | During the year ended December 31, 2009, our sole
      director and officer, Ms. Hai Yan Huang, made a capital contribution to
      the Company in the amount of $59,841.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Mr. Steven Goertz     | During the year ended December 31, 2009, the company
      entered into and closed the Stock Purchase Agreement with Flourishing
      Wisdom and Mr. Steven Goertz, our Chairman, Chief Executive Officer and
      controlling stockholder at such time. Pursuant to the Stock Purchase
      Agreement, Flourishing Wisdom purchased 2,500,000 shares of our common
      stock, representing 54% of our issued and
outstanding common stock as of the closing, from Mr. Goertz for $555,000, or $0.22, per share. As a result of the transaction, Flourishing Wisdom became our controlling stockholder.                                                                                                                                                                                                                                            

|- 22 -
|------

---

|    |                  
|--- | -----------------
|15. | SUBSEQUENT EVENTS

As required by ASC Topic 855 “Subsequent Events,” the Company has evaluated subsequent events that have occurred through November 22, 2010, the date the consolidated financial statements were issued.

- 23 -

---

|ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF
      FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|------- | --------------------------------------------------------------------------------------------

Special Note Regarding Forward Looking Statements

In addition to historical information, this report contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. We use words such as believe, expect, anticipate, project,
target, plan, optimistic, intend, aim, will or similar expressions
which are intended to identify forward-looking statements. Such statements
include, among others, those concerning market and industry segment growth and
demand and acceptance of new and existing products; any projections of sales,
earnings, revenue, margins or other financial items; any statements of the
plans, strategies and objectives of management for future operations; any
statements regarding future economic conditions or performance; as well as all
assumptions, expectations, predictions, intentions or beliefs about future
events. You are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, including
those identified in Item 1A, Risk Factors of our Annual Report filed on Form
10-K for the fiscal year ended December 31, 2009, as well as assumptions, which,
if they were to ever materialize or prove incorrect, could cause the results of
the Company to differ materially from those expressed or implied by such
forward-looking statements.

Readers are urged to carefully review and consider the various
disclosures made by us in this report and our other filings with the SEC. These
reports attempt to advise interested parties of the risks and factors that may
affect our business, financial condition and results of operations and
prospects. The forward-looking statements made in this report speak only as of
the date hereof and we disclaim any obligation to provide updates, revisions or
amendments to any forward-looking statements to reflect changes in our
expectations or future events.

Use of Terms

Except as otherwise indicated by the context and for the
purposes of this report only, references in this report to:

- we, us, our, or the Company are to the combined business of China
  Skyrise Digital Service Inc., a Nevada corporation, and its consolidated
  subsidiaries, United Digital, Skyrise Technology and Skyrise Digital;
- United Digital are to United Digital Home H.K. Group Company Limited, a
  Hong Kong limited company;
- Skyrise Technology are to Shenzhen Skyrise Technology Co., Ltd., a PRC
  limited company;
- Skyrise Digital are to Shenzhen Skyrise Digital Electronics Co., Ltd., a
  PRC limited company;
- Hong Kong are to the Hong Kong Special Administrative Region of the
  People's Republic of China;
- PRC, China, and Chinese, are to the People's Republic of China;
- SEC are to the Securities and Exchange Commission;
- Securities Act are to the Securities Act of 1933, as amended;
- Exchange Act are to the Securities Exchange Act of 1934, as amended;
- Renminbi and RMB are to the legal currency of China; and
- U.S. dollars, dollars and $ are to the legal currency of the United
  States.

Overview of Our Business

Our Company develops, sells, and provides maintenance services
for digital residential safety and video surveillance products in China. Our
customers are primarily urban and suburban residents in multifamily dwellings,
property managers and real estate development companies in China. We plan to
expand our customer base by marketing our products to commercial entities and
customers, such as airports, hotels, banks, supermarkets and entertainment
venues. Our customers are spread across China, but are primarily located in the
coastal metropolitan regions including Beijing, Shanghai, and
Guangzhou/Shenzhen. 
Our revenues are mainly derived from digital residential safety and video
surveillance packaged solutions, which include after-sale service maintenance,
such as fault checking, system upgrade and accident response, for the first two
years following installation. Our customers may purchase maintenance services
from third-party contractors after the first two years. We also offer
installation services through the use of third-party contractors but such
services have historically been an insignificant portion of our total revenues.
Revenues derived from the sale of our products are generally non-recurring and
are not concentrated within any one customer or group of related customers. 
Our products are comprised of manufactured electronic componentsin particular
LCD screens and integrated circuitsthat we source from domestic suppliers based
in the Shenzhen, China. 
Our sales network is concentrated in the populated areas of Guangdong Province,
in southern China, but we plan to expand our sales network to other populated
areas. We have more than 10 branch offices and distribution points. Our
headquarters are located in Shenzhen, China.

24

---

Third Quarter Financial Performance Highlights

The following are some financial highlights for the third
quarter:

- Revenues: Revenues increased $30,049, or 1.27%, to
  $2,393,153 for the three months ended September 30, 2010, from $2,363,104 for
  the same period in 2009.
- Gross margin: Gross margin was 52.35% for the three months
  ended September 30, 2010, as compared to 15.96% for the same period in 2009.
- Net income: Net income increased $699,953, or 1276.35%, to
  $754,793 for the three months ended September 30, 2010, from $54,840 for the
  same period in 2009.
- Fully diluted earnings per share: Fully diluted earnings per
  share was $0.04 for the three months ended September 30, 2010, as compared to
  $0.0031 for the same period in 2009.

Results of Operations

The following tables set forth key components of our results of
operations for the periods indicated, both in dollars and as a percentage of
sales revenue.

Comparison of Three Months Ended September 30, 2010 and
September 30, 2009

(All amounts, other than percentages, in U.S. dollars)

|                                               |   | Three Months Ended |   |  | Three Months Ended |   
|---------------------------------------------- | - | ------------------ | - |  | ------------------ | --
|                                               |   | September 30, 2010 |   |  | September 30, 2009 |   
|                                               |   |                    |   |  | Percent of         |   
|                                               |   | Amount             |   |  | Revenues           |   
|Revenues                                       | $ | 2,393,153          |   |  | 100                | % 
|Cost of goods sold                             |   | 1,140,305          |   |  | 47.65              | % 
|Gross profit                                   |   | 1,252,848          |   |  | 52.35              | % 
|Selling and marketing expenses                 |   | (132,984           | ) |  | (5.55              | )%
|General and administrative expenses            |   | (265,083           | ) |  | (11.08             | )%
|Income (loss) from operations                  |   | 854,781            |   |  | 35.72              | % 
|Other income (expenses)                        |   |                    |   |  |                    |   
|Other income                                   |   | (34,803            | ) |  | (1.45              | )%
|Government grant                               |   | 74,501             |   |  | 3.11               | % 
|Interest expense                               |   | (6,118             | ) |  | (0.26              | )%
|Total other income (expenses)                  |   | 33,580             |   |  | 1.40               | % 
|Income before provision for income taxes       |   | 888,361            |   |  | 37.12              | % 
|Provision for income taxes                     |   | (133,568           | ) |  | (5.58              | )%
|Net income                                     |   | 754,793            |   |  | 31.54              | % 
|Other comprehensive income                     |   |                    |   |  |                    |   
|Foreign currency translation
      gain (loss) |   | 104,735            |   |  | 4.38               | % 
|Total comprehensive income                     | $ | 859,528            |   |  | 35.92              | % 

- 25 -

---

Revenues. Our revenue was derived from the provision
of digital residential safety and video surveillance packaged solutions,
including the development and after-sale service maintenance of safety and
surveillance systems. Our sales revenue increased to $2,393,153 in the three
months ended September 30, 2010, from $2,363,104 in the same period last year,
remaining almost flat period-on-period. Sales to new customers accounted for
63.6% of total sales.

