---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended: March 31, 2011

[   ]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.(Exact name of registrant as specified in its
charter)

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

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)

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

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

Yes [ X ]     No [   ]

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

Yes [   ]     No [   ]

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

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

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

Yes [   ]     No [ X ]

The number of shares outstanding of each of the issuers
classes of common stock, as of May 13, 2011 is as follows:

|Class of
      Securities      |  | Shares Outstanding
|------------------------------ |  | ------------------
|Common Stock, $0.001 par value |  | 21,433,550        

---



|CHINA SKYRISE DIGITAL SERVICE
      INC.
|----------------------------------------
|                                        
|Quarterly Report on Form
      10-Q     
|Three Months Ended March 31, 2011       
|                                        
|TABLE OF CONTENTS                       
|                                        
|PART I                                  
|FINANCIAL INFORMATION                   
|                                        
|Item 1.                                 
|Item 2.                                 
|Item 3.                                 
|Item 4.                                 
|                                        
|PART II                                 
|OTHER
      INFORMATION                 
|                                        
|Item 1.                                 
|Item 1A.                                
|Item 2.                                 
|Item 3.                                 
|Item 4.                                 
|Item 5.                                 
|Item 6.                                 

i

---

PART IFINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

CHINA SKYRISE DIGITAL SERVICE, INC. QUARTERLY FINANCIAL
REPORT FOR THE THREE MONTHS ENDED MARCH 31, 2011

|Financial Statements                            | Page(s)
|----------------------------------------------- | -------
|Consolidated Balance Sheets                     | 2      
|Consolidated Statements of Comprehensive Income | 3      
|Consolidated Statements of Cash Flows           | 4      
|Notes to Consolidated Financial Statements      | 5 - 23 

---

|CHINA SKYRISE DIGITAL SERVICE, INC.                                  |   |             |  |  
|-------------------------------------------------------------------- | - | ----------- |  | -
|                                                                     |   |             |  |  
|CONSOLIDATED BALANCE SHEETS                                          |   |             |  |  
|                                                                     |   | March 31,   |  |  
|                                                                     |   | 2011        |  |  
|                                                                     |   | (Unaudited) |  |  
|ASSETS                                                               |   |             |  |  
|Current assets                                                       |   |             |  |  
|Cash and cash equivalents                                            | $ | 234,338     |  | $
|Accounts receivable, net of allowance for
      doubtful accounts    |   | 5,242,703   |  |  
|Inventory                                                            |   | 1,945,103   |  |  
|Deposits and prepaid expenses                                        |   | 859,138     |  |  
|Other receivables                                                    |   | 444,038     |  |  
|Total current assets                                                 |   | 8,725,320   |  |  
|Property, plant and equipment,
      net of accumulated depreciation |   | 324,922     |  |  
|Other assets                                                         |   |             |  |  
|Intangible assets, net of
      accumulated amortization             |   | 171,920     |  |  
|Goodwill                                                             |   | 193,754     |  |  
|Total other assets                                                   |   | 365,674     |  |  
|Total assets                                                         | $ | 9,415,916   |  | $
|LIABILITIES AND STOCKHOLDERS' EQUITY                                 |   |             |  |  
|Current liabilities                                                  |   |             |  |  
|Accounts payable                                                     | $ | 814,018     |  | $
|Unearned revenue                                                     |   | 411,278     |  |  
|Other payables and accrued
      expenses                            |   | 695,439     |  |  
|Short term debt                                                      |   | 713,700     |  |  
|Taxes payable                                                        |   | 23,147      |  |  
|                                                                     |   | 2,657,582   |  |  
|Commitments and contingencies                                        |   | -           |  |  
|Stockholders' equity                                                 |   |             |  |  
|Common stock: $0.001 par value                                       |   |             |  |  
|Authorized: 75,000,000 common
      shares                           |   |             |  |  
|21,433,550 and
      21,283,550 shares issued and outstanding at     |   |             |  |  
|March 31, 2011 and December 31,
      2010, respectively             |   | 21,434      |  |  
|Additional paid-in capital                                           |   | 2,306,936   |  |  
|Statutory reserve                                                    |   | 381,829     |  |  
|Retained earnings                                                    |   | 3,825,217   |  |  
|Accumulated other comprehensive income                               |   | 222,918     |  |  
|Total stockholders' equity                                           |   | 6,758,334   |  |  
|Total liabilities and stockholders' equity                           | $ | 9,415,916   |  | $

See accompanying notes to consolidated financial statements

2

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|CHINA SKYRISE DIGITAL SERVICE,
      INC. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
|----------------------------------------------------------------------------------------------------
|
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|                                                                                                    
|Revenues                                                                                            
|Cost of goods sold                                                                                  
|Gross profit                                                                                        
|Selling and marketing expenses                                                                      
|General and administrative
      expenses                                                           
|Net income from operations                                                                          
|Other income (expenses)                                                                             
|Other
      income                                                                                  
|Interest expense                                                                                    
|Total other income (expenses)                                                                       
|Income before provision for
      income taxes                                                      
|Provision for income taxes                                                                          
|Net income                                                                                          
|Other comprehensive income                                                                          
|Foreign currency
      translation gain /(loss)                                                     
|Total comprehensive income                                                                          
|Earnings per share                                                                                  
|****      **Basic**                                                                                 
|Diluted                                                                                             
|Weighted average number of shares
      outstanding:                                                
|****      **Basic**                                                                                 
|****      **Diluted**                                                                               

