UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, 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: June 30, 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 Number: 333-139940

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

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

4/F, M-3rd Building
Hi-tech Industrial Park
Nanshan District, Shenzhen 518070
People’s Republic of China
(Address of principal executive offices, Zip Code)

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

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

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

Yes [X] No [ ]

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

Yes [X] 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 August 15, 2011 is as follows:

	Class of Securities		Shares Outstanding
	Common Stock, $0.001 par value		21,603,550

CHINA SKYRISE DIGITAL SERVICE INC.

Quarterly Report on Form 10-Q

Three and Six Months Ended June 30, 2011

TABLE OF CONTENTS

PART I		1
FINANCIAL INFORMATION		1
ITEM 1.	FINANCIAL STATEMENTS.	1
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	3
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	8
ITEM 4.	CONTROLS AND PROCEDURES.	8
PART II		9
OTHER INFORMATION		9
ITEM 1.	LEGAL PROCEEDINGS.	9
ITEM 1A.	RISK FACTORS.	9
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.	9
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES.	9
ITEM 4.	(REMOVED AND RESERVED).	9
ITEM 5.	OTHER INFORMATION.	9
ITEM 6.	EXHIBITS.	9

PART I
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

CHINA SKYRISE DIGITAL SERVICE INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010

Contents	Page(s)
Consolidated Balance Sheets as of June 30, 2011 (unaudited) and December 31, 2010	F-2
Consolidated Statements of Income and Comprehensive Income for the three months and six months ended June 30, 2011 and 2010 (unaudited)	F-3
Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010 (unaudited)	F-4
Notes to the Consolidated Financial Statements (unaudited)	F-5-F-24

F-1

CHINA SKYRISE DIGITAL SERVICE, INC.

CONSOLIDATED BALANCE SHEETS

		June 30,		December 31,
		2011		2010
		(Unaudited)		(Audited)

ASSETS
Current assets
Cash and cash equivalents	$	486,835	$	427,558
Accounts receivable, net of allowance for doubtful accounts		3,671,908		5,195,896
Inventory		1,813,698		2,119,846
Deposits and prepaid expenses		2,208,733		775,706
Other receivables		656,598		384,649
Tax recoverable		71,789		-
Total current assets		8,909,561		8,903,655
Property, plant and equipment, net of accumulated depreciation		316,347		339,317
Other assets
Intangible assets, net of accumulated amortization		747,615		136,206
Goodwill		193,754		193,754
Total other assets		941,369		329,960

Total assets	$	10,167,277	$	9,572,932
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	765,795	$	895,599
Unearned revenue		200,663		456,668
Other payables and accrued expenses		840,823		784,404
Short term debt		1,305,668		746,364
Taxes payable		10,816		166,220
		3,123,765		3,049,255
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 June 30, 2011 and December 31, 2010, respectively		21,434		21,284
Additional paid-in capital		2,306,936		2,246,689
Statutory reserve		381,829		381,829
Retained earnings		4,012,265		3,685,646
Accumulated other comprehensive income		321,048		188,229
Total stockholders' equity		7,043,512		6,523,677
Total liabilities and stockholders' equity	$	10,167,277	$	9,572,932

See accompanying notes to consolidated financial statements

F-2

CHINA SKYRISE DIGITAL SERVICE, INC.

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME

		Three months			Three months			Six months			Six months
		ended			ended			ended			ended
		June 30,			June 30,			June 30,			June 30,
		2011			2010			2011			2010
		(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)