Cost of goods sold. Cost of goods sold consists
primarily of direct material costs, direct labor costs, direct depreciation and
related direct expenses attributable to the production of the products. Our cost
of goods sold decreased $845,574, or -42.58%, to $1,140,305 in the three months
ended September 30, 2010, from $1,985,879 in the same period in 2009. The cost
of goods sold as a percentage of sales decreased to 47.65% in 2010, from 84.04%
in 2009. In 2009, one of the primary components used in our business, LCD
screens and integrated circuits, was extremely costly due to high market demand
during the period. During the three months ended September 30, 2009, the price
of LCD screens and integrated circuits were approximately 30% higher than in the
same 2008 and 2010 periods. As the price of LCD screens returned to historically
normal levels in 2010, our cost of goods sold decreased.

Gross profit and gross margin. Gross profit is equal
to the difference between our revenue and the cost of revenue. Gross margin is
equal to gross profit divided by revenue. Our gross profit increased $875,623,
or 232.12%, to $1,252,848, in the three months ended September 30, 2010, from
$377,225 in the same period in 2009.

Selling and marketing expenses. Selling and marketing
expenses consist primarily of compensation and benefits for our sales and
marketing staff, sales commissions, the cost of advertising, promotional and
travel activities, transportation expenses, after-sales support services and
other sales related costs. Our selling and marketing expenses decreased $26,518,
or 16.63%, to $132,984 in the three months ended September 30, 2010, from
$159,502 in the same period in 2009. In 2009, we spent more on sales and
marketing efforts to maintain our sales due to the tough market conditions at
the time. Market conditions have improved during the 2010 period and our selling
and marketing expenses have stabilized.

General and administrative expenses. General and
administrative expenses consist primarily of compensation and benefits for our
general management, finance and administrative staff, professional and advisory
fees, bad debts reserves, and other expenses incurred in connection with general
corporate purposes. Our general and administrative expenses increased $39,167,
or 17.34%, to $265,083 in the three months ended September 30, 2010, from
$225,916 in the same period in 2009, primarily due to our hiring of more
financial and administrative staff during the 2010 period.

Interest expense. Interest expense increased $1,333,
or 27.86%, to $6,118 in the three months ended September 30, 2010, from $4,785
in the same period in 2009, primarily due to higher outstanding loan balances
during the 2010 period. On November 9, 2009, we renewed a 12-month short term
loan with PingAn Bank, Shenzhen, at a 5.5755% interest rate.

Other income.

Income before provision for income taxes. Our income
before provision for income taxes increased to $888,361 in the three months
ended September 30, 2010 from $59,140 in the same period last year, primarily
because our cost of goods sold decreased during the 2010 period.

Income taxes. Our income tax increased to $133,568 in
the three months ended September 30, 2010 from $4,300 in the same period last
year. Such increase was mainly due to the discontinuation of certain
preferential tax treatments. Skyrise Technology has been entitled to certain tax
exemptions and reductions available to software companies. Under these "tax
holidays," Skyrise Technology was entitled to exemption from earned income taxes
for 3 years and reduced tax rates for 2 years after that, effective as of 2007.

Net income. In the three months ended September 30, 2010, we
generated a net income of $754,793, an increase of $699,953, from $54,840 in the
same period in 2009, as a result of the factors described above.

Comparison of Nine Months Ended September 30, 2010 and
September 30, 2009

(All amounts, other than percentages, in U.S. dollars)

|                               |   | Nine Months Ended  |   |  | Nine Months Ended  |   
|------------------------------ | - | ------------------ | - |  | ------------------ | --
|                               |   | September 30, 2010 |   |  | September 30, 2009 |   
|                               |   | (unaudited)        |   |  | (unaudited)        |   
|                               |   |                    |   |  | Percent of         |   
|                               |   | Amount             |   |  | Revenues           |   
|Revenues                       | $ | 6,037,300          |   |  | 100                | % 
|Cost of goods sold             |   | 3,388,046          |   |  | 56.12              | % 
|Gross profit                   |   | 2,649,254          |   |  | 43.88              | % 
|Selling and marketing expenses |   | (371,570           | ) |  | (6.15              | )%

|General and administrative expenses            |   | (761,180  | ) |  | (12.61 | )% |   | (588,770 | ) |  | (14.73 | )%
|---------------------------------------------- | - | --------- | - |  | ------ | -- | - | -------- | - |  | ------ | --
|Income (loss) from operations                  |   | 1,516,504 |   |  | 25.12  | %  |   | 83,665   |   |  | 2.09   | % 
|Other income (expenses)                        |   |           |   |  |        |    |   |          |   |  |        |   
|Other income                                   |   | 1,481     |   |  | 0.02   | %  |   | 908      |   |  | 0.02   | % 
|Government grant                               |   | 158,802   |   |  | 2.63   | %  |   | 193,697  |   |  | 4.84   | % 
|Interest expense                               |   | (19,370   | ) |  | (0.32  | )% |   | (16,478  | ) |  | (0.41  | )%
|Total other income (expenses)                  |   | 140,913   |   |  | 2.33   | %  |   | 178,127  |   |  | 4.45   | % 
|Income before provision for income taxes       |   | 1,657,417 |   |  | 27.45  | %  |   | 261,792  |   |  | 6.54   | % 
|Provision for income taxes                     |   | (169,332  | ) |  | (2.80  | )% |   | (4,300   | ) |  | (0.11  | )%
|Net income                                     |   | 1,488,085 |   |  | 24.65  | %  |   | 257,492  |   |  | 6.44   | % 
|Other comprehensive income                     |   |           |   |  |        |    |   |          |   |  |        |   
|Foreign currency translation
      gain (loss) |   | 113,527   |   |  | 1.88   | %  |   | 32,905   |   |  | 0.82   | % 
|Total comprehensive income                     | $ | 1,601,612 |   |  | 26.53  | %  | $ | 290,397  |   |  | 7.26   | % 

- 26 -

---

Revenues. Our sales revenue increased to $6,037,300
in the nine months ended September 30, 2010 from $3,998,618 in the same period
last year, representing an 50.98% growth period-on-period. The growth was mainly
due to improved economic conditions during the 2010 period as compared to the
same period of 2009, and an increase in new customers due to our escalated
marketing and sales efforts. Sales to new customers accounted for 60% of total
sales and 98% of our sales growth, while sales to existing customers accounted
for 40% of total sales, and 2% of our sales growth.