See accompanying notes to consolidated financial statements

3

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CHINA SKYRISE DIGITAL SERVICE,
INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                       |   |              |   |   |              |  
|---------------------------------------------------------------------- | - | ------------ | - | - | ------------ | -
|                                                                       |   |              |   |   |              |  
|                                                                       |   | Three months |   |   | Three months |  
|                                                                       |   | ended        |   |   | ended        |  
|                                                                       |   | March 31,    |   |   | March 31,    |  
|                                                                       |   | 2011         |   |   | 2010         |  
|                                                                       |   | (Unaudited)  |   |   | (Unaudited)  |  
|Cash flows from operating activities                                   |   |              |   |   |              |  
|Net income for the period                                              | $ | 139,571      |   | $ | 287,135      |  
|Adjustments to reconcile net
      income to net cash from operations: |   |              |   |   |              |  
|Depreciation                                                           |   | 19,770       |   |   | 21,030       |  
|Amortization of intangible
      assets                                |   | 12,665       |   |   | 10,754       |  
|Changes in operating assets and liabilities                            |   |              |   |   |              |  
|Decrease (increase) decrease
      in inventory                        |   | 174,743      |   |   | (192,880     | )
|(Increase) decrease in deposits and prepaid
      expenses             |   | (83,432      | ) |   | 52,147       |  
|Increase in accounts
      receivable                                  |   | (46,807      | ) |   | (901,493     | )
|(Increase) decrease in other receivables                               |   | (59,389      | ) |   | 204,714      |  
|Decrease in taxes payable                                              |   | (143,073     | ) |   | (61,016      | )
|(Decrease) increase in accounts payable                                |   | (81,581      | ) |   | 272,589      |  
|(Decrease) increase in
      unearned revenue                          |   | (45,390      | ) |   | 197,942      |  
|(Decrease) increase in other payable and
      accrued expenses        |   | (88,965      | ) |   | 526          |  
|Net cash used in operating
      activities                            |   | (201,888     | ) |   | (108,552     | )
|Cash flows from investing activities                                   |   |              |   |   |              |  
|Purchases of property, plant
      and equipment                       |   | (3,638       | ) |   | (4,922       | )
|Purchase of intangible assets                                          |   | (47,546      | ) |   | (28,994      | )
|Net cash used in investing
      activities                            |   | (51,184      | ) |   | (33,916      | )
|Cash flows from financing activities                                   |   |              |   |   |              |  
|Repayment of short term debt                                           |   | (32,664      | ) |   | -            |  
|Net cash used in financing activities                                  |   | (32,664      | ) |   | -            |  
|Effects of exchange rate changes on
      cash                         |   | 92,516       |   |   | (3,306       | )
|Decrease in cash and cash equivalents                                  |   | (193,220     | ) |   | (145,774     | )
|Cash and cash equivalents, beginning
      of period                   |   | 427,558      |   |   | 409,718      |  
|Cash and cash equivalents, end of period                               | $ | 234,338      |   | $ | 263,944      |  
|Supplementary disclosures of cash
      flow information:              |   |              |   |   |              |  
|Cash paid for interest                                                 | $ | 11,347       |   | $ | 6            |  
|Cash paid for
      taxes                                              | $ | 154,420      |   | $ | -            |  

See accompanying notes to consolidated financial statements

4

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CHINA SKYRISE DIGITAL SERVICE, INC. 
QUARTERLY FINANCIAL REPORT 
FOR THE THREE MONTHS ENDED MARCH 31, 2011

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|1. | CORPORATE INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | China Skyrise Digital Service, Inc. (the Company or 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 development and sale of digital residential intercom and safety products and solutions. On April 23, 2008, SST established SSD, a corporation incorporated under
the laws of the PRC. SSDs principal activity is development and sales 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 development and sale of digital residential intercom and safety products,
system-on-chip solutions, as well as the development and operation of community e-business value-added services. 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

5

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CHINA SKYRISE DIGITAL SERVICE, INC. QUARTERLY FINANCIAL
REPORT FOR THE THREE MONTHS ENDED MARCH 31, 2011

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)
|- | ------------------------------------------------------------
|  |                                                             
|  | 2.2                                                         
|  |                                                             
|  |                                                             

Name of
      subsidiaries
    Place of incorporation
    Date of incorporation
    Percentage of interest
    Principal activityUnited Digital Home H.K. Group
      Company Limited
    Hong Kong
    December 11, 2007
    100% directly
    Investment holdingShenzhen Skyrise Technology Co ., Limited
    People's Republic of China
    May 27, 2003
    100% directly
    Digital intercom systemShenzhen Skyrise Digital
      Electronic Co ., Limited
    People's Republic
      of China
    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 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, 2010, filed
      with the SEC on April 1, 2011.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                 

6

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CHINA SKYRISE DIGITAL SERVICE, INC. QUARTERLY FINANCIAL
REPORT FOR THE THREE MONTHS ENDED MARCH 31, 2011

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)
|-- | ------------------------------------------------------------
|   |                                                             
|   | 2.5                                                         
|   |                                                             
|   |                                                             
|   |                                                             
|   | 2.6                                                         
|   |                                                             
|   |                                                             

The Company recognizes revenue when
the goods are delivered and title has passed.. All of the Companys products
that are sold in the PRC are subject to a Chinese value-added tax (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 $4,754 and $4,835 for the three months
      ended March 31, 2011 and March 31, 2010, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                    
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | 2.9  | ADVERTISING                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |      | Advertising costs are included in selling and marketing
      expenses which totaled $8,628 and $2,437 for the three months ended March
      31, 2011 and March 31, 2010, 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 $74,949 and $116,209 for the
      three months ended March 31, 2011 and March 31, 2010, 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.
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