Revenues	$	2,106,250		$	2,320,328		$	3,485,844		$	3,644,147
Cost of goods sold		1,354,166			1,541,330			2,234,669			2,247,741
Gross profit		752,084			778,998			1,251,175			1,396,406
Selling and marketing expenses		(225,313	)		(146,884	)		(392,544	)		(238,586	)
General and administrative expenses		(329,522	)		(256,209	)		(509,603	)		(496,097	)
Net income from operations		197,249			375,905			349,028			661,723
Other income (expenses)
Other income		2,062			34,961			23,024			36,284
Government grant		-			84,301			-			84,301
Interest expense		(12,134	)		(13,246	)		(23,481	)		(13,252	)
Total other income (expenses)		(10,072	)		106,016			(457	)		107,333
Income before provision for income taxes		187,177			481,921			348,571			769,056
Provision for income taxes		(129	)		(35,764	)		(21,952	)		(35,764	)
Net income		187,048			446,157			326,619			733,292
Other comprehensive income
Foreign currency translation gain /(loss)		90,099			12,098			132,819			8,792
Total comprehensive income	$	277,147		$	458,255		$	459,438		$	742,084
Earnings per share
Basic	$	0.01		$	0.02		$	0.02		$	0.03
Diluted	$	0.01		$	0.02		$	0.02		$	0.03
Weighted average number of shares outstanding:
Basic		21,433,550			21,110,550			21,433,550			21,110,550
Diluted		21,433,550			21,110,550			21,433,550			21,110,550

See accompanying notes to consolidated financial statements

F-3

CHINA SKYRISE DIGITAL SERVICE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Six months			Six months
		ended			ended
		June 30,			June 30,
		2011			2010
		(Unaudited)			(Unaudited)

Cash flows from operating activities
Net income for the period	$	326,619		$	733,292
Adjustments to reconcile net income to net cash from operations:
Depreciation		40,066			151,563
Amortization of intangible assets		57,796			22,948
Changes in operating assets and liabilities
Decrease (increase) decrease in inventory		306,148			(251,819	)
Increase in deposits and prepaid expenses		(1,433,027	)		(402,236	)
Decrease (increase) in accounts receivable		1,523,988			(335,621	)
(Increase) decrease in other receivables		(271,949	)		227,764
Increase in tax recoverable		(71,789	)		-
Decrease in taxes payable		(155,404	)		(66,661	)
Decrease in accounts payable		(129,804	)		(70,050	)
(Decrease) increase in unearned revenue		(256,005	)		208,941
Increase in other payable and accrued expenses		56,419			11,918
Net cash (used in) from operating activities		(6,942	)		230,039
Cash flows from investing activities
Purchases of property, plant and equipment		(10,731	)		(149,254	)
Purchase of intangible assets		(659,428	)		(29,289	)
Net cash used in investing activities		(670,159	)		(178,543	)
Cash flows from financing activities
Proceeds from short term debt		618,800			-
Repayment of short term debt		(74,256	)		(49,755	)
Net cash from (used in) financing activities		544,544			(49,755	)
Effects of exchange rate changes on cash		191,834			16,060
Increase in cash and cash equivalents		59,277			17,801
Cash and cash equivalents, beginning of period		427,558			409,718
Cash and cash equivalents, end of period	$	486,835		$	427,519
Supplementary disclosures of cash flow information:
Cash paid for interest	$	23,481		$	13,252
Cash paid for taxes	$	249,145		$	35,764
Non-cash financing activities:
Common shares issued for payment of accrued expenses	$	60,397		$	-

F-4

CHINA SKYRISE DIGITAL SERVICE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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	FISCAL YEAR

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

F-5

CHINA SKYRISE DIGITAL SERVICE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

2	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

	2.2	REPORTING ENTITIES

		The accompanying consolidated financial statements include the following entities:

Name of subsidiaries	Place of incorporation	Date of incorporation	Percentage of interest	Principal activity
United Digital Home H.K. Group Company Limited	Hong Kong	December 11, 2007	100% directly	Investment holding
Shenzhen Skyrise Technology Co ., Limited	People's Republic of China	May 27, 2003	100% directly	Digital intercom system
Shenzhen 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.

	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.

F-6

CHINA SKYRISE DIGITAL SERVICE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

	2.5	ECONOMIC AND POLITICAL RISK

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

	2.6	REVENUE RECOGNITION

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

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

		The Company also provides repair services. The Company recognized revenue on these services once the services have been rendered.

	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 $10,578 and $6,323 for the three months ended June 30, 2011 and June 30, 2010, respectively. Shipping and handling costs amounted to $15,292 and $11,158 for the six months ended June 30, 2011 and June 30, 2010, respectively.