Cost of good sold. Our cost of goods sold increased
$457,004, or 15.59%, to $3,388,046 in the nine months ended September 30, 2010
from $2,931,042 in the same period in 2009. The cost of goods sold as a
percentage of revenue decreased to 56.12% in 2010, from 73.30% in 2009. During
the nine months ended September 30, 2009, the price of the LCD screens that we
use in our products were approximately 30% higher than in the same 2008 and 2010
periods, due to high demand for such components during the 2009 period.

Gross profit and gross margin. Our gross profit
increased $1,581,678, or 148.16%, to $2,649,254, in the nine months ended
September 30, 2010, from $1,067,576 in the same period in 2009. Gross profit as
a percentage of net revenue was 43.88% and 26.70% for the nine months ended
September 30, 2010 and 2009, respectively, because the price of LCD screens, a
primary electronic component used in our products, decreased by approximately
30% from the price of such products in 2008 and 2010, which reduced the overall
cost of our products.

Selling and marketing expenses. Our selling and
marketing expenses decreased $23,571, or 5.97%, to $371,570 in the nine months
ended September 30, 2010, from $395,141 in the same period in 2009. In 2009, we
incurred higher marketing expenses in order to attract and maintain our sales
levels due in part to the challenging market conditions at the time. Market
condition have improved during the 2010 period and our selling and marketing
expenses have stabilized.

General and administrative expenses.

Interest expense. Interest expense increased $2,892,
or 17.55%, to $19,370 in the nine months ended September 30, 2010, from $16,478
in the same period in 2009, primarily due to higher outstanding loan balances
during the 2010 period. On November 9, 2009, we renewed a 12-month short term
loan PingAn Bank, Shenzhen, at a 5.5755% interest rate.

Other income.

Income before provision for income taxes. Our income before provision
for income taxes increased to $1,657,417 in the nine months ended September 30,
2010 from $261,792 in the same period last year.

Income taxes. Our income tax increased to $169,332 in
the nine months ended September 30, 2010, from $4,300 in the same period last
year. Such increase was mainly due to the discontinuation of certain
preferential tax treatments. Skyrise Technology has been entitled to certain tax
exemptions and reductions available to software companies. Under these "tax
holidays," Skyrise Technology was entitled to exemption from earned income taxes
for 3 years and reduced tax rates for 2 years thereafter, effective as of 2007.

- 27 -

---

Net income. In the nine months ended September 30, 2010, we generated
a net income of $1,488,085, an increase of $1,230,593, from $257,492 in the same
period in 2009, as a result of the factors described above.

Liquidity and Capital Resources

As of September 30, 2010, we had cash and cash equivalents of
$338,507, primarily consisting of cash on hand and demand deposits. The
following table provides detailed information about our net cash flow for all
financial statement periods presented in this report. To date, we have financed
our operations primarily through cash flows from operations, augmented by
short-term bank borrowings and equity contributions by our stockholders.

Cash Flow(all amounts in U.S. dollars)

|                                                          |   | Nine Months Ended
      September 30, |  
|--------------------------------------------------------- | - | ------------------------------------- | -
|                                                          |   | 2010                                  |  
|                                                          |   | (unaudited)                           |  
|Net cash provided by (used in)
      operating activities | $ | (24,714                               | )
|Net cash  used in investing activities                    |   | (74.472                               | )
|Net cash  used in
      financing activities              |   | (65,850                               | )
|Effects of exchange rate change in cash                   |   | 93,825                                |  
|Net  decrease in cash and
      cash equivalents          |   | (71,211                               | )
|Cash and cash equivalents at beginning of the period      |   | 409,718                               |  
|Cash and cash equivalent at end of
      the period       | $ | 338,507                               |  

Operating Activities

Net cash used by operating activities was $24,714 for the
nine months ended September 30, 2010, as compared to $547,093 provided by
operating activities for the same period in 2009.

The change in net cash from operating activities from period to
period was primarily attributable to a $0.4 million increase in account
receivables, a $0.6 million increase in deposits and prepaid expenses and a $0.8
million increase in inventory for the nine month period ended September 30, 2010
as compared to the same period in 2009.

These changes were mainly due to the expansion of our business
and operations in the 2010 period, during which we were able to take on larger contracts which led to a lengthening of our average payment cycle
during the period.

Investing Activities

Net cash used in investing activities for the nine months ended
September 30, 2010 was $74,472, as compared to $239,546 for the same period in
2009. The decrease was mainly due to our reduced investment in property, plant
and equipment for the nine months ended September 30. 2010. For the same period
of 2009, we invested in new equipment to support our product line expansion.

Financing Activities

Net cash used in financing activities for the nine months ended
September 30, 2010 was $65,850, as compared to $619,369 used for the same period
in 2009, primarily due to our repayment of all but one outstanding short term
debt held during the 2009 period. As of September 30, 2010, we had one bank loan
outstanding, from PingAn Bank, Shenzhen, in the amount of RMB 2,500,000
(approximately $374,250). The loan was for a period of 12 months and was repaid
in full prior to its November 10, 2010 maturity date.

We believe that our cash on hand and cash flow from operations
will meet our present cash needs for the next 12 months. We may, however, in the
future, require additional cash resources due to changed business conditions,
implementation of our strategy to ramp up our marketing efforts and increase
brand awareness, or acquisitions we may decide to pursue. If our own financial
resources are insufficient to satisfy our capital requirements, we may seek to
sell additional equity or debt securities or obtain additional credit
facilities. The sale of additional equity securities could result in dilution to
our stockholders. The incurrence of indebtedness would result in increased debt
service obligations and could require us to
agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could
limit our ability to expand our business operations and could harm our overall business prospects.

- 28 -

---

Obligations under Material Contracts

We have borrowed funds from Mr. Mingchun Zhou, our Chief Executive Officer, at three months intervals commencing in 2009. Until July 10, 2009, these loans were unsecured, interest free and had no fixed repayment term. On July 10, 2009, we entered
into a repayment agreement with Mr. Zhou, pursuant to which we acknowledged and memorialized our obligation to repay an outstanding balance of RMB 1,937,000 (approximately, $284,158) to Mr. Zhou. According to the agreement, the loan remains
unsecured, and is interest free, but we are obligated to repay the loan on or before July 10, 2011, the second anniversary of execution date. We intend to repay this loan within the year.