7

---

CHINA SKYRISE DIGITAL SERVICE, INC. QUARTERLY FINANCIAL
REPORT FOR THE THREE MONTHS ENDED MARCH 31, 2011

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)
|-- | ------------------------------------------------------------
|   |                                                             
|   | 2.12                                                        
|   |                                                             
|   |                                                             
|   |                                                             
|   |                                                             
|   |                                                             
|   |                                                             
|   |                                                             
|   | 2.13                                                        
|   |                                                             
|   |                                                             
|   |                                                             
|   |                                                             

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

8

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CHINA SKYRISE DIGITAL SERVICE, INC. QUARTERLY FINANCIAL
REPORT FOR THE THREE MONTHS ENDED MARCH 31, 2011

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|-- | ------------------------------------------------------

| | 2.13 | PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
| | ---- | -----------------------------------------

March 31,
    
    
    December 31,2011
    
    
    2010$
    
    
    $Furniture, fixtures and office
      equipment
    
    240,707
    
    
    238,276Plant and machinery
    
    284,346
    
    
    281,406Motor vehicles
    
    39,602
    
    
    39,602564,655
    
    
    559,284Less: Accumulated depreciation
    
    (239,733
    )
    
    (219,967
    )Net book value
    
    324,922
    
    
    339,317


| |      | Depreciation expense was $19,770 and $21,030 for the
      three months ended March 31, 2011 and March 31, 2010,
  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 March 31, 2011 and December 31, 2010, the Company determined
      no impairment charges were necessary.                                                                                                                                                                                                                                       
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | 2.15 | CAPITALIZED INTERNAL USE SOFTWARE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      | The Company capitalizes certain costs incurred to
      purchase or create internal-use software in accordance with ASC Topic
      350-40, Internal Use Software. To date, such costs have included
      external direct costs of materials and services incurred in the
      implementation of internal-use software and are included within computer
      hardware and software. Once the capitalization criteria have been met,
      such costs are classified as software and are amortized on a straight-line
      basis over five years once the software has been put into use. Subsequent
      additions, modifications, or upgrades to internal-use software are
      capitalized only to the extent that they allow the software to perform a
      task it previously did not perform. Software maintenance and training
      costs are expensed in the period in which they are
  incurred.

9

---

CHINA SKYRISE DIGITAL SERVICE, INC. QUARTERLY FINANCIAL
REPORT FOR THE THREE MONTHS ENDED MARCH 31, 2011

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)
|-- | ------------------------------------------------------------
|   |                                                             
|   | 2.16                                                        
|   |                                                             
|   |                                                             

| |                                |  | March 31, |   |  | December 31, |  
| | ------------------------------ |  | --------- | - |  | ------------ | -
| |                                |  | 2011      |   |  | 2010         |  
| |                                |  | $         |   |  | $            |  
| | Patent                         |  | 10,677    |   |  | 8,825        |  
| | Software system                |  | 279,080   |   |  | 232,555      |  
| |                                |  | 289,757   |   |  | 241,380      |  
| | Less: Accumulated amortization |  | (117,837  | ) |  | (105,174     | )
| | Net book value                 |  | 171,920   |   |  | 136,206      |  

| |      | Amortization expense was $12,665 and $10,754 for the
      three months ended March 31, 2011 and March 31, 2010,
  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
      development and sales of digital residential intercom and safety products
      and solutions and SSD is engaged in the development and sales 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.                                                                                                                                                                                                                                                                                                                                                                 

| |                            |  | March 31, |  |  | December 31, | 
| | -------------------------- |  | --------- |  |  | ------------ | 
| |                            |  | 2011      |  |  | 2010         | 
| |                            |  | $         |  |  | $            | 
| | Raw materials              |  | 344,921   |  |  | 349,539      | 
| | Consumable stores          |  | 131,655   |  |  | 130,964      | 
| | Components                 |  | 90,513    |  |  | 90,594       | 
| | Finished goods-in-transits |  | 392,047   |  |  | 394,750      | 
| | Finished goods             |  | 985,967   |  |  | 1,153,999    | 
| |                            |  | 1,945,103 |  |  | 2,119,846    | 

10

---

CHINA SKYRISE DIGITAL SERVICE, INC. QUARTERLY FINANCIAL
REPORT FOR THE THREE MONTHS ENDED MARCH 31, 2011

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)
|-- | ------------------------------------------------------------
|   |                                                             
|   | 2.18                                                        
|   |                                                             
|   |                                                             
|   |                                                             
|   | 2.19                                                        
|   |                                                             
|   |                                                             
|   |                                                             
|   |                                                             

| |                                       |  | March 31, |   |  | December 31, |  
| | ------------------------------------- |  | --------- | - |  | ------------ | -
| |                                       |  | 2011      |   |  | 2010         |  
| |                                       |  | $         |   |  | $            |  
| | within 1 year                         |  | 5,107,008 |   |  | 4,791,800    |  
| | within 1- 2 years                     |  | 82,168    |   |  | 350,500      |  
| | over 2 years                          |  | 100,083   |   |  | 99,908       |  
| |                                       |  | 5,289,259 |   |  | 5,242,208    |  
| | Allowance for doubtful
      accounts |  | (46,556   | ) |  | (46,312      | )
| |                                       |  | 5,242,703 |   |  | 5,195,896    |  

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

| |                  |  |           |  |  |              | 
| | ---------------- |  | --------- |  |  | ------------ | 
| |                  |  | March 31, |  |  | December 31, | 
| |                  |  | 2011      |  |  | 2010         | 
| |                  |  | $         |  |  | $            | 
| | Trade deposits   |  | 797,912   |  |  | 740,061      | 
| | Prepaid expenses |  | 61,226    |  |  | 35,645       | 
| |                  |  | 859,138   |  |  | 775,706      | 
| |                  |  |           |  | 

