---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 10-Q

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

For the quarterly period ended: June 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 No. 333-139940

CHINA SKYRISE DIGITAL SERVICE
INC.(Name of Small Business Issuer in Its Charter)

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

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

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

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   [   ]                 | Smaller reporting company [X]                       
|(Do not check if a smaller reporting company) |                                                     

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 equity, as of August 13, 2010 is as follows:

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

1

---

TABLE OF CONTENTS

|PART
      I   | FINANCIAL
      INFORMATION                                                                  |   
|-------------- | -------------------------------------------------------------------------------------------- | --
|               |                                                                                              |   
|ITEM
      1.  | FINANCIAL
      STATEMENTS.                                                                  | 3 
|ITEM
      2.  | MANAGEMENTS
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. | 24
|ITEM
      3.  | QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.                            | 36
|ITEM
      4.  | CONTROLS
      AND PROCEDURES.                                                               | 36
|               |                                                                                              |   
|PART
      II  | OTHER
      INFORMATION                                                                      |   
|               |                                                                                              |   
|ITEM
      1.  | LEGAL
      PROCEEDINGS.                                                                     | 37
|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

2

---

PART IFINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS.

CHINA SKYRISE DIGITAL SERVICE INC.INDEX TO
CONSOLIDATED FINANCIAL STATEMENTSFOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2010 AND 2009

|Contents                                                                                                                                                  | Page(s)
|--------------------------------------------------------------------------------------------------------------------------------------------------------- | -------
|                                                                                                                                                          |        
|Consolidated
      Balance Sheets as of June 30, 2010 (unaudited) and December 31, 2009                                                                   | 4      
|                                                                                                                                                          |        
|Consolidated
      Statements of Income and Other Comprehensive Income for the three months
      and six months ended June 30, 2010 and 2009 (unaudited) | 5      
|                                                                                                                                                          |        
|Consolidated
      Statements of Cash Flows for the six months ended June 30, 2010 and 2009
      (unaudited)                                             | 6      
|                                                                                                                                                          |        
|Notes
      to the Consolidated Financial Statements (unaudited)                                                                                          | 7      

3

---

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

|                                                                     |   | June 30,    |  |   | December 31, | 
|-------------------------------------------------------------------- | - | ----------- |  | - | ------------ | 
|                                                                     |   | 2010        |  |   | 2009         | 
|                                                                     |   | (Unaudited) |  |   | (Audited)    | 
|ASSETS                                                               |   |             |  |   |              | 
|Current assets                                                       |   |             |  |   |              | 
|Cash and cash equivalents                                            | $ | 427,519     |  | $ | 409,718      | 
|Accounts receivable                                                  |   | 3,326,616   |  |   | 3,089,672    | 
|Inventory                                                            |   | 1,625,552   |  |   | 1,373,733    | 
|Deposits and prepaid expenses                                        |   | 960,304     |  |   | 558,068      | 
|Other receivables                                                    |   | 308,249     |  |   | 536,013      | 
|Total current assets                                                 |   | 6,648,240   |  |   | 5,967,204    | 
|Property, plant and equipment, net of
      accumulated depreciation |   | 339,070     |  |   | 340,616      | 
|Other assets                                                         |   |             |  |   |              | 
|Long term accounts receivable                                        |   | 98,677      |  |   | -            | 
|Intangible assets, net of accumulated amortization                   |   | 129,396     |  |   | 122,650      | 
|Goodwill                                                             |   | 193,754     |  |   | 193,754      | 
|Total other assets                                                   |   | 421,827     |  |   | 316,404      | 
|                                                                     |   |             |  |   |              | 
|Total assets                                                         | $ | 7,409,137   |  | $ | 6,624,224    | 
|LIABILITIES AND STOCKHOLDERS' EQUITY                                 |   |             |  |   |              | 
|Current liabilities                                                  |   |             |  |   |              | 
|Accounts payable                                                     | $ | 935,629     |  | $ | 1,005,679    | 
|Unearned revenue                                                     |   | 289,950     |  |   | 81,009       | 
|Other payables and accrued expenses                                  |   | 553,685     |  |   | 541,767      | 
|Short term debt                                                      |   | 390,345     |  |   | 440,100      | 
|Tax payable                                                          |   | 6,499       |  |   | 73,160       | 
|                                                                     |   | 2,176,108   |  |   | 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                                           |   | 2,215,508   |  |   | 2,207,072    | 
|Statutory reserve                                                    |   | 2,791       |  |   | 2,791        | 
|Retained earnings                                                    |   | 2,951,489   |  |   | 2,218,197    | 
|Accumulated other comprehensive
      income                         |   | 42,130      |  |   | 33,338       | 
|Total stockholders' equity                                           |   | 5,233,029   |  |   | 4,482,509    | 
|Total liabilities and stockholders'
      equity                     | $ | 7,409,137   |  | $ | 6,624,224    | 