We are also obligated to deliver 500,000 shares of our common stock to JW Junwei Financial Group, or Junwei, in five equal installments, commencing on December 31, 2009, pursuant to an exclusive financial advisory agreement, dated December 10, 2007,
between the company and Junwei,. Under the terms of the agreement, Junwei is obligated to provide the Company with financial advisory services over a five-year term commencing on January 1, 2008 and ending on December 31, 2012 and the Company has
agreed to Junwei's exclusivity as its financial advisor during such period.

CCG Investor Relations Partners LLC, CCG, to the terms and conditions of a letter agreement dated January 1, 2010, is entitled to purchase up to 200,000 shares of fully-paid and non-assessable shares of our common stock, at a price equivalent to the
price of any financing involving the sales of equity securities over the 12 month period.

Inflation

Inflation and changing prices have not had a material effect on our business and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future. However, our management will closely monitor the price
change in our industry and continually maintain effective cost control in operations.

Off Balance Sheet Arrangements

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

Seasonality

Our operating results and operating cash flows historically have been subject to seasonal variations. Our revenues are usually higher in the second half of the year than in the first half of the year and the first quarter is usually the slowest
quarter because fewer projects are undertaken during and around the Chinese spring festival.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes
thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an
understanding of our financial condition and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial conditions and results of operations and require management's difficult,
subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their
significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management's current judgments. We believe the following critical accounting policies involve the most
significant estimates and judgments used in the preparation of our financial statements:

- 29 -

---

Basic of consolidation and presentation

The consolidated financial statements are prepared in
accordance with generally accepted accounting principles in the United States of
America (US GAAP). In the opinion of management, the accompanying balance
sheets, and statements of income, and cash flows include all adjustments,
consisting only of normal recurring items, considered necessary to give a fair
presentation of operating results for the periods presented. All material
inter-company transactions and balances have been eliminated in consolidation.

For accounting purposes, the combination of the company and UDH
was accounted for as a reverse merger with UDH as the acquirer and CSD as the
acquired party and the acquisition of SST and SSD was accounted for under the
acquisition method with UDH as the immediate parent corporation of both
companies for legal purposes. Accordingly the Company's financial statements
have been prepared on a consolidated basis for the periods presented and the
consolidated balance sheets, consolidated statements of income and comprehensive
income, stockholders' equity and cash flows were presented as if the
recapitalization had occurred at the beginning of the earliest period presented
and the operations of the accounting acquired party from the date of stock
exchange transaction.

Interim results are not necessarily indicative of results for a
full year. The information included in the Form 10-Q should be read in
conjunction with the information included in the Company's annual report on Form
10-K for the fiscal year ended December 31, 2009.

Use of estimates

The preparation of financial statements in conformity with US
GAAP requires us to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results may differ
from those estimates.

Economic and political risk

The Company's business operations are conducted in the PRC and
are subject to special considerations and risks not typically associated with
companies in North America and Western Europe. China's political, economic and
legal environments may influence the Company's business, financial condition and
results of operations, including adverse effects by changes in governmental
policies in laws and regulations, anti-inflationary measures, and rates and
methods of taxation.

Revenue recognition

Sales revenue is recognized when all of the following have
occurred: (i) persuasive evidence of an arrangement exists, (ii) delivery has
occurred or services have been rendered, (iii) the price is fixed or
determinable, and (iv) the ability to collect is reasonably assured, (v)
customer acceptance through successful testing of the products by the customer.
These criteria are generally satisfied at the time of shipment when risk of loss
and title passes to the customer.

Revenue from standalone maintenance service is recognized upon
delivery of services and customer acceptance. Revenue from period maintenance is
recognized over the life of the maintenance agreements. Revenue from maintenance
service of contracts of multiple element arrangements are recognized as each
element is earned based on the relative fair value of each element provided the
delivered elements have value to customers on a standalone basis. Amounts
allocated to each element are based on its objectively determined fair value,
such as the sales price for the product or service when it is sold separately or
competitor prices for similar products or services. We establish selling price
hierarchy for determining the selling price of a deliverable, which is based on:
(a) vendor-specific objective evidence, (b) third-party evidence, or (c)
estimates.

Software revenues are generated from fixed-price contracts
which include the development of software products, and services to customize
such software to meet customers' needs. Generally, when the services are
determined to be essential to the functionality of the delivered software,
revenue is recognized using the percentage of completion method of accounting in
accordance with ASC 605.35. The percentage of completion for each contract is
estimated based on the ratio of direct labor hours incurred to total estimated
direct labor hours. The Company provides post contract support (PCS), which
includes telephone technical support, that is not essential to the functionality
of the software. Although vendor-specific objective evidence does not exist for
PCS, because (1) the PCS fees are included in the total contract amount, (2) the
PCS service period is for less than one year, (3) the estimated cost of
providing PCS is not significant, and (4) unspecified upgrades/ enhancements
offered are minimal and infrequent; the Company recognizes PCS revenue together
with the initial fee after delivery and customer acceptance of the software
products.

- 30 -

---

System integration revenues are generated from fixed-price
contracts which provide for software development and hardware integration, which
involves more than minor modifications to the functionality of the software and
hardware products. Accordingly, system integration revenues are accounted for in
accordance with FASB ASC 605.35, using the percentage of completion method of
accounting. The percentage of completion for each contract is estimated based on
the ratio of costs incurred to total estimated costs. Contract periods are
usually less than six months, and typical contract periods for PCS are 12
months.

System integration projects are billed in accordance with
contract terms, which typically require partial payment at the signing of the
contract, at delivery and customer acceptance dates, with the remainder due
within a stated period of time not exceeding 12 months. Occasionally, the
Company enters into contracts which allow a percentage of the total contract
price to be paid one to three years after completion of the system integration
project. Revenues on these extended payments are recognized upon completion of
the terms specified in the contract and when collectability is reasonably
assured.

No rights of return are allowed except for non-conforming
products, which have been insignificant based on historical experience. If
non-conforming products are returned due to software issues, the Company will
provide upgrades or additional customization to suit customers' needs. In cases
where non-conformity is a result of integrated hardware, the Company returns the
hardware to the original vendor for replacement.

Unbilled accounts receivable consist of estimated future
billings for work performed but not yet invoiced to the customer. Unbilled
accounts receivable are generally invoiced within one year of completion of the
work performed. Changes in estimates for revenues, costs and profits are
recognized in the period in which they are determinable. When the Company's
estimates indicate that the entire contract will be performed at a loss, a
provision for the entire loss is recorded in the current accounting period.

The Company recognizes revenue when the goods are delivered and
title has passed. Sales revenue represents the invoiced value of goods, net of a
value-added tax (VAT). All of the Company's products that are sold in the PRC
are subject to a Chinese VAT at a rate of 17% of the gross sales price or at a
rate approved by the Chinese local government. This VAT may be offset by the VAT
paid by the Company on raw materials and other materials included in the cost of
producing their finished product.