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

11

---

CHINA SKYRISE DIGITAL SERVICE, INC. QUARTERLY FINANCIAL
REPORT FOR THE THREE MONTHS ENDED MARCH 31, 2011

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|-- | ------------------------------------------------------

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

| |                                         |  | March 31, |  |  | December 31, | 
| | --------------------------------------- |  | --------- |  |  | ------------ | 
| |                                         |  | 2011      |  |  | 2010         | 
| |                                         |  | $         |  |  | $            | 
| | Project tender and other
      deposits |  | 51,829    |  |  | 54,612       | 
| | Rental and utility deposits             |  | 14,496    |  |  | 13,728       | 
| | Due from employees                      |  | 209,271   |  |  | 181,800      | 
| | Guarantee deposits                      |  | 13,162    |  |  | 13,098       | 
| | Samples loaned to
      customers       |  | 54,970    |  |  | 2,108        | 
| | Temporary payments to third parties     |  | 19,596    |  |  | 15,125       | 
| | Government grant
      receivable       |  | 80,714    |  |  | 104,178      | 
| |                                         |  | 444,038   |  |  | 384,649      | 

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 represent 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 | TAXES PAYABLE
| | ---- | -------------

| |                                                |  |  |           |   |  |              | 
| | ---------------------------------------------- |  |  | --------- | - |  | ------------ | 
| |                                                |  |  | March 31, |   |  | December 31, | 
| |                                                |  |  | 2011      |   |  | 2010         | 
| |                                                |  |  | $         |   |  | $            | 
| | VAT                                            |  |  | (12,695   | ) |  | 11,118       | 
| | City maintenance and
      construction levies |  |  | 5,868     |   |  | 6,657        | 
| | Personal income tax                            |  |  | 5,605     |   |  | 19,971       | 
| | Enterprise income tax                          |  |  | 21,895    |   |  | 126,532      | 
| | Eduction levies                                |  |  | 2,474     |   |  | 1,863        | 
| | Other levies                                   |  |  | -         |   |  | 79           | 
| | Taxes payable                                  |  |  | 23,147    |   |  | 166,220      | 

12

---

CHINA SKYRISE DIGITAL SERVICE, INC. QUARTERLY FINANCIAL
REPORT FOR THE THREE MONTHS ENDED MARCH 31, 2011

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|-- | ------------------------------------------------------

| |      |                                        
| | ---- | ---------------------------------------
| | 2.23 | **OTHER PAYABLES AND ACCRUED EXPENSES**

March 31,
    
    
    December 31,2011
    
    
    2010$
    
    
    $Wages and professional fees accruals
    
    -
    
    
    194,222Due to employees
    
    1,784
    
    
    2,219Due to related party
    
    547,258
    
    
    521,145Security deposits for samples loaned to customers
    
    31,986
    
    
    35,042Sundries
    
    94,321
    
    
    1,073Temporary receipts from third parties
    
    20,090
    
    
    30,703695,439
    
    
    784,404


Wages and professional 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 amount on or before July 10, 2011, the second anniversary of execution date.
The other remaining amount due to Mr. Zhou was unsecured, interest free and had
no fixed repayment term. 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.

13

---

CHINA SKYRISE DIGITAL SERVICE, INC. 
QUARTERLY FINANCIAL REPORT 
FOR THE THREE MONTHS ENDED MARCH 31, 2011

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|-- | ------------------------------------------------------
|   |                                                       
|   | 2.24                                                  
|   |                                                       
|   |                                                       
|   |                                                       
|   |                                                       
|   |                                                       
|   | 2.25                                                  
|   |                                                       
|   |                                                       
|   |                                                       
|   | 2.26                                                  
|   |                                                       
|   |                                                       
|   |                                                       
|   | 2.27                                                  
|   |                                                       
|   |                                                       
|   |                                                       
|   |                                                       
|   |                                                       
|   |                                                       
|   |                                                       
|   |                                                       

14

---

CHINA SKYRISE DIGITAL SERVICE, INC. QUARTERLY FINANCIAL
REPORT FOR THE THREE MONTHS ENDED MARCH 31, 2011

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|-- | ------------------------------------------------------

| |      |                   
| | ---- | ------------------
| | 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 March 31, 2011
and March 31, 2010. The product warranty reserve was $nil as of March 31, 2011
and December 31, 2010.

| | 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 in bank and on
      hand.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

| |                        |  |   | March 31, |  |   | December 31, | 
| | ---------------------- |  | - | --------- |  | - | ------------ | 
| |                        |  |   | 2011      |  |   | 2010         | 
| | Cash and bank balances |  | $ | 234,338   |  | $ | 427,558      | 

| |      |                                  
| | ---- | ---------------------------------
| | 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 in these banks as of March 31, 2011 and December
31, 2010 amounted to $221,195 and $413,736, 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.

15

---

CHINA SKYRISE DIGITAL SERVICE, INC. QUARTERLY FINANCIAL
REPORT FOR THE THREE MONTHS ENDED MARCH 31, 2011

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)
|-- | ------------------------------------------------------------
|   |                                                             
|   | 2.31                                                        
|   |                                                             
|   |                                                             