4

---

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

|                                                     |   | Three months |   |   | Three months |   |   | Six months  |   |   | Six months  |  
|---------------------------------------------------- | - | ------------ | - | - | ------------ | - | - | ----------- | - | - | ----------- | -
|                                                     |   | ended        |   |   | ended        |   |   | ended       |   |   | ended       |  
|                                                     |   | June 30,     |   |   | June 30,     |   |   | June 30,    |   |   | June 30,    |  
|                                                     |   | 2010         |   |   | 2009         |   |   | 2010        |   |   | 2009        |  
|                                                     |   | (Unaudited)  |   |   | (Unaudited)  |   |   | (Unaudited) |   |   | (Unaudited) |  
|Revenues                                             | $ | 2,320,328    |   | $ | 1,232,571    |   | $ | 3,644,147   |   | $ | 1,630,379   |  
|Cost of goods sold                                   |   | 1,541,330    |   |   | 728,164      |   |   | 2,247,741   |   |   | 942,195     |  
|Gross profit                                         |   | 778,998      |   |   | 504,407      |   |   | 1,396,406   |   |   | 688,184     |  
|Selling and marketing expenses                       |   | (146,884     | ) |   | (137,919     | ) |   | (238,586    | ) |   | (234,900    | )
|General and administrative expenses                  |   | (256,209     | ) |   | (171,987     | ) |   | (496,097    | ) |   | (336,803    | )
|Net income from operations                           |   | 375,905      |   |   | 194,501      |   |   | 661,723     |   |   | 116,481     |  
|Other income (expenses)                              |   |              |   |   |              |   |   |             |   |   |             |  
|Other income                                         |   | 34,961       |   |   | 332          |   |   | 36,284      |   |   | 2,695       |  
|Government grant                                     |   | 84,301       |   |   | 48,626       |   |   | 84,301      |   |   | 121,570     |  
|Interest expense                                     |   | (13,246      | ) |   | (6,493       | ) |   | (13,252     | ) |   | (12,935     | )
|Total other income (expenses)                        |   | 106,016      |   |   | 42,465       |   |   | 107,333     |   |   | 111,330     |  
|Income (loss) before provision for income taxes      |   | 481,921      |   |   | 236,966      |   |   | 769,056     |   |   | 227,811     |  
|Provision for income taxes                           |   | (35,764      | ) |   | -            |   |   | (35,764     | ) |   | -           |  
|Net income (loss)                                    |   | 446,157      |   |   | 236,966      |   |   | 733,292     |   |   | 227,811     |  
|Other comprehensive income (loss)                    |   |              |   |   |              |   |   |             |   |   |             |  
|Foreign currency translation gain
      /(loss)      |   | 12,098       |   |   | 22,645       |   |   | 8,792       |   |   | (11,097     | )
|Total comprehensive income (loss)                    | $ | 458,255      |   | $ | 259,611      |   | $ | 742,084     |   | $ | 216,714     |  
|Earnings per share                                   |   |              |   |   |              |   |   |             |   |   |             |  
|Basic                                                | $ | 0.02         |   | $ | 0.01         |   | $ | 0.03        |   | $ | 0.01        |  
|Diluted                                              | $ | 0.02         |   | $ | 0.01         |   | $ | 0.03        |   | $ | 0.01        |  
|Weighted average number of shares
      outstanding: |   |              |   |   |              |   |   |             |   |   |             |  
|Basic                                                |   | 21,110,550   |   |   | 17,004,800   |   |   | 21,110,550  |   |   | 17,004,800  |  
|Diluted                                              |   | 21,110,550   |   |   | 17,004,800   |   |   | 21,110,550  |   |   | 17,004,800  |  

5

---

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                              |   | Six months  |   |   | Six months  |  
|----------------------------------------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                                                              |   | ended       |   |   | ended       |  
|                                                                              |   | June 30,    |   |   | June 30,    |  
|                                                                              |   | 2010        |   |   | 2009        |  
|                                                                              |   | (Unaudited) |   |   | (Unaudited) |  
|Cash flows from operating activities                                          |   |             |   |   |             |  
|Net income (loss) for the period                                              | $ | 733,292     |   | $ | 227,811     |  
|Adjustments to reconcile net income
      (loss) to net cash from operations: |   |             |   |   |             |  
|Depreciation                                                                  |   | 151,563     |   |   | 26,905      |  
|Amortization of intangible assets                                             |   | 22,948      |   |   | 13,770      |  
|Changes in operating assets and liabilities                                   |   |             |   |   |             |  
|(Increase) decrease in inventory                                              |   | (251,819    | ) |   | 44,418      |  
|(Increase) decrease in deposits and prepaid expenses                          |   | (402,236    | ) |   | 24,016      |  
|Increase in accounts receivable and
      long term accounts receivable       |   | (335,621    | ) |   | (322,871    | )
|Decrease in other receivables                                                 |   | 227,764     |   |   | 85,234      |  
|(Decrease) increase in tax payable                                            |   | (66,661     | ) |   | 16,906      |  
|Decrease in accounts payable                                                  |   | (70,050     | ) |   | (35,104     | )
|Increase in unearned revenue                                                  |   | 208,941     |   |   | 6,380       |  
|Increase in other payables and accrued expenses                               |   | 11,918      |   |   | 42,891      |  
|Net cash provided by operating activities                                     |   | 230,039     |   |   | 130,356     |  
|Cash flows from investing activities                                          |   |             |   |   |             |  
|Purchases of property, plant and
      equipment                              |   | (149,254    | ) |   | (28,886     | )
|Purchase of intangible assets                                                 |   | (29,289     | ) |   | (307        | )
|Net cash used in investing activities                                         |   | (178,543    | ) |   | (29,193     | )
|Cash flows from financing activities                                          |   |             |   |   |             |  
|Repayment of short term debt                                                  |   | (49,755     | ) |   | (221,711    | )
|Net cash used in financing activities                                         |   | (49,755     | ) |   | (221,711    | )
|Effects of exchange rate changes on cash                                      |   | 16,060      |   |   | (10,825     | )
|Increase (decrease) in cash and cash equivalents                              |   | 17,801      |   |   | (131,373    | )
|Cash and cash equivalents, beginning of
      period                          |   | 409,718     |   |   | 508,272     |  
|Cash and cash equivalents, end of period                                      | $ | 427,519     |   | $ | 376,899     |  
|Supplementary disclosures of cash flow
      information:                     |   |             |   |   |             |  
|Cash paid for interest                                                        | $ | 13,252      |   | $ | 12,935      |  
|Cash paid for taxes                                                           | $ | 35,764      |   | $ | -           |  

6

---

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 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, installation 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, installation and development of computing network 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, installation and development of computing network,
intelligence system, digital home security networks, peripherals and software.
On September 25, 2009, the Company changed its name to China Skyrise Digital
Service Inc. to more accurately reflect its new business operations.