	2.9	ADVERTISING

		Advertising costs are included in selling and marketing expenses which totaled $12,096 and $587 for the three months ended June 30, 2011 and June 30, 2010, respectively. Advertising costs amounted to $22,426 and $3,024 for the six months ended June 30, 2011 and June 30, 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 $175,102 and $132,412 for the three months ended June 30, 2011 and June 30, 2010, respectively. Research and development costs amounted to $262,261 and $248,621 for the six months ended June 30, 2011 and June 20, 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.

F-7

CHINA SKYRISE DIGITAL SERVICE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

	2.11	GOVERNMENT GRANT

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

	2.12	FOREIGN CURRENCY TRANSLATION AND OTHER COMPREHENSIVE INCOME

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

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

		Accumulated other comprehensive income amounted to $321,048 and $188,229 as of June 30, 2011 and December 31, 2010, respectively. The balance sheet amounts with the exception of equity at June 30, 2011 and June 30, 2010 were translated at RMB6.46 to $1.00 and RMB6.79 to $1.00, respectively. The average translation rates applied to the statements of income and of cash flows for the six months ended June 30, 2011 and June 30, 2010 were RMB6.54 to $1.00 and RMB 6.84 to $1.00, respectively.

	2.13	PROPERTY, PLANT AND EQUIPMENT

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

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

	Assets Classifications	Estimated useful life

	Furniture, fixtures and office equipment	5 years
	Plant and machinery	5 years
	Motor vehicles	10 years

F-8

CHINA SKYRISE DIGITAL SERVICE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

2.		SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

	2.13	PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

	June 30,		December 31,
	2011		2010
	$		$

Furniture, fixtures and office equipment	250,002		238,276
Plant and machinery	290,815		281,406
Motor vehicles	40,385		39,602
	581,202		559,284

Less: Accumulated depreciation	(264,855	)	(219,967	)
Net book value	316,347		339,317

Depreciation expense was $20,296 and $130,533 for the three months ended June 30, 2011 and June 30, 2010, respectively. Depreciation expense was $40,066 and $151,563 for the six months ended June 30, 2011 and June 30, 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 June 30, 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.

F-9

CHINA SKYRISE DIGITAL SERVICE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

	2.16	INTANGIBLE ASSETS

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

	June 30,		December 31,
	2011		2010
	$		$

Patent	10,879		8,825
Software system	902,466		232,555
	913,345		241,380
Less: Accumulated amortization	(165,730	)	(105,174	)
Net book value	747,615		136,206

Amortization expense was $45,131 and $12,194 for the three months ended June 30, 2011 and June 30, 2010, respectively. Amortization expense was $57,796 and $22,948 for the six months ended June 30, 2011 and June 30, 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.

	June 30,	December 31,
	2011	2010
	$	$

Raw materials	363,750	349,539
Consumable stores	133,554	130,964
Components	53,704	90,594
Work in progress	6,172	-
Finished goods-in-transits	337,156	394,750
Finished goods	919,362	1,153,999
	1,813,698	2,119,846

F-10

CHINA SKYRISE DIGITAL SERVICE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

	2.18	INVENTORY (CONTINUED)

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

	2.19	ACCOUNTS RECEIVABLE, NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS

		The Company reduces gross trade accounts receivable by an allowance for doubtful accounts. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company reviews its allowance for doubtful accounts on a regular basis and all past due balances are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Provisions for doubtful accounts for the six months ended June 30, 2011 and year ended December 31, 2010 are $ 47,228 and $46,312, respectively. Bad debts written off for the three months ended June 30, 2011 and June 30, 2010 and for the six months ended June 30, 2011 and June 30, 2010 are $nil.