Three months
    
    
    Three monthsended
    
    
    endedMarch 31,
    
    
    March 31,2011
    
    
    2010Customer A
    
    43.72%
    
    
    -Customer B
    
    15.62%
    
    
    -Customer C
    
    12.38%
    
    
    -Customer D
    
    8.08%
    
    
    -Customer E
    
    5.81%
    
    
    -Customer F
    
    -
    
    
    34.09%Customer G
    
    -
    
    
    29.59%Customer H
    
    -
    
    
    11.93%Customer I
    
    -
    
    
    11.65%Customer J
    
    -
    
    
    2.32%85.61%
    
    
    89.58%


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

March 31,
    
    
    December 31,2011
    
    
    2010Customer A
    
    11.98%
    
    
    14.29%Customer B
    
    9.65%
    
    
    -Customer C
    
    7.19%
    
    
    8.06%Customer D
    
    6.75%
    
    
    8.43%Customer E
    
    5.75%
    
    
    6.29%Customer F
    
    -
    
    
    5.88%41.32%
    
    
    42.95%


16

---

CHINA SKYRISE DIGITAL SERVICE, INC. 
QUARTERLY FINANCIAL REPORT 
FOR THE THREE MONTHS ENDED MARCH 31, 2011

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|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 March 31, 2011 and March 31, 2010, basic and diluted earnings per share amount to $0.01.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|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 January 2010, FASB issued ASU No. 2010-01 Accounting for Distributions to Shareholders with Components of Stock and Cash. The amendments in this Update clarify that the stock portion of a distribution to shareholders that
allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in EPS prospectively and is not a
stock dividend for purposes of applying Topics 505 and 260 (Equity and Earnings Per Share). The amendments in this update are effective for interim and annual periods ending on or after December.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | In January 2010, FASB issued ASU No. 2010-02 regarding accounting and reporting for decreases in ownership of a subsidiary. Under this guidance, an entity is required to deconsolidate a subsidiary when the entity ceases to have a
controlling financial interest in the subsidiary. Upon deconsolidation of a subsidiary, and entity recognizes a gain or loss on the transaction and measures any retained investment in the subsidiary at fair value. In contrast, an entity is required
to account for a decrease in its ownership interest of a subsidiary that does not result in a change of control of the subsidiary as an equity transaction. This ASU clarifies the scope of the decrease in ownership provisions, and expands the
disclosures about the deconsolidation of a subsidiary or de-recognition of a group of assets. This ASU is effective for beginning in the first interim or annual reporting period ending on or after December 31, 2009. The Company does not expect the
adoption of this ASU to have a material impact on its consolidated financial statements In January 2010, FASB issued ASU No. 2010-02  Accounting and Reporting for Decreases in Ownership of
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | a                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | a                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | reporting by an entity that exchanges a group of assets that constitutes a business or nonprofit activity for an equity interest in another entity. The amendments in this update are effective beginning in the period that an entity
adopts SFAS No. 160, Non- controlling Interests in Consolidated Financial Statements  An Amendment of ARB No. 51. If an entity has previously adopted SFAS No. 160 as of the date the amendments in this update are included in the
Accounting Standards Codification, the amendments in this update are effective beginning in the first interim or annual reporting period ending on or after December 15, 2009. The amendments in this update should be applied retrospectively to the
first period that an entity adopted SFAS No. 160. The Company adopted this standard and has determined the standard does not have material effect on the Companys consolidated financial statements.                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

17

---

CHINA SKYRISE DIGITAL SERVICE, INC. 
QUARTERLY FINANCIAL REPORT 
FOR THE THREE MONTHS ENDED MARCH 31, 2011

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|6. | RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
|-- | --------------------------------------------

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

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

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

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

In July 2010, the FASB issued ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. This update amends codification topic 310 on receivables to improve the disclosures that an
entity provides about the credit quality of its financing receivables and the related allowance for credit losses. As a result of these amendments, an entity is required to disaggregate by portfolio segment or class certain existing disclosures and
provide certain new disclosures about its financing receivables and related allowance for credit losses. This guidance is being phased in, with the new disclosure requirements for period end balances effective as of December 31, 2010, and the new
disclosure requirements for activity during the reporting period are effective March 31, 2011. The troubled debt restructuring disclosures in this ASU have been delayed by ASU 2011-01 Deferral of the Effective Date of Disclosures about
Troubled Debt Restructurings in Update No. 2010-20, which was issued in January 2011.

18

---

CHINA SKYRISE DIGITAL SERVICE, INC. 
QUARTERLY FINANCIAL REPORT 
FOR THE THREE MONTHS ENDED MARCH 31, 2011

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|6. | RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
|-- | --------------------------------------------

In December 2010, the FASB issued Accounting Standards Update 2010-28 which amend Intangibles- Goodwill and Other (Topic 350). The ASU modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying
amounts. For those reporting entities, they are required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. An entity should consider whether there are any adverse qualitative factors
indicating that impairment may exist. The qualitative factors are consistent with the existing guidance in Topic 350, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances
changes that would more likely than not reduce the faire value of a reporting unit below its carrying amount. ASU 2010-28 is effective for fiscal years, and interim periods within those years beginning after December 15, 2010. Early adoption is not
permitted. The Company is currently evaluating the impact of this ASU; however, the Company does not expect the adoption of this ASU will have a material impact on its consolidated financial statements.

In December 2010, the FASB issued Accounting Standards Update 2010-29 which address diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations (Topic 805). This ASU
specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the
beginning of the comparable prior annual reporting period only. This ASU also expands the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly
attributable to the business combination included in the reported pro forma revenue and earnings. ASU 2010-29 is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2010. Early adoption is permitted. The Company is currently evaluating the impact of this ASU and expected the adoption of this ASU will have an impact on its future business combinations.

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

The Company is incorporated in the State of Nevada in the U.S. and is subject to a gradual U.S. federal corporate income tax of 15% to 34%. The State of Nevada does not impose any corporate state income tax.

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 March 31, 2011 and March 31, 2010.

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). Prior to 2008, FIEs and domestic enterprises established in the PRC, unless granted preferential tax treatments by
the PRC government, were generally subject to an enterprise income tax ("EIT") rate of 15% and 33%, respectively. New EIT Law and its implementing rules impose a unified EIT of 25% on all domestic enterprises and FIEs, unless they qualify under
certain limited exceptions.