CSD, UDH, SST and SSD are hereafter referred to as (the
Company).

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.1 FISCAL YEAR

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

2.2 REPORTING ENTITIES

The accompanying consolidated financial statements include the
following entities:

7

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.2 REPORTING ENTITIES (CONTINUED)

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 and 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 other
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.

CSD, UDH, SST and SSD are hereafter referred to as (the
Company).

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.

8

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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, and (iv) the ability to collect is reasonably assured. These
criteria are generally satisfied at the time of shipment when risk of loss and
title passes to the customer.

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 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 $6,323 and $4,696 for the three months ended June 30, 2010 and
June 30, 2009, respectively. Shipping and handling costs amounted to $11,158 and
$6,508 for the six months ended June 30, 2010 and June 30, 2009, respectively.

2.9 ADVERTISING

Advertising costs are included in selling and marketing
expenses which totaled $587 and $Nil for the three months ended June 30, 2010
and June 30, 2009, respectively. Advertisement costs amounted to $3,024 and
$1,388 for the six months ended June 30, 2010 and June 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 $132,412 and $101,213 for the three months
ended June 30, 2010 and June 30, 2009, respectively. Research and development
costs amounted to $248,621 and $192,611 for the six months ended June 30, 2010
and June 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
approve the grant.

2.12 FOREIGN CURRENCY TRANSLATION
AND OTHER COMPREHENSIVE INCOME

The reporting currency of the Company is the United States
Dollars ($). The functional currencies of the Company and its subsidiaries UDH,
SST and SSDT, are the United States Dollars ($) 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.

9

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.12 FOREIGN CURRENCY TRANSLATION
AND OTHER COMPREHENSIVE INCOME (CONTINUED)

Accumulated other comprehensive income amounted to $42,130 as
of June 30, 2010. The balance sheet amounts with the exception of equity at June
30, 2010 and June 30, 2009 were translated at RM6.79 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 six months ended June 30, 2010 and June 30,
2009 were RMB 6.84 to $1.00.

2.13 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.

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

Assets Classifications
    Estimated useful lifeFurniture, fixtures and office equipment
    5 yearsPlant and machinery
    5 yearsMotor vehicles
    10 years


June 30,
    
    
    December 31,2010
    
    
    2009$
    
    
    $Furniture, fixtures and
      office equipment
    
    357,230
    
    
    207,128Plant and machinery
    
    227,198
    
    
    226,273Motor vehicles
    
    38,453
    
    
    38,296622,881
    
    
    471,697Less: Accumulated depreciation
    
    (283,811
    )
    
    (131,081
    )Net carrying amount
    
    339,070
    
    
    340,616


Depreciation expense was $130,533 and $13,554 for the three
months ended June 30, 2010 and June 30, 2009 respectively. Depreciation expense
was $151,563 and $26,905 for the six months ended June 30, 2010 and June 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 June 30,
2010 and December 31, 2009, the Company determined no impairment charges were
necessary.

10

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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.

June 30,
    
    
    December 31,2010
    
    
    2009$
    
    
    $Patent
    
    7,478
    
    
    7,058Software system
    
    201,260
    
    
    171,660208,738
    
    
    178,718Less: Accumulated amortization
    
    (79,342
    )
    
    (56,068
    )Net carrying amount
    
    129,396
    
    
    122,650


Amortization expense was $12,194 and $6,891 for the three
months ended June 30, 2010 and June 30, 2009, respectively. Amortization expense
was $22,948 and $13,770 for the six months ended June 30, 2010 and June 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, installation and development of digital
home security networks, peripherals and software and SSD is engaged in the sale,
installation 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.

11

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.18 INVENTORY (CONTINUED)

June 30,
    
    
    December 31,2010
    
    
    2009$
    
    
    $Raw materials
    
    581,607
    
    
    472,280Consumable stores
    
    127,166
    
    
    126,647Components
    
    319,780
    
    
    156,399Finished goods-in-transits
    
    237,321
    
    
    166,336Finished goods
    
    359,678
    
    
    452,0711,625,552
    
    
    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
June 30, 2010 and year ended December 31, 2009 are $nil. Bad debts written off
for the three months ended June 30, 2010 and June 30, 2009 and for the six
months ended June 30, 2010 and June 30, 2009 are $nil.