		Aging of accounts receivable of the company is as follows:

	June 30,		December 31,
	2011		2010
	$		$

within 1 year	3,549,420		4,791,800
within 1- 2 years	67,832		350,500
over 2 years	101,884		99,908
	3,719,136		5,242,208
Allowance for doubtful accounts	(47,228	)	(46,312	)
	3,671,908		5,195,896

2.20

DEPOSITS AND PREPAID EXPENSES

	June 30,	December 31,
	2011	2010
	$	$

Trade deposits	903,020	740,061
Deposits for license fee and royalty fee	1,237,600	-
Prepaid expenses	68,113	35,645
	2,208,733	775,706

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

F-11

CHINA SKYRISE DIGITAL SERVICE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

	2.21	OTHER RECEIVABLES

	June 30,	December 31,
	2011	2010
	$	$

Project tender and other deposits	106,374	54,612
Rental and utility deposits	25,950	13,728
Due from employees	247,177	181,800
Guarantee deposits	175,792	13,098
Samples loaned to customers	-	2,108
Temporary payments to third parties	19,393	15,125
Government grant receivable	81,912	104,178
	656,598	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

TAX RECOVERABLE

	June 30,		December 31,
	2011		2010
	$		$

VAT	72,092		-
Personal income tax	(303	)	-
Tax recoverable	71,789		-

F-12

CHINA SKYRISE DIGITAL SERVICE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

	2.23	TAXES PAYABLE

	June 30,		December 31,
	2011		2010
	$		$

VAT	(1,753	)	11,118
City maintenance and construction levies	1,682		6,657
Personal income tax	10,110		19,971
Enterprise income tax	-		126,532
Eduction levies	720		1,863
Other levies	57		79
Taxes payable	10,816		166,220

2.24

OTHER PAYABLES AND ACCRUED EXPENSES

	June 30,	December 31,
	2011	2010
	$	$

Wages and professional fees accruals	228,932	194,222
Due to employees	1,903	2,219
Due to related party	556,864	521,145
Security deposits for samples loaned to customers	49,242	35,042
Sundries	-	1,073
Temporary receipts from third parties	3,882	30,703
	840,823	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. These advances are generally unsecured, interest free and have 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.

F-13

CHINA SKYRISE DIGITAL SERVICE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

	2.25	FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

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

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

		The carrying amounts of the Company’s financial assets and liabilities, such as cash and accrued expenses, approximate their fair values because of the short maturity of these instruments.

		The Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis, consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value as of June 30, 2011 or December 31, 2010, nor gains or losses are reported in the statement of income and comprehensive income that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the three months ended June 30, 2011 or June 30, 2010 and for the six months ended June 30, 2011 or June 30, 2010.

	2.26	STOCK COMPENSATION

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

	2.27	RETIREMENT BENEFIT COSTS

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

F-14

CHINA SKYRISE DIGITAL SERVICE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

	2.28	INCOME TAXES

		The Company adopted ASC Topic 740, “Income Taxes” that requires recognition of deferred income tax liabilities and assets for the expected future tax consequences of temporary differences between income tax basis and financial reporting basis of assets and liabilities. Provision for income taxes consist of taxes currently due plus deferred taxes. Since the Company had no operations within the United States there is no provision for US income taxes and there are no deferred tax amounts as of June 30, 2011 and December 31, 2010.

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

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

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

	2.29	PRODUCT WARRANTIES

		Substantially all of the Company’s products are covered by a standard warranty of 2 years for products. In the event of a failure of products covered by this warranty, the Company must repair or replace the software or products or, if those remedies are insufficient, and at the discretion of the Company, provide a refund. The sales contracts encompass its warranty obligations. Occurrence of the failure of products within warranty period is few and insignificant; therefore, the Company provides nil% of sales income for product warranties for the three months ended June 30, 2011 and June 30, 2010 and for the six months ended June 30, 2011 and June 30, 2010. The product warranty reserve was $nil as of June 30, 2011 and December 31, 2010.

	2.30	RELATED PARTIES

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

F-15

CHINA SKYRISE DIGITAL SERVICE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

	2.31	CASH AND CASH EQUIVALENTS

		Cash and cash equivalents comprise cash at bank and on hand.

	June 30,	December 31,
	2011	2010
	$	$

Cash and bank balances	486,835	427,558

	2.32	CONCENTRATIONS OF CREDIT RISK

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

		Cash includes cash on hand and demand deposits in accounts maintained with state owned banks within the People’s Republic of China. Total cash in these banks as of June 30, 2011 and December 31, 2010 amounted to $475,520 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.