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 2 years and reduced tax rates for 3 years after that,
effective as of 2008. Therefore, SST incurred no income tax expense during fiscal years 2008 and 2009 and should pay income tax expense on the tax rate of 11% and 12% for fiscal year 2010 and fiscal year 2011, respectively. SSD, tax rate prior New
EIT Law was 15%, is subject to the New EIT Law and provides income tax provision on a gradually increased EIT rate over a 5-year period. Tax rate for SSD for fiscal year 2010 and fiscal year 2011 are 22% and 24%, respectively. 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.

19

---

CHINA SKYRISE DIGITAL SERVICE, INC. QUARTERLY FINANCIAL
REPORT FOR THE THREE MONTHS ENDED MARCH 31, 2011

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|7. | INCOME TAXES (CONTINUED)
|-- | ------------------------

The following table reconciles the U.S
statutory rates to the Companys effective tax rate for the three months ended
March 31, 2011:

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


Provision for income taxes is as follows:Three months
    
    
    Three monthsended
    
    
    endedMarch 31,
    
    
    March 31,2011
    
    
    2010$
    
    
    $Income taxCSD
    
    -
    
    
    -UDH
    
    -
    
    
    -SST - China EIT
    
    21,823
    
    
    -SSE - China EIT
    
    -
    
    
    -Deferred tax
    
    -
    
    
    -21,823
    
    
    -


|   |                
|-- | ---------------
|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.

March 31,
    
    
    December 31,2011
    
    
    2010$
    
    
    $Loan from Ping An Bank, Shenzhen
      BranchInterest rate 5.9492% per annum andpersonnal guarantee given by Mr.
      Mingchun Zhou
    
    713,700
    
    
    746,364


20

---

CHINA SKYRISE DIGITAL SERVICE, INC. 
QUARTERLY FINANCIAL REPORT 
FOR THE THREE MONTHS ENDED MARCH 31, 2011

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

|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 certain individuals 4,105,750 shares of its common stock at a fair value of $0.01 per share, for services rendered and to be rendered to the Company in connection with the reverse
acquisition of UDH. These services are to be provided over a 5-year period and were valued at $41,058. Stock based compensation expenses will be recognized pro-rata over the life of the agreement of 5 years                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | During the year ended December 31, 2010, the Company issued certain company a total of 173,000 shares of common stock of $0.001 per share, as stock based compensation for certain consulting services
rendered and to be rendered to the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | As of January 1, 2011, the Company issued to a consultant, a total of 150,000 shares of the Companys common stock, par value $0.001 per share, as compensation for services
rendered to the Company
during 2010. This amount had been accrued at December 31, 2010 as part of the Companys accrued expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | As of March 31, 2011 and December 31, 2010, respectively, the Company has 21,433,550 and 21,283,550 shares of its common stock issued and outstanding.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10. | STOCK OPTIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | The Company has not granted any stock options as of March 31, 2011. 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 365thday following of the date of the option agreement and ending on the second anniversary of the date thereof. On September 27, 2010, Mr. Zhou exercised this option to purchase all shares of the
Companys common stock owned by Mr. Lai, resulting in a change of control of the 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 for the three
months ended March 31, 2011 and March 31, 2010. As of March 31, 2011 and December 31, 2010, the deferred compensation balances were $22,581 and $24,634, respectively, and the deferred compensation balance of $24,634 was amortized over
three years beginning on January 1, 2011.                                             

21

---

CHINA SKYRISE DIGITAL SERVICE, INC. QUARTERLY FINANCIAL
REPORT FOR THE THREE MONTHS ENDED MARCH 31, 2011

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

For the three months ended March 31,
2011 and March 31, 2010, total lease expenses were $19,542 and $14,336,
respectively. The future minimum lease payments at March 31, 2011, are as
follows:

March 31,
    
    
    December 31,2011
    
    
    2010$
    
    
    $Year ended December 31,2011
    
    30,159
    
    
    77,133Thereafter
    
    -
    
    
    -30,159
    
    
    77,133


From time to time and in the ordinary
course of business, the Company may be subject to various claims, damages and
litigation. As of March 31, 2011 and December 31, 2010, 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 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:

Three months
    
    
    Three monthsended
    
    
    endedMarch 31,
    
    
    March 31,2011
    
    
    2010$
    
    
    $Local sales- Software
    
    562,377
    
    
    432,358- Hardware
    
    817,136
    
    
    890,945Export sales- Hardware
    
    -
    
    
    516Other income- Repairs
    
    81
    
    
    -1,379,594
    
    
    1,323,819


22

---

CHINA SKYRISE DIGITAL SERVICE, INC. QUARTERLY FINANCIAL
REPORT FOR THE THREE MONTHS ENDED MARCH 31, 2011

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

For the three months ended March 31, 2011 and March 31, 2010,
there was cash and non-cash compensation of $15,501 and $5,735 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
      transactionsMr. Mingchun Zhou
    Included in other payables, due to Mr. Mingchun Zhou are
      $547,258 and $521,145, as of March 31, 2011 and December 31, 2010,
      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. The other
      remaining amount due to Mr. Zhou was unsecured, interest free and had no
      fixed repayment term.


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

As required by ASC Topic 855 Subsequent Events, the
Company has evaluated subsequent events that have occurred through May 13, 2011,
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; 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 included in our Annual Report on Form
10-K for the fiscal year ended December 31, 2011, as well as assumptions, which,
if they were to ever materialize or prove incorrect, could cause the results of
the Company to differ materially from those expressed or implied by such
forward-looking statements.