Aging of accounts receivable of the company is as follows:

2010
    
    
    2009$
    
    
    $within 1 year
    
    3,326,616
    
    
    2,988,032over 1 year and within 2 years
    
    5,407
    
    
    101,063over 2 years
    
    93,270
    
    
    5773,425,293
    
    
    3,089,672Less: reclassified as long
      term accounts receivable
    
    (98,677
    )
    
    -3,326,616
    
    
    3,089,672


12

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.20 DEPOSITS AND PREPAID EXPENSES

June 30,
    
    
    December 31,2010
    
    
    2009$
    
    
    $Trade deposits
    
    929,610
    
    
    508,660Prepaid expenses
    
    30,694
    
    
    49,408960,304
    
    
    558,068


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

2.21 OTHER RECEIVABLES

June 30,
    
    
    December 31,2010
    
    
    2009$
    
    
    $Project tender and other
      deposits
    
    71,145
    
    
    69,924Rental and utility deposits
    
    11,960
    
    
    14,288Loan due from employees
    
    185,445
    
    
    211,721Due from employees
    
    8,931
    
    
    213,848Samples loaned to customers
    
    236
    
    
    14,202Temporary payments to third parties
    
    30,532
    
    
    12,030308,249
    
    
    536,013


Project tender deposits are refundable on the completion of the
entire tender process. 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 represents
temporary 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.

2.22 TAX PAYABLE

June 30,
    
    
    December 31,2010
    
    
    2009$
    
    
    $VAT
    
    3,546
    
    
    70,455City maintenance and construction tax
    
    201
    
    
    879Individual income tax
    
    3,305
    
    
    1,826Enterprise income tax
    
    (553
    )
    
    -Tax payable
    
    6,499
    
    
    73,160


13

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.23 OTHER PAYABLES AND ACCRUED
EXPENSES

June 30,
    
    
    December 31,2010
    
    
    2009$
    
    
    $Wages and professional fees
      accruals
    
    17,641
    
    
    16,962Due to employees
    
    11,856
    
    
    14,421Due to related party
    
    434,930
    
    
    447,554Security deposits for samples loaned to
      customers
    
    30,502
    
    
    27,654Sundries
    
    26,199
    
    
    13,171Levies payable
    
    117
    
    
    -Temporary receipts from third
      parties
    
    32,440
    
    
    22,005553,685
    
    
    541,767


Wages and professional fees accruals are amounts due to
employees and professional firms. Due to related party represented the amount
due to Mr. Mingchun Zhou, Chief Executive Officer of the Company. 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.
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.

2.24 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.

2.25 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.

14

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.26 RETIREMENT BENEFIT COSTS

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

2.27 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 June 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.

2.28 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 June 30, 2010 and June 30, 2009.
The product warranty reserve was $nil at June 30, 2010 and December 31, 2009.

2.29 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.

2.30 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.

15

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.30 CASH AND CASH EQUIVALENTS (CONTINUED)

June 30,
    
    
    December 31,2010
    
    
    2009$
    
    
    $Cash and bank balances
    
    427,519
    
    
    409,718


2.31 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 June 30, 2010
and December 31, 2009 amounted to $414,294 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:

Three months
    
    
    Three months
    
    
    Six months
    
    
    Six monthsended
    
    
    ended
    
    
    ended
    
    
    endedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Customer A
    
    44.45%
    
    
    6.49%
    
    
    39.05%
    
    
    -Customer B
    
    -
    
    
    -
    
    
    12.38%
    
    
    -Customer C
    
    14.50%
    
    
    -
    
    
    9.24%
    
    
    -Customer D
    
    11.23%
    
    
    -
    
    
    8.28%
    
    
    -Customer E
    
    8.22%
    
    
    -
    
    
    5.23%
    
    
    -Customer F
    
    4.05%
    
    
    -
    
    
    -
    
    
    -Customer G
    
    -
    
    
    10.80%
    
    
    -
    
    
    13.11%Customer H
    
    -
    
    
    16.21%
    
    
    -
    
    
    12.26%Customer I
    
    -
    
    
    10.52%
    
    
    -
    
    
    9.30%Customer J
    
    -
    
    
    -
    
    
    -
    
    
    7.51%Customer K
    
    -
    
    
    8.20%
    
    
    -
    
    
    6.20%82.45%
    
    
    52.22%
    
    
    74.18%
    
    
    48.38%


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

16

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Unaudited)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.31 Concentrations of credit
risk(continued)

June 30,
    
    
    December 31,2010
    
    
    2009Customer A
    
    9.61%
    
    
    13.35%Customer B
    
    9.01%
    
    
    -Customer C
    
    8.20%
    
    
    9.13%Customer D
    
    8.19%
    
    
    9.90%Customer E
    
    7.79%
    
    
    8.76%Customer F
    
    -
    
    
    9.11%42.80%
    
    
    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.

4.EARNINGS PER
  COMMON SHARE

The Company reports earnings per share in accordance with the
provisions of ASC Topic 260 Earning per Share 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 June 30, 2010 and June 30, 2009,
basic and diluted earnings per share amount to $0.02 and $0.01, respectively.
For the six months ended June 30, 2010 and June 30, 2009, basic and diluted
earnings per share amount to $0.03 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.

17

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Unaudited)

6.      RECENT ACCOUNTING
  PRONOUNCEMENTS (CONTINUED)

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.

18

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Unaudited)

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 June 30, 2010 and June 30, 2009 and for the six months ended June
30, 2010 and June 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 six months ended June 30, 2010:

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


19

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Unaudited)

7.      INCOME TAXES (CONTINUED)

Provision for income taxes is as follows:

Three months
    
    
    Three months
    
    
    Six months
    
    
    Six monthsended
    
    
    ended
    
    
    ended
    
    
    endedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009$
    
    
    $
    
    
    $
    
    
    $Income taxCSD
    
    -
    
    
    -
    
    
    -
    
    
    -UDH
    
    -
    
    
    -
    
    
    -
    
    
    -SST- China EIT
    
    36,315
    
    
    -
    
    
    36,315
    
    
    -SSE- China EIT
    
    (551
    )
    
    -
    
    
    (551
    )
    
    -Deferred tax
    
    -
    
    
    -
    
    
    -
    
    
    -35,764
    
    
    -
    
    
    35,764
    
    
    -


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.