Cost of goods sold

Cost of goods sold consists primarily of direct material costs,
direct labor costs, direct depreciation and related direct expenses attributable
to the production of the products. Inbound shipping and handling costs and
purchasing are included in direct material costs. Manufacturing overhead
includes expenses such as indirect labor, depreciation as it relates to the cost
of production, rent, utilities, receiving costs, and equipment maintenance and
repairs.

Shipping and handing

Shipping and handling costs related to costs of goods sold are
included in selling and marketing expenses, and general and administrative
expenses totaled $4,858 and $7,116 for the three months ended September 30, 2010
and September 30, 2009, respectively. Shipping and handling costs amounted to
$16,047and $13,700 for the nine months ended September 30, 2010 and September
30, 2009, respectively.

Advertising

Advertising costs are included in selling and marketing
expenses which totaled $1,986 and $1,832 for the three months ended September
30, 2010 and September 30, 2009, respectively. Advertisement costs amounted to
$5,018 and $3,225 for the nine months ended September 30, 2010 and September 30,
2009, respectively.

Research and development costs

Research and development costs are included in general and
administrative expenses and include the cost to develop new products and are
expensed when incurred and totaled $158,415 and $109,988 for the three months
ended September 30, 2010 and September 30, 2009, respectively. Research and
development costs amounted to $383,452 and $300,075 for the nine months ended
September 30, 2010 and September 30, 2009, respectively. The costs for
development of new products and substantial enhancements to existing products
are expensed as incurred until technological feasibility has been established,
at which time any additional costs would be capitalized. The Company has
determined that technological feasibility is established at the time a working
model of products is completed. No costs have been capitalized to date.

- 31 -

---

Government grant

Government grants represent local authority grants to the
company for software development. Grants are recognized when the local authority
approves the grant.

Foreign currency translation and other comprehensive
income

The reporting currency of the Company is the United States
Dollars ($). The functional currencies of the Company and its subsidiaries UDH,
SST and SSD, are the United States Dollars ($) and Chinese Renminbi (RMB)
respectively.

For those entities whose functional currency is other than the
US dollars, all assets and liabilities are translated into US dollars at the
exchange rate on the balance sheet date; stockholders' equity is translated at
historical rates and items in the statements of income and of cash flows are
translated at the average rate for the year. Because cash flows are translated
based on the average translation rate, amounts related to assets and liabilities
reported in the statement of cash flows will not necessarily agree with changes
in the corresponding balances in the balance sheet. Translation adjustments
resulting from this process are included in accumulated other comprehensive
income in the consolidated statement of stockholders' equity. Transaction gains
and losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the functional currency are included in the
results of operations as incurred.

Accumulated other comprehensive income amounted to $146,865 as
of September 30, 2010. The balance sheet amounts with the exception of equity at
September 30, 2010 and September 30, 2009 were translated at RM6.68 to $1.00 and
RMB6.84 to $1.00, respectively. The average translation rates applied to the
statements of income and of cash flows for the nine months ended September 30,
2010 and September 30, 2009 were RMB 6.960 and RMB 6.84 to $1.00, respectively.

Property, plant and equipment

Property, plant and equipment is stated at cost less
accumulated depreciation and any accumulated impairment losses. Such costs
include the cost of replacing parts that are eligible for capitalization when
the cost of replacing the parts is incurred. Similarly, when each major
inspection is performed, its cost is recognized in the carrying amount of the
plant and equipment as a replacement only if it is eligible for capitalization.
The assets' residual values, useful lives and amortization methods are reviewed,
and adjusted if appropriate, at each financial year-end.

Long-lived assets

The Company reviews the carrying amount of its long-lived
assets, including intangibles, for impairment, each reporting period in
accordance with ASC Topic 360 Property, Plant, and Equipment. An asset is
considered impaired when estimated future cash flows are less than the carrying
amount of the asset. In the event the carrying amount of such asset is
considered not recoverable, the asset is adjusted to its fair value. Fair value
is generally determined based on discounted future cash flow. As of September
30, 2010 and December 31, 2009, the Company determined no impairment charges
were necessary.

Capitalized internal-use software

The Company capitalizes certain costs incurred to purchase or
create internal-use software in accordance with ASC Topic 350-40, Internal Use
Software. To date, such costs have included external direct costs of materials
and services incurred in the implementation of internal-use software and are
included within computer hardware and software. Once the capitalization criteria
have been met, such costs are classified as software and are amortized on a
straight-line basis over five years once the software has been put into use.
Subsequent additions, modifications, or upgrades to internal-use software are
capitalized only to the extent that they allow the software to perform a task it
previously did not perform. Software maintenance and training costs are expensed
in the period in which they are incurred.

Intangible assets

The Company records identifiable intangible assets in other
assets at cost less accumulated amortization and impairment. These assets
consist primarily of software licenses. The Company amortizes them over the
shorter of their stated or statutory duration or their estimated useful lives on
a straight-line basis over five years.

Goodwill

Goodwill represents the fair value of the assets acquired in
the acquisitions over the cost of the assets acquired. Goodwill is tested for
impairment on an annual basis of the end of the company's fiscal year, or when
impairment indicators arise. The Company uses a fair-value-based approach to test for
impairment. The Company indirectly acquired two separate companies, SST and SSD.
SST is engaged in the sale and development of digital home
security networks, peripherals and software and SSD is engaged in the sale and development of computing network and intelligence systems. As a
result of these acquisitions, the Company recorded goodwill in the amount of
$193,754. This goodwill represents the fair value of the assets acquired in
these acquisitions over the cost of the assets acquired.

- 32 -

---

Inventory

Inventory consists primarily of raw materials, components,
finished goods and low value consumable goods. Raw materials, components and low
value consumable cost are stated at cost. Cost comprises direct materials and,
where applicable direct labor costs and those overheads that have been incurred
in bringing the inventory to their present location and condition. Finished
goods are stated at the lower of cost (determined on weighted average method) or
net realizable value.

The Company provides for inventory losses based on obsolescence
and levels in excess of forecasted demand. In these cases, inventory is reduced
to estimated realizable value based on historical usage and expected demand.
Inherent in the Company's estimates of market value in determining inventory
valuation are estimates related to economic trends, future demand for the
Company's products, and technical obsolescence of products. When products have
been delivered, but the product revenue associated with the arrangement has been
deferred as a result of not meeting the revenue recognition criteria. The
Company includes the costs for the delivered items in inventory until
recognition of the related revenue occurs.

Allowance for doubtful accounts

The Company reduces gross trade accounts receivable by an
allowance for doubtful accounts. The allowance for doubtful accounts is the
Company's best estimate of the amount of probable credit losses in the Company's
existing accounts receivable. The Company reviews its allowance for doubtful
accounts on a regular basis and all past due balances are reviewed individually
for collectability. Account balances are charged off against the allowance after
all means of collection have been exhausted and the potential for recovery is
considered remote. Provisions for doubtful accounts for the three months ended
September 30, 2010 and year ended December 31, 2009 are $nil. Bad debts written
off for the three months ended September 30, 2010 and September 30, 2009 and for
the nine months ended September 30, 2010 and September 30, 2009 are $nil.