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

Use of Terms

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

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

Overview of Our Business

We develop and sell digital residential intercom and safety
products. Our revenues are mainly derived from sales of digital residential
intercom and safety products. Revenues derived from the sale of our products are
not concentrated within any one customer or group of related customers. We are also
developing a system-on-chip product, as well as community e-business value-added
services which we expect will generate recurring revenues from our existing
clients.

24

---

Our customers are primarily urban and suburban residents in
multifamily dwellings, property managers, real estate developments, engineering
companies and system integration companies in China. We plan to expand our
customer base by marketing our products to commercial entities and customers,
such as airports, hotels, banks, supermarkets and entertainment venues. Our
customers are spread across China, including Hong Kong, Macao and Taiwan but are
primarily located in the major metropolitan regions, such as Beijing, Shanghai,
Guangzhou and Shenzhen.

Our digital residential intercom and safety products are
comprised of manufactured electronic componentsin particular LCD screens and
integrated circuitsthat we source from domestic suppliers based in the
Shenzhen, China.

Our sales network covers most coastal and central metropolitan
regions including Beijing, Shanghai, Guangzhou and Shenzhen. We have more than
10 branch offices and distribution points.

First Quarter Financial Performance Highlights

The following are some financial highlights for the first
quarter:

- Revenues: Revenues increased $0.06 million, or 4%, to $1.38
  million for the three months ended March 31, 2011, from $1.32 million for the
  same period in 2010.
- Gross profit: Gross profit decreased $0.12 million, or 19%,
  to $0.50 million for the three months ended March 31, 2011, from $0.62 million
  for the same period in 2010.
- Income from operations: Income from operations decreased
  $0.13 million, or 47%, to $0.15 million for the three months ended March 31,
  2011, from $0.28 million for the same period last year.
- Net income: Net income was $0.14 million for the three
  months ended March 31, 2011, a decrease of $0.15 million, or 52%, from $0.29
  million for the same period in 2010.
- Fully diluted earnings per share: Fully diluted earnings per
  share was $0.01 for the three months ended March 31, 2011, as compared to
  $0.01 for the same period last year.

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 for the periods indicated in
dollars.

Comparison of three months ended March 31, 2011 and March
31, 2010

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 |  
|----------------------------------- | - | ------------------ | - |  | ------------------ | -
|                                    |   | March 31, 2011     |   |  | March 31, 2010     |  
|                                    |   |                    |   |  | % of               |  
|                                    |   | Amount             |   |  | Revenues           |  
|Revenues                            | $ | 1,379,594          |   |  | 100%               |  
|Cost of goods sold                  |   | 880,503            |   |  | 64%                |  
|Gross profit                        |   | 499,091            |   |  | 36%                |  
|Operating expenses                  |   |                    |   |  |                    |  
|Selling & marketing expenses        |   | (167,231           | ) |  | (12%               | )
|General and administrative expenses |   | (180,081           | ) |  | (13%               | )
|Total operating expenses            |   | (347,312           | ) |  | (25%               | )
|Income from operations              |   | 151,779            |   |  | 11%                |  
|Interest expense                    |   | (11,347            | ) |  | (1%                | )
|Other income                        |   | 20,962             |   |  | 1%                 |  
|Income before income taxes          |   | 161,394            |   |  | 12%                |  
|Income taxes                        |   | (21,823            | ) |  | (2%                | )
|Net income                          | $ | 139,571            |   |  | 10%                |  

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Cost of Goods Sold. Our cost of goods sold
consists primarily of direct material costs, direct labor costs, direct
depreciation and related direct expenses attributable to the production of our
products. Our cost of good sold increased $174,092, or 24%, to $880,503 in the
three months ended March 31, 2011, from $706,411 in the same period in 2010. The
increase was related to our increased sales volume.

Gross Profit and Gross Margin. Gross profit is
equal to the difference between our revenue and the cost of revenue. Our gross
profit decreased $118,317, or 19%, to $499,091, in the three months ended March
31, 2011, from $617,408 in the same period in 2010. Gross profit as a percentage
of revenue was 36% and 46% for the three months ended March 31, 2011 and 2010,
respectively. For the three months ended March 31, 2011, we discounted the sales
price of our products to gain more market share, which led to the decrease in
our gross margin. We plan to launch a new generation product in the third
quarter, which will bring high gross margin to the Company.

Selling and Marketing Expenses. Our selling and
marketing expenses consist primarily of compensation and benefits for our sales
and marketing staff, sales commissions, the cost of advertising, promotional and
travel activities, transportation expenses, after-sales support services and
other sales related costs. Our selling and marketing expenses in the three
months ended March 31, 2011 increased to $167,231, or 82%, from $91,702 in the
same period last year. The increase was mainly due to increased sales and
marketing activities, particularly sales exhibitions and almost $56,000
in increased benefits for sales staff and sales activities.

General and Administrative Expenses. Our general
and administrative expenses consist primarily of compensation and benefits for
our general management, finance and administrative staff, professional and
advisory fees, bad debts reserves, research and development cost and other
expenses incurred in connection with general corporate purposes. Our
administrative expenses decreased $59,807, or 24%, to $180,081 in the three
months ended March 31, 2011, from $239,888 in the same period in 2010. The
decrease was mainly due to a reduction in our research and development expenses
during the 2011 period.

Income Before Income Taxes. Our income before
income taxes decreased, to $161,394 in the three months ended March 31, 2011
from $287,135 in the same period last year. The decrease was mainly driven by
the decrease in our gross profit.

Net Income. In the three months ended March 31,
2011, we generated a net income of $139,571 in the three months ended March 31,
2011, a decrease of $147,564 from a net income of $287,135 in the same period
last year. The decrease in net income was as a result of the factors described
above.