June 30,
    
    
    December 31,2010
    
    
    2009$
    
    
    $Short term debt Loan from Ping An Bank,
      Shenzhen BranchInterest rate 5.5755% per
      annum and personal guarantee
    
    390,345
    
    
    440,100


9.COMMON STOCK

The Company has authorized 75,000,000 common shares with a 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 June 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.

20

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Unaudited)

10.    STOCK OPTIONS

The Company has not granted any stock options and has not
recorded any stock-based compensation as of June 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.

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, $Nil,
for the three months ended June 30, 2010 and June 30, 2009, respectively; and
recognized $4,106 and $nil for the six months ended June 30, 2010 and June 30,
2009 respectively. As of June 30, 2010 and December 31, 2009, the deferred
compensation balances were $28,740 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 June 30, 2010, are as
follows:

June 30,
    
    
    December 31,2010
    
    
    2009$
    
    
    $Year ended December 31,2010
    
    72,666
    
    
    124,666Year ended December 31,2011
    
    63,542
    
    
    58,225Thereafter
    
    -
    
    
    -136,208
    
    
    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 June 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

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Unaudited)

13.    PRODUCT LINE INFORMATION (CONTINUED)

Three months
    
    
    Three months
    
    
    Six months
    
    
    Six monthsended
    
    
    ended
    
    
    ended
    
    
    endedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009$
    
    
    $
    
    
    $
    
    
    $Local salesHardware- system
    
    325,074
    
    
    507,324
    
    
    774,935
    
    
    769,320- chips
    
    1,300,288
    
    
    268,116
    
    
    1,741,375
    
    
    273,6101,625,362
    
    
    775,440
    
    
    2,516,310
    
    
    1,042,930Software
    
    523,475
    
    
    305,449
    
    
    955,823
    
    
    435,7672,148,837
    
    
    1,080,889
    
    
    3,472,133
    
    
    1,478,697Export sales- Hardware
    
    171,491
    
    
    151,682
    
    
    172,014
    
    
    151,6822,320,328
    
    
    1,232,571
    
    
    3,644,147
    
    
    1,630,379


14.RELATED PARTIES TRANSACTIONS

For the three months ended June 30, 2010 and June 30, 2009 and
six months ended June 30, 2010 and June 30, 2009 , there was cash and non-cash
compensation of $5,735 , $5,735, $11,470 and $11,470 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
      $434,930 and $447,554 as of June 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

---

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Unaudited)

15.SUBSEQUENT EVENTS

As required by ASC Topic 855 Subsequent Events, the Company
has evaluated subsequent events that have occurred through August 15, 2010, the
date the consolidated financial statements were available to be 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; uncertainties
related to conducting business in China, 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 Certain Defined Terms

Except as otherwise indicated by the context, references in
this report to:

- Exchange Act are to the Securities Exchange Act of 1934, as amended;
- Hong Kong refers to the Hong Kong Special Administrative Region of the
  Peoples Republic of China;
- PRC and China are to Peoples Republic of China;
- SEC are to the United States Securities and Exchange Commission;
- Securities Act are to Securities Act of 1933, as amended;
- 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;
- United Digital are to United Digital Home H.K. Group Company Limited, a
  Hong Kong limited company;
- U.S. dollar, $ and US$ are to United States dollars; and
- We, us, our, or the Company are to combined business of China
  Skyrise Digital Service Inc., a Nevada corporation, and/or its consolidated
  subsidiaries, as the case may be.
- Throughout this report, we have converted RMB to USD as follows:

|June 30, 2010                                      |                  
|-------------------------------------------------- | -----------------
|Balance sheet                                      | RMB 6.79 to $1.00
|Statement of income and comprehensive income       | RMB 6.84 to $1.00
|                                                   |                  
|December 31, 2009                                  |                  
|Balance sheet                                      | RMB 6.84 to $1.00
|June 30, 2009                                      |                  
|Statement of income and comprehensive
      income | RMB 6.84 to $1.00

Overview of Our Business

We are primarily engaged, through our direct and indirect
Chinese subsidiaries, in the development, sale, installation and maintenance of
digital residential safety and video surveillance products, and in the
development and integration of related software in China. Our customers are
primarily urban and suburban residential communities and real estate development
companies in China, but we plan to expand our customer base to the commercial
sector to include commercial entities, such as airports, hotels, banks,
supermarkets and entertainment venues.

24

---

A majority of our revenues are derived from the provision of
digital residential safety and video surveillance packaged solutions, including
the development, installation and after-sale service maintenance of safety and
surveillance systems. Because the majority of our revenues are project based,
they are generally non-recurring. Our revenues are not concentrated within any
one customer or group of related customers. Maintenance services in our packaged
solutions are included for the first two years following installation. Our
customers may separately purchase maintenance services after the first two
years.

Our sales network is focused in the populated areas of
Guangdong Province, in southern China, but we plan to expand our sales network
to other populated areas. Our company headquarters is located in southern China,
in the Shenzhen Special Economic Zone and we have more than 10 branch offices
and distribution points. Our customers are spread across China, but are
primarily located in the coastal metropolitan regions including Beijing,
Shanghai, and Guangzhou/Shenzhen.