Fair value of financial instruments

The Company follows paragraph 825-10-50-10 of the FASB
Accounting Standards Codification for disclosures about fair value of its
financial instruments and paragraph 820-10-35-37 of the FASB Accounting
Standards Codification (Paragraph 820-10-35-37) to measure the fair value of
its financial instruments. Paragraph 820-10-35-37 establishes a framework for
measuring fair value in accounting principles generally accepted in the United
States of America (U.S. GAAP), and expands disclosures about fair value
measurements. To increase consistency and comparability in fair value
measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair
value hierarchy which prioritizes the inputs to valuation techniques used to
measure fair value into three (3) broad levels. The fair value hierarchy gives
the highest priority to quoted prices (unadjusted) in active markets for
identical assets or liabilities and the lowest priority to unobservable inputs.
The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37
are described below:

Level 1 Quoted market prices available in active markets for
identical assets or liabilities as of the reporting date.

Level 2 Pricing inputs other than quoted prices in active
markets included in Level 1, which are either directly or indirectly observable
as of the reporting date.

Level 3 Pricing inputs that are generally observable inputs and
not corroborated by market data.

Stock-based compensation

The Company adopts both ASC Topic 718, Compensation - Stock
Compensation and ASC Topic 505-50, Equity-Based Payments to Non-Employees
using the fair value method. Under ASC Topic 718 and ASC Topic 505-50, stock
compensation expenses is measured at the grant date on the value of the option
or restricted stock and is recognized as expenses, less expected forfeitures,
over the requisite service period, which is generally the vesting period.

- 33 -

---

Retirement benefit costs

PRC state managed retirement benefit programs are defined
contribution plans and the payments to the plans are charged as expenses when
employees have rendered service entitling them to the contribution.

Income taxes

The Company adopted ASC Topic 740, Income Taxes that requires
recognition of deferred income tax liabilities and assets for the expected
future tax consequences of temporary differences between income tax basis and
financial reporting basis of assets and liabilities. Provision for income taxes
consist of taxes currently due plus deferred taxes. Since the Company had no
operations within the United States there is no provision for US income taxes
and there are no deferred tax amounts as of September 30, 2010 and December 31,
2009.

The charge for taxation is based on the results for the year as
adjusted for items, which are non-assessable or disallowed. It is calculated
using tax rates that have been enacted or substantively enacted by the balance
sheet date. Deferred tax is accounted for using the balance sheet liability
method in respect of temporary differences arising from differences between the
carrying amount of assets and liabilities in the financial statements and the
corresponding tax basis used in the computation of assessable tax profit. In
principle, deferred tax liabilities are recognized for all taxable temporary
differences, and deferred tax assets are recognized to the extent that it is
probably that taxable profit will be available against which deductible
temporary differences can be utilized.

Deferred tax is calculated at the tax rates that are expected
to apply to the period when the asset is realized or the liability is settled.
Deferred tax is charged or credited in the income statement, except when it
related to items credited or charged directly to equity, in which case the
deferred tax is also dealt with in equity. Deferred tax assets and liabilities
are offset when they relate to income taxes levied by the same taxation
authority and the Company intends to settle its current tax assets and
liabilities on a net basis.

A tax position is recognized as a benefit only if it is more
likely than not that the tax position would be sustained in a tax examination,
with a tax examination being presumed to occur. The amount recognized is the
largest amount of tax benefit that is greater than 50% likely of being realized
on examination. For tax positions not meeting the more likely than not test,
no tax benefit is recorded. The adoption had no affect on the Company's
financial statements.

Product warranties

Substantially all of the Company's products are covered by a
standard warranty of 2 years for products. In the event of a failure of products
covered by this warranty, the Company must repair or replace the software or
products or, if those remedies are insufficient, and at the discretion of the
Company, provide a refund. The sales contracts encompass its warranty
obligations. Occurrence of the failure of products within warranty period is few
and insignificant; therefore, the Company provides nil% of sales income for
product warranties for the three months ended September 30, 2010 and September
30, 2009. The product warranty reserve was $nil at September 30, 2010 and
December 31, 2009.

Related parties

Parties are considered to be related to the Company if the
Company has the ability, directly or indirectly, to control the party, or
exercise significant influence over the party in making financial and operating
decisions, or vice versa, or where the Company and the party are subject to
common control or common significance. Related parties may be individuals (being
members of key management personnel, significant shareholders and/or their close
family members) or other entities which are under the significant influence of
related parties of the company where those parties are individuals, and
post-employment benefit plans which are for the benefits of employees of the
Company or of any entity that is a related party of the Company.

Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand,
demand deposits with banks and other financial institutions, and short-term,
highly liquid investments which are readily convertible into known amounts of
cash and which are subject to an insignificant risk of changes in value, and
have a short maturity of generally within three months when acquired.

- 34 -

---

Recent Accounting Pronouncements

In June 2009, the FASB approved the FASB Accounting Standards
Codification (the Codification) as the single source of authoritative
nongovernmental U.S. GAAP to be launched on July 1, 2009. The Codification does
not change current U.S. GAAP, but is intended to simplify user access to all
authoritative U.S. GAAP by providing all the authoritative literature related to
a particular topic in one place. All existing accounting standard documents will
be superseded and all other accounting literature not included in the
Codification will be considered non-authoritative. The Codification is effective
for interim and annual periods ending after September 15, 2009.

In August 2009, the FASB issued the FASB Accounting Standards
Update No. 2009-04 Accounting for Redeemable Equity Instruments - Amendment to
Section 480-10-S99 which represents an update to section 480-10-S99,
distinguishing liabilities from equity, per EITF Topic D-98, Classification and
Measurement of Redeemable Securities . The Company does not expect the adoption
of this update to have a material impact on its consolidated financial position,
results of operations or cash flows.