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

F-16

CHINA SKYRISE DIGITAL SERVICE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

	Three months	Three months	Six months	Six months
	ended	ended	ended	ended
	June 30,	June 30,	June 30,	June 30,
	2011	2010	2011	2010

Customer A	-	-	18.72%	-
Customer B	23.06%	-	17.21%	-
Customer C	17.18%	-	12.82%	-
Customer D	14.79%	-	11.04%	-
Customer E	10.15%	-	7.57%	-
Customer F	4.71%	-	-	-
Customer G	-	44.45%	-	39.05%
Customer H	-	-	-	12.38%
Customer I	-	14.50%	-	9.24%
Customer J	-	11.23%	-	8.28%
Customer K	-	8.22%	-	5.23%
Customer L	-	4.05%	-	-
	69.89%	82.45%	67.36%	74.18%

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

	2.32	CONCENTRATIONS OF CREDIT RISK (CONTINUED)

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

	June 30,	December 31,
	2011	2010

Customer A	10.95%	-
Customer B	8.10%	-
Customer C	7.96%	5.88%
Customer D	7.55%	6.29%
Customer E	7.54%	-
Customer F	-	14.29%
Customer G	-	8.43%
Customer H	-	8.06%
	42.10%	42.95%

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.

F-17

CHINA SKYRISE DIGITAL SERVICE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

4.	EARNINGS PER COMMON SHARE

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

	For the three months ended June 30, 2011 and June 30, 2010, basic and diluted earnings per share amount to $0.01 and $0.02, respectively. For the six months ended June 30, 2011 and June 30, 2010, basic and diluted earnings per share amount to $0.02 and $0.03, respectively.

5.	ACCUMULATED OTHER COMPREHENSIVE INCOME

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

6.	RECENT ACCOUNTING PRONOUNCEMENTS

	In 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 Subsidiary – a Scope Clarification. The amendments in this Update affect accounting and reporting by an entity that experiences a decrease in ownership in a subsidiary that is a business or nonprofit activity. The amendments also affect accounting and reporting by an entity that exchanges a group of assets that constitutes a business or nonprofit activity for an equity interest in another entity. The amendments in this update are effective beginning in the period that an entity adopts SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements – An Amendment of ARB No. 51.” If an entity has previously adopted SFAS No. 160 as of the date the amendments in this update are included in the Accounting Standards Codification, the amendments in this update are effective beginning in the first interim or annual reporting period ending on or after December 15, 2009. The amendments in this update should be applied retrospectively to the first period that an entity adopted SFAS No. 160. The Company adopted this standard and has determined the standard does not have material effect on the Company’s consolidated financial statements.

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

F-18

CHINA SKYRISE DIGITAL SERVICE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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.

6.	RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

	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.

	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.

F-19

CHINA SKYRISE DIGITAL SERVICE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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 June 30, 2011 and June 30, 2010 and for the six months ended June 30, 2011 and June 30, 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”). The new standard enterprise income tax (“EIT”) rate of 25% replaced the 33% rate applicable to both domestic enterprises and FIEs. Prior to 2008, under the existing Chinese income tax laws, FIEs generally were subject to an income tax at an effective rate of 33% (30% state income taxes plus 3% local income taxes) on income as reported in their statutory financial statements after appropriate tax adjustments unless the enterprise is located in specially designated regions for which more favorable effective tax rates apply.

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

	Under the old EIT law, SST was entitled to certain tax exemptions and reductions available to software companies. Under these “tax holidays,” SST is entitled to exemption from EIT for 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% for fiscal year 2010. 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 is 22%. 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.