Second Quarter of 2010 Financial Performance Highlights

The following are some financial highlights for the three
months ended June 30, 2010:

- Net Sales: Net sales increased $1,087,757, or 88.3%, to $2,320,328
  for the three months ended June 30, 2010, from $1,232,571 for the same period
  in 2009.
- Gross Margin: Gross margin was 33.6% for the three months ended June
  30, 2010, as compared to 40.9% for the same period in 2009.
- Net Income: Net income increased $209,191, or76.5%, to $458,255 for
  the three months ended June 30, 2010, from $236,966 for the same period in
  2009.
- Fully Diluted Earnings per Share: Fully diluted earnings per share
  was $0.02 for the three months ended June 30, 2010, as compared to $0.01 for
  the same period in 2009.

25

---

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 and key components of our revenue during three month and six month
periods ended June 30, 2010 and 2009.

For the Three-Month Periods Ended June 30, 2010 and 2009
(Unaudited)

The following table sets forth key components of our results of
operations for the periods indicated, both in dollars and as a percentage of our
net sales.

|                                          |   | Three Months Ended  |   |  | Three Months Ended  |  
|----------------------------------------- | - | ------------------- | - |  | ------------------- | -
|                                          |   | June
      30, 2010 |   |  | June
      30, 2009 |  
|                                          |   |                     |   |  | % of                |  
|                                          |   | Amount              |   |  | Net Sales           |  
|Net sales                                 | $ | 2,320,328           |   |  | 100%                |  
|                                          |   |                     |   |  |                     |  
|Cost of sales                             |   | 1,541,330           |   |  | 66.4%               |  
|                                          |   |                     |   |  |                     |  
|Gross profit                              |   | 778,998             |   |  | 33.6%               |  
|                                          |   |                     |   |  |                     |  
|Operating expenses                        |   |                     |   |  |                     |  
|Selling & Marketing
      expenses        |   | (146,884            | ) |  | (6.3%               | )
|General
      and administrative expenses |   | (256,209            | ) |  | (11%                | )
|                                          |   |                     |   |  |                     |  
|Total operating expenses                  |   | (403,093            | ) |  | (17.4%              | )
|                                          |   |                     |   |  |                     |  
|Income from operations                    |   | 375,905             |   |  | 16.2%               |  
|Interest expense                          |   | (13,246             | ) |  | (0.6%               | )
|Other income                              |   | 119,262             |   |  | 5.1%                |  
|                                          |   |                     |   |  |                     |  
|Income before income taxes                |   | 481,921             |   |  | 20.8%               |  
|                                          |   |                     |   |  |                     |  
|Income taxes                              |   | (35,764             | ) |  | (1.5%               | )
|                                          |   |                     |   |  |                     |  
|Net income                                | $ | 446,157             |   |  | 19.2%               |  

Net Sales. Our sales revenue increased to
$2,320,328 in the three months ended June 30, 2010 from $1,232,571 in the same
period last year, representing an 88.3% growth year-over-year. The growth was
mainly due to the market recovery from 2009 financial crisis and our escalated
marketing and sales efforts.

Sales to newly acquired customers accounted for 40% of total
sales and 97% of our sales growth, while sales to existing customers accounted
for 60% of total sales, and only 3% of our sales growth.

Cost of Sales. Our cost of sales increased
$813,166 or 111.7%, to $1,541,330 in the three months ended June 30, 2010 from
$728,164 in the same period in 2009. The cost of goods sold per sales ratio
increased to 66.4% in 2010 from 59.1% in 2009 and it was mainly impacted by the
increased cost of raw materials.

Gross Profit and Gross Margin. Our gross profit
increased $274,591, or 54.4%, to $778,998, in the three months ended June 30,
2010, from $504,407 in the same period in 2009. Gross profit as a percentage of
net revenue was 33.6% and 40.9% for the three months ended June 30, 2010 and
2009, respectively.

Selling and Marketing Expenses. Our selling and
marketing expenses in the three months ended June 30, 2010 increased to $146,884
from $137,919 in the same 2009 period.

26

---

General and Administrative Expenses. Our
administrative expenses increased $84,222, or 49%, to $256,209 in the three
months ended June 30, 2010, from $171,987 in the same period in 2009.

Interest Expense. Interest expense
increased $6,753, or 104%%, to $13,246 in the three months ended June 30, 2010,
from $6,493 in the same period in 2009, primarily due to the renewal of the
Company's 12-month short term debt that started on November 10 2009.

Other Income.Other income was $119,262 in
the three months ended June 30, 2010, a $70,304, or 143.6% increase from the
same period in 2009. Included in other incomes of the three months ended June
30, 2010, $84,301 was government grant.

Income Before Income Taxes. Our income before
income taxes increased, to $481,921 in the three months ended June 30, 2010 from
$236,966 in the same period last year.

Income Taxes. Our income tax increase to $35,764
in the three months ended June 30, 2010 from $0 in the same period last year. As
a Hi-Tech Company, we enjoy China preferential tax policy of two years
exemption and three years half. We are now in the period of three years half,
whereas last year we were in the period of two years exemption.

Net Income. In the three months ended June 30,
2010, we generated a net income of $446,157, an increase of $209,191, from
$236,966 in the same period in 2009, as a result of the factors described
above.