In August 2009, the FASB issued the FASB Accounting Standards
Update No. 2009-05 Fair Value Measurement and Disclosures Topic 820  Measuring
Liabilities at Fair Value, which provides amendments to subtopic 820-10, Fair
Value Measurements and Disclosures  Overall, for the fair value measurement of
liabilities. This update provides clarification that in circumstances in which a
quoted price in an active market for the identical liability is not available, a
reporting entity is required to measure fair value using one or more of the
following techniques: 1. A valuation technique that uses: a. The quoted price of
the identical liability when traded as an asset b. Quoted prices for similar
liabilities or similar liabilities when traded as assets. 2. Another valuation
technique that is consistent with the principles of topic 820; two examples
would be an income approach, such as a present value technique, or a market
approach, such as a technique that is based on the amount at the measurement
date that the reporting entity would pay to transfer the identical liability or
would receive to enter into the identical liability. The amendments in this
update also clarify that when estimating the fair value of a liability, a
reporting entity is not required to include a separate input or adjustment to
other inputs relating to the existence of a restriction that prevents the
transfer of the liability. The amendments in this update also clarify that both
a quoted price in an active market for the identical liability when traded as an
asset in an active market when no adjustments to the quoted price of the asset
are required are Level 1 fair value measurements. The Company does not expect
the adoption of this update to have a material impact on its consolidated
financial position, results of operations or cash flows

In September 2009, the FASB issued the FASB Accounting
Standards Update No. 2009-08 Earnings Per Share  Amendments to Section
260-10-S99, which represents technical corrections to topic 260-10-S99,
Earnings per share, based on EITF Topic D-53, Computation of Earnings Per Share
for a Period that includes a Redemption or an Induced Conversion of a Portion of
a Class of Preferred Stock and EITF Topic D-42, The Effect of the Calculation of
Earnings per Share for the Redemption or Induced Conversion of Preferred Stock .
The Company does not expect the adoption of this update to have a material
impact on its consolidated financial position, results of operations or cash
flows.

In September 2009, the FASB issued the FASB Accounting
Standards Update No. 2009-09 Accounting for Investments -Equity Method and
Joint Ventures and Accounting for Equity-Based Payments to Non-Employees. This
update represents a correction to Section 323-10-S99-4, Accounting by an
Investor for Stock-Based Compensation Granted to Employees of an Equity Method
Investee. Additionally, it adds observer comment Accounting Recognition for
Certain Transactions Involving Equity Instruments Granted to Other Than
Employees to the Codification. The Company does not expect the adoption to have
a material impact on its consolidated financial position, results of operations
or cash flows.

In September 2009, the FASB issued the FASB Accounting
Standards Update No. 2009-12 Fair Value Measurements and Disclosures Topic 820
 Investment in Certain Entities That Calculate Net Assets Value Per Share (or
Its Equivalent) , which provides amendments to Subtopic 820-10, Fair Value
Measurements and Disclosures-Overall, for the fair value measurement of
investments in certain entities that calculate net asset value per share (or its
equivalent). The amendments in this update permit, as a practical expedient, a
reporting entity to measure the fair value of an investment that is within the
scope of the amendments in this update on the basis of the net asset value per
share of the investment (or its equivalent) if the net asset value of the
investment (or its equivalent) is calculated in a manner consistent with the
measurement principles of Topic 946 as of the reporting entity's measurement
date, including measurement of all or substantially all of the underlying
investments of the investee in accordance with Topic 820. The amendments in this
update also require disclosures by major category of investment about the
attributes of investments within the scope of the amendments in this update,
such as the nature of any restrictions on the investor's ability to redeem its
investments a the measurement date, any unfunded commitments (for example, a
contractual commitment by the investor to invest a specified amount of
additional capital at a future date to fund investments that will be make by the
investee), and the investment strategies of the investees.

The major category of investment is required to be determined
on the basis of the nature and risks of the investment in a manner consistent
with the guidance for major security types in U.S. GAAP on investments in debt
and equity securities in paragraph 320-10-50-1B. The disclosures are required
for all investments within the scope of the amendments in this update regardless
of whether the fair value of the investment is measured using the practical
expedient. The Company does not expect the adoption to have a material impact on
its consolidated financial position, results of operations or cash flows.

In October 2009, the Financial Accounting Standards Board
issued an Accounting Standards Update (ASU) regarding accounting for own-share
lending arrangements in contemplation of convertible debt issuance or other
financing. This ASU requires that at the date of issuance of the shares in a
share-lending arrangement entered into in contemplation of a convertible debt
offering or other financing, the shares issued shall be measured at fair value
and be recognized as an issuance cost, with an offset to additional paid-in
capital. Further, loaned shares are excluded from basic and diluted earnings per
share unless default of the share-lending arrangement occurs, at which time the
loaned shares would be included in the basic and diluted earnings-per-share
calculation. This ASU is effective for fiscal years beginning on or after
December 15, 2009, and interim periods within those fiscal years for
arrangements outstanding as of the beginning of those fiscal years. The Company
is currently assessing the impact of this ASU on its consolidated financial
statements.

In January 2010, FASB issued ASU No. 2010-01, "Accounting for
Distributions to Shareholders with Components of Stock and Cash." The amendments
in this Update clarify that the stock portion of a distribution to shareholders
that allows them to elect to receive cash or stock with a potential limitation
on the total amount of cash that all shareholders can elect to receive in the
aggregate is considered a share issuance that is reflected in EPS prospectively
and is not a stock dividend for purposes of applying Topics 505 and 260 (Equity
and Earnings Per Share). The amendments in this Update are effective for interim
and annual periods ending on or after December 15, 2009, and should be applied
on a retrospective basis. The Company adopted this standard and has determined
the standard does not have material effect on the Company's consolidated
financial statements.

- 35 -

---

In January 2010, FASB issued ASU No. 2010-02 regarding
accounting and reporting for decreases in ownership of a subsidiary. Under this
guidance, an entity is required to deconsolidate a subsidiary when the entity
ceases to have a controlling financial interest in the subsidiary. Upon
deconsolidation of a subsidiary, and entity recognizes a gain or loss on the
transaction and measures any retained investment in the subsidiary at fair
value. In contrast, an entity is required to account for a decrease in its
ownership interest of a subsidiary that does not result in a change of control
of the subsidiary as an equity transaction. This ASU clarifies the scope of the
decrease in ownership provisions, and expands the disclosures about the
deconsolidation of a subsidiary or de-recognition of a group of assets. This ASU
is effective for beginning in the first interim or annual reporting period
ending on or after December 31, 2009. The Company does not expect the adoption
of this ASU to have a material impact on its consolidated financial statements
In January 2010, FASB issued ASU No. 2010-02  "Accounting and Reporting for
Decreases in Ownership of a Subsidiary  a Scope Clarification." The amendments
in this Update affect accounting and reporting by an entity that experiences a
decrease in ownership in a subsidiary that is a business or nonprofit activity.
The amendments also affect accounting and reporting by an entity that exchanges
a group of assets that constitutes a business or nonprofit activity for an
equity interest in another entity. The amendments in this Update are effective
beginning in the period that an entity adopts SFAS No. 160, "Non-controlling
Interests in Consolidated Financial Statements  An Amendment of ARB No. 51." If
an entity has previously adopted SFAS No. 160 as of the date the amendments in
this update are included in the Accounting Standards Codification, the
amendments in this update are effective beginning in the first interim or annual
reporting period ending on or after December 15, 2009. The amendments in this
update should be applied retrospectively to the first period that an entity
adopted SFAS No. 160. The Company adopted this standard and has determined it
does not have material effect on the Company's consolidated financial
statements.