F-20

CHINA SKYRISE DIGITAL SERVICE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following table reconciles the U.S statutory rates to the company’s effective tax rate for the six months ended June 30, 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%

7.	INCOME TAXES (CONTINUED)

	Provision for income taxes is as follows:

	Three months	Three months		Six months	Six months
	ended	ended		ended	ended
	June 30,	June 30,		June 30,	June 30,
	2011	2010		2011	2010
	$	$		$	$

Income tax
CSD	-	-		-	-
UDH	-	-		-	-
SST - China EIT	129	36,315		21,952	36,315
SSE - China EIT	-	(551	)	-	(551	)
Deferred tax	-	-		-	-
	129	35,764		21,952	35,764

8.	SHORT TERM DEBT

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

F-21

CHINA SKYRISE DIGITAL SERVICE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

	June 30,	December 31,
	2011	2010
	$	$

Loan from Ping An Bank, Shenzhen Branch Interest rate 5.9492% per annum and personnal guarantee given by Mr. Mingchun Zhou	686,868	746,364
Loan from China Merchants Bank The People's Bank of China standard interest rate + 35% and personnal guarantee given by Mr. Mingchun Zhou and 2 third parties companies	618,800	-
	1,305,668	746,364

9.	COMMON STOCK

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

	On September 25, 2009, the Company issued 12,379,800 shares of common stock to the shareholders of UDH. The total consideration for the 12,379,800 shares was 10,000 shares of UDH, which is all the issued and outstanding capital stock of UDH.

	As a result of the reverse merger, the equity account of the Company, prior to the share exchange date, has been retroactively restated so that the ending outstanding share balance as of the share exchange date is equal to the number of post share-exchange shares.

	On September 25, 2009, the Company issued 4,105,750 shares of common stock at fair value of $0.01 per share to certain individuals for services to be rendered to the Company in connection with the reverse acquisition of UDH. These services per agreement with the Company are to be provided over 5-year period and were valued at $41,058. 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. These services per agreement with the Company were valued at $60,397.

	As of June 30, 2011 and December 31, 2010, the Company has 21,433,550 and 21,283,550 issued and outstanding common shares with a par value of $0.001 per share.

F-22

CHINA SKYRISE DIGITAL SERVICE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

10.	STOCK OPTIONS

	The Company has not granted any stock options as of June 30, 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 365^thday 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 and $2,053 for the three months ended June 30, 2011 and June 30, 2010, respectively; and recognized $4,106 and $4,106 for the six months ended June 30, 2011 and June 30, 2010, respectively. As of June 30, 2011 and December 31, 2010, the deferred compensation balances were $20,528 and $24,634, respectively, and the deferred compensation balance of $24,634 was amortized over three years beginning on January 1, 2011.

12.	COMMITMENTS AND CONTINGENCIES

	For the three months ended June 30, 2011 and June 30, 2010, total lease expenses were $39,182 and $14,336, respectively. For the six months ended June 30, 2011 and June 30, 2010, total lease expenses were $75,060 and $14,336, respectively. The future minimum lease payments at June 30, 2011, are as follows:

	June 30,	December 31,
	2011	2010
	$	$

Year ended December 31,2011	67,415	77,133
Thereafter	91,422	-
	158,837	77,133

The Company and 2 third party companies have jointly guaranteed the loans from a bank to them. As of June 30, 2011, the Company had contingent liabilities for the loans from the bank to the 2 third party companies of $866,320.

From time to time and in the ordinary course of business, the Company may be subject to various claims, damages and litigation. As of June 30, 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.

F-23

CHINA SKYRISE DIGITAL SERVICE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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 months	Six months	Six months
	ended	ended	ended	ended
	June 30,	June 30,	June 30,	June 30,
	2011	2010	2011	2010
	$	$	$	$

Local sales
- Software	422,265	523,475	984,642	955,823
- Hardware	1,325,899	1,625,362	2,143,035	2,516,310
Export sales
- Hardware	357,418	171,491	357,418	172,014
Other income
- Repairs	668	-	749	-
	2,106,250	2,320,328	3,485,844	3,644,147

14.	RELATED PARTY TRANSACTIONS

	For the three months ended June 30, 2011 and June 30, 2010 and six months ended June 30, 2011 and June 30, 2010, there was cash and non-cash compensation of $24,311, $5,735, $48,622 and $11,470, respectively awarded to, earned by, or paid to any of our executive officers or directors. In addition to the transactions and balances as disclosed elsewhere in these consolidated financial statements, during the period, the company had the following significant related party transactions:

	Name of related party	Nature of transactions

	Mr. Mingchun Zhou	Included in other payables, due to Mr. Mingchun Zhou are $556,864 and $521,145 as of June 30, 2011 and December 31, 2010, respectively. These loans are generally unsecured, interest free and have no fixed repayment term.