For the Six-Month Periods Ended June 30, 2010 and 2009
(Unaudited)

The following table sets forth key components of our results of
operations for the periods indicated, both in dollars and as a percentage of our
net sales.

|                                          |   | Six Months Ended    |   |  | Six Months Ended    |  
|----------------------------------------- | - | ------------------- | - |  | ------------------- | -
|                                          |   | June
      30, 2010 |   |  | June
      30, 2009 |  
|                                          |   |                     |   |  | % of                |  
|                                          |   | Amount              |   |  | Net Sales           |  
|Net sales                                 | $ | 3,644,147           |   |  | 100%                |  
|                                          |   |                     |   |  |                     |  
|Cost of sales                             |   | 2,247,741           |   |  | 61.7%               |  
|                                          |   |                     |   |  |                     |  
|Gross profit                              |   | 1,396,406           |   |  | 38.3%               |  
|                                          |   |                     |   |  |                     |  
|Operating expenses                        |   |                     |   |  |                     |  
|Selling & Marketing
      expenses        |   | (238,586            | ) |  | (6.5%               | )
|General
      and administrative expenses |   | (496,097            | ) |  | (13.6%              | )
|                                          |   |                     |   |  |                     |  
|Total operating expenses                  |   | (734,683            | ) |  | (20.2%              | )
|                                          |   |                     |   |  |                     |  
|Income from operations                    |   | 661,723             |   |  | 18.2%               |  
|Interest expense                          |   | (13,252             | ) |  | (0.4%               | )
|Other income                              |   | 120,585             |   |  | 3.3%                |  
|                                          |   |                     |   |  |                     |  
|Income before income taxes                |   | 769,056             |   |  | 21.1%               |  
|                                          |   |                     |   |  |                     |  
|Income taxes                              |   | (35,764             | ) |  | (1%                 | )
|                                          |   |                     |   |  |                     |  
|Net income                                | $ | 733,292             |   |  | 20.1%               |  

Net Sales. Our sales revenue increased to
$3,644,147 in the six months ended June 30, 2010 from $1,630,379 in the same
period last year, representing a 123.5% growth year-over-year. The growth was
mainly due to the market recovery from 2009 financial crisis and our escalated
marketing and sales efforts.

27

---

Sales to newly acquired customers accounted for 38% of total
sales and 95% of our sales growth, while sales to existing customers accounted
for 62% of total sales, and only 5% of our sales growth.

Cost of Sales. Our cost of sales increased
$1,305,546 or 138.6%, to $2,247,741 in the six months ended June 30, 2010 from
$924,195 in the same period in 2009. The cost of goods sold per sales ratio
remains almost flat, at 57.8% and 61.7% in 2009 and 2010, respectively.

Gross Profit and Gross Margin. Our gross profit
increased 708,222, or 102.9%, to $1,396,406, in the six months ended June 30,
2010, from $688,184 in the same period in 2009. Gross profit as a percentage of
net revenue was 38.3% and 42.2% for the six months ended June 30, 2010 and 2009,
respectively.

Selling and Marketing Expenses. Our selling and
marketing expenses in the six months ended June 30, 2010 were $238,586,
remaining almost flat from $234,900 in the same 2009 period.

General and Administrative Expenses. Our
administrative expenses increased $159,294, or 47.3%, to $496,097 in the six
months ended June 30, 2010, from $336,803 in the same period in 2009.

Interest Expense. Our interest expenses in
the six months ended June 30, 2010 were $13,252, remaining almost flat from
$12,935 in the same 2009 period.

Other Income.Other income was $120,585 in
the six months ended June 30, 2010, a $3,680, or 3%, decrease from the same
period in 2009.

Income Before Income Taxes. Our income before
income taxes increased, to $769,056 in the six months ended June 30, 2010 from
$227,811 in the same period last year.

Income Taxes. Our income tax increased to $35,764
in the six months ended June 30, 2010 from $0 in the same period last year. As a
Hi-Tech Company, we enjoy China preferential tax policy of two years exemption
and three years half. We are now in the period of three years half, whereas
last year we were in the period of two years exemption.

Net Income. In the six months ended June 30,
2010, we generated a net income of $733,292, an increase of $505,481, from
$227,811 in the same period in 2009, as a result of the factors described
above.

Liquidity and Capital Resources

As of June 30, 2010, we had cash and cash equivalents of
$427,519, 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)

|                                                    |   | Six
      Months Ended June 30, |  
|--------------------------------------------------- | - | ------------------------------- | -
|                                                    |   | 2010                            |  
|Net cash provided by (used in) operating activities | $ | 230,039                         |  
|Net cash provided by (used in) investing activities |   | (178,543                        | )
|Net cash provided by (used in) financing activities |   | (49,755                         | )
|Effects of Exchange Rate Change in Cash             |   | 16,060                          |  
|Net Increase in Cash and Cash Equivalents           |   | 17,801                          |  
|Cash and Cash Equivalents, Beginning                |   | 409,718                         |  
|Cash and Cash Equivalent, End                       | $ | 427,519                         |  

28

---

***Operating activities***

Net cash provided by operating activities was $230,039 for the
six months ended June 30, 2010, as compared to $130,356 net cash provided by
operating activities for the same period in 2009, reflecting companys escalated
efforts in managing account receivable.

Investing activities

Net cash used in investing activities for the six months ended
June 30, 2010 was $178,542, as compared to $29,193 net cash used in investing
activities for the same period in 2009. This increase was mainly due to
companys investment in equipments for R&D and manufacture.