In January 2010, FASB issued ASU No. 2010-06  "Improving
Disclosures about Fair Value Measurements." This Update provides amendments to
Subtopic 820-10 that requires new disclosure as follows: 1) Transfers in and out
of Levels 1 and 2. A reporting entity should disclose separately the amounts of
significant transfers in and out of Level 1 and Level 2 fair value measurements
and describe the reasons for the transfers. 2) Activity in Level 3 fair value
measurements. In the reconciliation for fair value measurements using
significant unobservable inputs (Level 3), a reporting entity should present
separately information about purchases, sales, issuances, and settlements (that
is, on a gross basis rather than as one net number). This Update provides
amendments to Subtopic 820-10 that clarify existing disclosures as follows: 1)
Level of disaggregation. A reporting entity should provide fair value
measurement disclosures for each class of assets and liabilities. A class is
often a subset of assets or liabilities within a line item in the statement of
financial position. A reporting entity needs to use judgment in determining the
appropriate classes of assets and liabilities. 2) Disclosures about inputs and
valuation techniques. A reporting entity should provide disclosures about the
valuation techniques and inputs used to measure fair value for both recurring
and nonrecurring fair value measurements. Those disclosures are required for
fair value measurements that fall in either Level 2 or Level 3. The new
disclosures and clarifications of existing disclosures are effective for interim
and annual reporting periods beginning after December 15, 2009, except for the
disclosures about purchases, sales, issuances, and settlements in the roll
forward of activity in Level 3 fair value measurements. Those disclosures are
effective for fiscal years beginning after December 15, 2010, and for interim
periods within those fiscal years. The Company is currently evaluating the
impact of this ASU, however, the Company does not expect the adoption of this
ASU to have a material impact on its consolidated financial statements.

In February 2010, the FASB issued Accounting Standards Update
2010-09, "Subsequent Events (Topic 855): Amendments to Certain Recognition and
Disclosure Requirements," or ASU 2010-09. ASU 2010-09 primarily rescinds the
requirement that, for listed companies, financial statements clearly disclose
the date through which subsequent events have been evaluated. Subsequent events
must still be evaluated through the date of financial statement issuance,
however, the disclosure requirement has been removed to avoid conflicts with
other SEC guidelines. ASU 2010-09 was effective immediately upon issuance and
was adopted in February 2010.

In April 2010, the FASB issued Accounting Standards Update
2010-13, "CompensationStock Compensation (Topic 718): Effect of Denominating
the Exercise Price of a Share-Based Payment Award in the Currency of the Market
in Which the Underlying Equity Security Trades," or ASU 2010-13. ASU 2010-13
provides amendments to Topic 718 to clarify that an employee share-based payment
award with an exercise price denominated in currency of a market in which a
substantial porting of the entity's equity securities trades should not be
considered to contain a condition that is not a market, performance, or service
condition. Therefore, an entity would not classify such an award as a liability
if it otherwise qualifies as equity. The amendments in this Update are effective
for fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2010. The Company does not expect the adoption of ASU 2010-17
to have a significant impact on its consolidated financial statements.

In April 2010, the FASB issued Accounting Standard Update
2010-17, "Revenue RecognitionMilestone Method (Topic 605): Milestone Method of
Revenue Recognition" or ASU 2010-17. This Update provides guidance on the
recognition of revenue under the milestone method, which allows a vendor to
adopt an accounting policy to recognize all of the arrangement consideration
that is contingent on the achievement of a substantive milestone (milestone
consideration) in the period the milestone is achieved. The pronouncement is
effective on a prospective basis for milestones achieved in fiscal years and
interim periods within those years, beginning on or after June 15, 2010. The
adoption of ASU 2010-17 does not have any significant impacts on the
consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures refer
to controls and other procedures designed to ensure that information required to
be disclosed in the reports we file or submit under the Securities Exchange Act
is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the SEC and that such information is
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure.

As required by Rule 13a-15(e), our management has carried out
an evaluation, with the participation and under the supervision of our Chief
Executive Officer, Mr. Mingchun Zhou and our Chief Financial Officer, Ms.
Dongmei Wu, of the effectiveness of the design and operation of our disclosure
controls and procedures, as of September 30, 2010. Based upon, and as of the
date of this evaluation, Mr. Zhou and Ms. Wu, determined that, as of September
30, 2010, and as of the date that the evaluation of the effectiveness of our
disclosure controls and procedures was completed, our disclosure controls and
procedures were effective pursuant to Rule 13a-15(e).

Changes in Internal Controls over Financial
Reporting

We regularly review our system of internal control over
financial reporting and make changes to our processes and systems to improve
controls and increase efficiency, while ensuring that we maintain an effective
internal control environment. Changes may include such activities as
implementing new, more efficient systems, consolidating activities, and
migrating processes.

There were no changes in our internal controls over financial
reporting during the second quarter of fiscal 2010 that have materially
affected, or are reasonably likely to materially affect our internal control
over financial reporting.

PART IIOTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time, we may become involved in various lawsuits
and legal proceedings, which arise, in the ordinary course of business. However,
litigation is subject to inherent uncertainties, and an adverse result in these,
or other matters, may arise from time to time that may harm our business. We are
currently not aware of any such legal proceedings or claims that we believe will
have a material adverse affect on our business, financial condition or operating
results.

- 36 -

---

ITEM 1A. RISK FACTORS.

Not applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. (REMOVED AND RESERVED).

ITEM 5. OTHER INFORMATION.

We have no information to disclose that was required to be in a
report on Form 8-K during the period covered by this report, but was not
reported. There have been no material changes to the procedures by which
security holders may recommend nominees to our board of directors.

ITEM 6. EXHIBITS.

The following exhibits are filed as part of this report or
incorporated by reference:

|Exhibit |                                                                                                                                                                              
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|No.     | Description                                                                                                                                                                  
|        |                                                                                                                                                                              
|31.1    | Certifications of Principal Executive Officer
      filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                         
|        |                                                                                                                                                                              
|31.2    | Certifications of Principal Financial Officer
      filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                         
|        |                                                                                                                                                                              
|32.1    | Certifications of Principal Executive Officer
      furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002.
|        |                                                                                                                                                                              
|32.2    | Certifications of Principal Financial Officer
      furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002.

- 37 -

---

SIGNATURES

In accordance with Section 13 or
15(d) of the Exchange Act, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

|Date: November 22, 2010 | CHINA SKYRISE DIGITAL SERVICE INC.                           
|----------------------- | -------------------------------------------------------------
|                        |                                                              
|                        | By: /s/ Mingchun
      Zhou                                  
|                        | Mingchun Zhou, Chief Executive Officer                       
|                        | (Principal Executive Officer)                                
|                        |                                                              
|                        | By: /s/ Dongmei
      Wu                                     
|                        | Dongmei Wu, Chief Financial Officer                          
|                        | (Principal Financial Officer and PrincipalAccounting Officer)
|                        |                                                              

---