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Liquidity and Capital Resources

As of March 31, 2011, we had cash and cash equivalents of $0.23
million. The following table summarizes the key cash flow metrics from our
condensed consolidated statements of cash flows for the three months ended March
31, 2011 and 2010.

|Cash Flow (all amounts in
      U.S. dollars)  
|-----------------------------------------------
|                                               
|                                               
|Net cash used in operating
      activities    
|Net cash used in investing activities          
|Net cash used in financing
      activities    
|Effects of Exchange Rate Change in Cash        
|Net Decrease in Cash and Cash
      Equivalents
|Cash and Cash Equivalents, Beginning           
|Cash and Cash Equivalent, End                  

Operating activities

Our operations are, and expansion will be, mainly supported by
cash generated from operating activities. We apply most of our cash to marketing
and sales and research and development activities to enhance our competitive
position consistent with our strategic goals. Net cash used in operating
activities was $201,888 for the three months ended March 31, 2011, as compared
to $108,552 net cash used in operating activities for the same period in 2010.
The modest increase in net cash used in operating activities resulted from
pricing discounts and increased spending for sales and marketing activities.

Investing activities

Net cash used in investing activities for the three months
ended March 31, 2011 was $51,184, as compared to $33,916 net cash used in
investing activities for the same period in 2010. During early 2011, we invested
in new equipment to improve the quality of our products.

Financing activities

Net cash used in financing activities for the three months
ended March 31, 2011 was $32,664, as compared to $nil net cash used in financing
activities for the same period in 2010. The change from period to period is
primarily attributable to our repayment of $32,664 in short term debt during the
2011 period.

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 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.

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Obligations under Material Contracts

From time to time, we have borrowed funds from Mr. Mingchun Zhou, our Chief Executive Officer, and have entered into agreements with him to memorialize our obligation to repay these amounts. As of March 31, 2011, the total outstanding amount due to
Mr. Zhou is approximately RMB 3,590,000 (approximately $547,258). These loans are unsecured, interest free and have no fixed repayment term, except for one loan in the principal amount of RMB 1,937,000 (approximately, $284,158) which must be
repaid before July 10, 2011.

When the objectives and requirements described in an  agreement, dated December 10, 2007, with JW Junwei Financial Group, or Junwei, can be met, we must deliver 500,000 shares of our common stock to Junwei in five equal
installments, commencing on December 31, 2009. Under the terms of the agreement, Junwei is obligated to provide the Company with financial advisory services over a five-year term commencing on January 1, 2008 and ending on December 31, 2012, and is
responsible for providing the Company financial advisory services.

Critical Accounting Policies

There have been no changes in our critical accounting policies from those disclosed in under Item 7, Management's Discussion and Analysis of Results of Operations and Financial Condition in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2010.

Seasonality of our Sales

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.

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 any price
changes 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable.

ITEM 4. CONTROLS AND PROCEDURES.Disclosure Controls and Procedures

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

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As required by Rule 13a-15(e), our management has carried out
an evaluation, with the participation and under the supervision of our Chief
Executive Officer, Mr. Mingchun Zhou and our Chief Financial Officer, Mr. Jiabo
Fan, of the effectiveness of the design and operation of our disclosure controls
and procedures, as of March 31, 2011. Based upon, and as of the date of this
evaluation, Mr. Zhou and Mr. Fan, determined that, for the reasons disclosed
below, as of March 31, 2011, and as of the date of this Report, our disclosure
controls and procedures were effective.

Changes in Internal Controls over Financial
Reporting

In addition to the December 2010 appointment of Mr. Jiabo Fan
as the Companys new Chief Financial Office, management has also hired
additional financial reporting and accounting personnel with relevant accounting
experience, skills and knowledge in the preparation of financial statements
under the requirements of US GAAP and financial reporting disclosure under the
requirement of SEC rules, and has evaluated and implemented our processes for
collecting and reviewing information required for the preparation of the
financial statements and related footnotes. Management believes that the
foregoing will operate effectively for a sufficient period of time to reduce to
a less than reasonably possible likelihood the possibility of a material
misstatement and remediate the material weakness reported by our independent
registered public accounting firm.

There were no other changes in our internal controls over
financial reporting during the first quarter of fiscal 2011 that have materially
affected, or are reasonably likely to materially affect our internal control
over financial reporting.

PART IIOTHER INFORMATION

|ITEM 1. | LEGAL PROCEEDINGS.
|------- | ------------------

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

|ITEM 1A. | RISK FACTORS.
|-------- | -------------

There are no material changes from the risk factors previously
disclosed in Item 1A Risk Factors of our Annual Report on Form 10-K for the
year ended December 31, 2010.

|ITEM 2. | UNREGISTERED SALES OF EQUITY
      SECURITIES AND USE OF PROCEEDS.
|------- | ------------------------------------------------------------------
|        |                                                                   
|None.   |                                                                   
|        |                                                                   
|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES.                                  
|        |                                                                   
|None.   |                                                                   
|        |                                                                   
|ITEM 4. | (REMOVED AND RESERVED).                                           
|        |                                                                   
|ITEM 5. | OTHER INFORMATION.                                                

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

|ITEM 6. | EXHIBITS.
|------- | ---------

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

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

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SIGNATURES

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

Date: May 13, 2011

CHINA SKYRISE DIGITAL SERVICE INC.

By:/s/ Mingchun Zhou
Mingchun Zhou, Chief Executive Officer(Principal
Executive Officer)

By: /s/ Jiabo Fan
Jiabo Fan, Chief Financial Officer (Principal Financial
Officer and PrincipalAccounting Officer)

---