Financing activities

Net cash used in financing activities for the six months ended
June 30, 2010 was $49,755, as compared to $221,711 for the same period in 2009.
Both of them were repayments for short term debt.

As of June 30, 2010, the amount, maturity date and term of our
bank loan was as follows:

|Bank                  | Amount                                      | Maturity Date     | Duration 
|--------------------- | ------------------------------------------- | ----------------- | ---------
|PingAn Bank, Shenzhen | RMB2,650000
      (approximately $390,345)  | November 10, 2010 | 12 months
|Total                 | RMB2,650,000 (approximately
      $390,345) |                   |          

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.

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.

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 travel 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.

29

---

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:

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 and 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
United Digital was accounted for as a reverse merger with United Digital as the
acquirer and CSD as the acquired party and the acquisition of Skyrise Technology
and Skyrise Digital was accounted for under the acquisition method with United
Digital 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 other 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. These
criteria are generally satisfied at the time of shipment when risk of loss and
title passes to the customer.

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.

30

---

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 $6,323 and $4,696 for the three months ended June 30, 2010 and
June 30, 2009, respectively. Shipping and handling costs amounted to $11,158 and
$6,508 for the six months ended June 30, 2010 and June 30, 2009, respectively.

Advertising

Advertising costs are included in selling and marketing
expenses which totaled $587 and $nil for the three months ended June 30, 2010
and June 30, 2009, respectively. Advertisement costs amounted to $3,024 and
$1,388 for the six months ended June 30, 2010 and June 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 $132,412 and $101,213 for the three months
ended June 30, 2010 and June 30, 2009, respectively. Research and development
costs amounted to $248,621 and $192,611 for the six months ended June 30, 2010
and June 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.

Government grant

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

Foreign currency translation and other comprehensive income

The reporting currency of the Company is the United States
Dollars ($). The functional currencies of the Company and its subsidiaries
United Digital, Skyrise Technology and Skyrise Digital, are the United States
Dollars ($) 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 $42,130 as
of June 30, 2010. The balance sheet amounts with the exception of equity at June
30, 2010 and June 30, 2009 were translated at RM6.79 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 six months ended June 30, 2010 and June 30,
2009 were RMB 6.84 to $1.00.

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.

31

---

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

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

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 June 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, installation and development of digital
home security networks, peripherals and software and SSD is engaged in the sale,
installation 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.

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.

32

---

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
June 30, 2010 and year ended December 31, 2009 are $nil. Bad debts written off
for the three months ended June 30, 2010 and June 30, 2009 and for the six
months ended June 30, 2010 and June 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.

Retirement benefit costs

PRC state managed retirement benefit programs are defined
contribution scheme and the payments to the scheme 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 June 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.

33

---

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 June 30, 2010 and June 30, 2009.
The product warranty reserve was $nil at June 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.

Concentration 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 June 30, 2010
and December 31, 2009 amounted to $415,989 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.

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.

34

---

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.

35

---

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK

Not Applicable.

ITEMS 4 AND 4A(T). CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Exchange Act) that are designed to ensure that
information that would be required to be disclosed in Exchange Act reports is
recorded, processed, summarized and reported within the time period specified in
the SECs rules and forms, and that such information is accumulated and
communicated to our management, including to our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure.

As required by Rule 13a-15 under the Exchange Act, our
management, including our Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures as of June 30, 2010. Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that as of June 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.

36

---

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.

ITEM 1A.RISK FACTORS.

Not applicable.

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

We have not sold any equity securities during the quarter ended
June 30, 2010 which sale was not previously disclosed in a current report on
Form 8-K filed during that period.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4.(REMOVED AND RESERVED).

ITEM 5.OTHER INFORMATION.

We have no information to include that was required to be but
was not disclosed in a report on Form 8-K during the period covered by this Form
10-Q. 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 Number |  | **Description**                                                                                                    
|-------------- |  | -------------------------------------------------------------------------------------------------------------------
|               |  |                                                                                                                    
|31.1           |  | Certifications
        of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
        Act of 2002
|               |  |                                                                                                                    
|31.2           |  | Certifications
        of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
        Act of 2002
|               |  |                                                                                                                    
|32.1           |  | Certifications
        of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
        Act of 2002
|               |  |                                                                                                                    
|32.2           |  | Certifications
        of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
        Act of 2002

37

---

SIGNATURES

Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

|                       | China Skyrise Digital Service Inc.                                  
|---------------------- | --------------------------------------------------------------------
|                       |                                                                     
|Dated: August 16, 2010 | /s/
      Mingchun Zhou                                             
|                       | Mingchun Zhou                                                       
|                       | Chairman and Chief Executive Officer                                
|                       | (Principal Executive Officer)                                       
|                       |                                                                     
|                       |                                                                     
|Dated: August 16, 2010 | /s/
      Dongmei Wu                                                
|                       | Dongmei Wu                                                          
|                       | Chief Financial Officer                                             
|                       | (Principal Financial Officer and Principal
      Accounting Officer)

38

---

EXHIBIT INDEX



|Exhibit Number |  | **Description**                                                                                                    
|-------------- |  | -------------------------------------------------------------------------------------------------------------------
|               |  |                                                                                                                    
|31.1           |  | Certifications
        of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
        Act of 2002
|               |  |                                                                                                                    
|31.2           |  | Certifications
        of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
        Act of 2002
|               |  |                                                                                                                    
|32.1           |  | Certifications
        of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
        Act of 2002
|               |  |                                                                                                                    
|32.2           |  | Certifications
        of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
        Act of 2002

39

---