15.	SUBSEQUENT EVENTS

	On July 7, 2011, the Company issued to a certain company a total of 170,000 shares of common stock of $0.001 per share, as stock based compensation for certain consulting services rendered to the Company during the three months ended June 30, 2011. This amount had been accrued during the three months ended June 30, 2011 as part of the Company’s accrued expenses.

F-24

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 year ended December 31, 2010, 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, except as required by law, 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 businesses 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 are primarily engaged, through our indirect Chinese subsidiaries, in developing and selling digital residential intercom and safety products. 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.

Our revenues are generally not concentrated within any one customer or group of related customers. 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 mostly in 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.

Second Quarter Financial Performance Highlights

The following summarizes certain key financial information for the second quarter of 2011:

Revenues: Revenues decreased $214,078, or 9%, to $2,106,250 for the three months ended June 30, 2011, from $2,320,328 for the same period in 2010.
Gross profit: Gross profit decreased $26,914, or 3%, to $752,084 for the three months ended June 30, 2011, from $778,998 for the same period in 2010.
Income from operations: Income from operations decreased $128,656, or 34%, to $247,249 for the three months ended June 30, 2011, from $375,905 for the same period last year.
Net income: Net income was $237,048 for the three months ended June 30, 2011, a decrease of $209,109, or 46%, from $446,157 for the same period in 2010.
Fully diluted earnings per share: Fully diluted earnings per share was $0.01 for the three months ended June 30, 2011, as compared to $0.02 for the same period last year.

Results of Operations

Comparison of Three Months Ended June 30, 2011 and June 30, 2010

The following table shows key components of our results of operations during the three months ended June 30, 2011 and 2010, in both dollars and as a percentage of our revenues.

		Three Months Ended				Three Months Ended
		June 30, 2011				June 30, 2010
				Percent of				Percent of
		Dollars		Revenues		Dollars		Revenues
Revenues	$	2,106,250		100%	$	2,320,328		100%
Cost of goods sold		1,354,166		64.3%		1,541,330		66.4%
Gross profit		752,084		35.7%		778,998		33.6%
Selling and marketing expenses		(225,313	)	(10.7)%		(146,884	)	(6.3)%
General and administrative expenses		(329,522	)	(15.6)%		(256,209	)	(11)%
Net income from operations		197,249		9.4%		375,905		16.2%
Other income (expenses)
Other income		2,062		0.1%		34,961		1.5%
Government grant		-		-		84,301		3.6%
Interest expense		(12,134	)	(0.6)%		(13,246	)	(0.6)%
Total other income (expenses)		(10,072	)	(0.5)%		106,016		4.6%
Income before provision for income taxes		187,177		8.9%		481,921		20.8%
Provision for income taxes		(129	)	0.0%		(35,764	)	(1.5)%
Net income	$	187,048		8.9%	$	446,157		19.2%

Revenues. Our revenues are mainly derived from the sale of digital intercom packaged solutions. Our revenues decreased to $2,106,250 in the three months ended June 30, 2011 from $2,320,328 in the same period last year, a decrease of 9%. Such decrease was mainly due to the decreased sales volume resulting from the recent slow-down of real estate industry. As our products are mainly used in residential communities in different areas in China, our sales and business operations are dependent on the financial health of the real estate industry which was negatively affected by various government measures implemented for purposes of controlling fast increasing real estate prices. As part of our continuing efforts to expand our product portfolio, we plan to launch a new generation product in the third quarter which we expect will have a lower cost basis and compete effectively with comparable products. We expect our new products will contribute to our efforts to expand market share and improve profitability.

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 goods sold decreased $187,164, or 12%, to $1,354,166 in the three months ended June 30, 2011, from $1,541,330 in the same period in 2010. The decrease was primarily due to decreased sales volume.

Gross profit and gross margin. Gross profit is equal to the difference between our revenues and cost of goods sold. Our gross profit decreased $26,914, or 3%, to $752,084, in the three months ended June 30, 2011 from $778,998 in the same period in 2010. Gross profit as a percentage of revenue was 35.7% and 33.6% for the three months ended June 30, 2011 and 2010, respectively. The increase in gross margin was mainly due to the change in product mix, a larger portion of our products sold in this quarter was our higher margin products as compared to the same quarter last year. We plan to launch a new generation product with lower cost basis in the third quarter, which is expected to have a positive impact on our overall gross margin.

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 June 30, 2011 increased to $225,313, or 53%, from $146,884 in the same period last year. The increase was mainly due to increased sales and marketing activities, particularly sales exhibitions and other marketing promotion 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 increased $73,313, or 28%, to $329,522 in the three months ended June 30, 2011, from $256,209 in the same period in 2010. The increase was mainly due to an increase in our research and development expenses and the costs of professional and other consulting services during this quarter.

Government grant. Government grant income represents financial grants conferred by local governmental authorities for software development, which are recognized when the local authority approve the grant. We realized $84,301 government grant income in the three months ended June 30, 2010. The local authority delayed its approval for such grant in year 2011, as a result, we did not recognize any government grant in 2011.

Income before income taxes. Our income before income taxes decreased to $187,177 in the three months ended June 30, 2011 from $481,921 in the same period last year. The decrease was mainly driven by the decrease in sales revenue and government grant and the increase in selling and marketing expenses and general and administrative expenses.

Income Tax. Under the new PRC Enterprise Income Tax (“EIT”) law which became effective on January 1, 2008, our operating subsidiary Skyrise Technology is entitled to continuing enjoying its tax holiday which provides for an exemption from EIT for 2 years and reduced tax rates for 3 years after that, effective as of 2008. Therefore, Skyrise Technology incurred no income tax expense during fiscal years 2008 and 2009 and is subject to a reduced tax rate of 11%, 12% and 12.5% for 2010, 2011 and 2012, respectively. Our subsidiary Skyrise Digital’s tax rate prior to the new EIT Law was 15% and is subject to a gradually increased EIT rate over a 5-year period. Tax rate for Skyrise Digital was 22% for fiscal year 2010 and it is subject an EIT rate of 24% in 2011. Our provision for income taxes decreased from $35,724 in the three months ended June 30, 2010 to $129 for the same period this year, mainly due to the decrease of taxable income.

Net income. In the three months ended June 30, 2011, we generated net income of $187,048, a decrease of $259,109, or 58%, from a net income of $446,157 in the same period last year, as a result of the cumulative effect of the factors described above.

Comparison of Six Months Ended June 30, 2011 and June 30, 2010

The following table shows key components of our results of operations during the six months ended June 30, 2011 and 2010, in both dollars and as a percentage of our revenues.

		Six Months Ended					Six Months Ended
		June 30, 2011					June 30, 2010
				Percent of					Percent of
		Dollars		Revenues			Dollars		Revenues
Revenues	$	3,485,844		100%		$	3,644,147		100%
Cost of goods sold		2,234,669		64.1%			2,247,741		61.7%
Gross profit		1,251,175		35.9%			1,396,406		38.3%
Selling and marketing expenses		(392,544	)	(11.2%	)		(238,586	)	(6.5)%
General and administrative expenses		(509,603	)	(14.6%	)		(496,097	)	(13.6)%
Net income from operations		349,028		10.1%			661,723		18.2%
Other income (expenses)
Other income		23,024		0.6%			36,284		1.0%
Government grant		-		-			84,301		2.3%
Interest expense		(23,481	)	(0.6%	)		(13,252	)	(0.4)%
Total other income (expenses)		(457	)	(0.0%	)		107,333		2.9%
Income before provision for income taxes		348,571		10.1%			769,056		21.1%
Provision for income taxes		(21,952	)	(0.6%	)		(35,764	)	(1.0)%
Net income	$	326,619		9.5%		$	733,292		20.1%

Revenues. Our revenues decreased to $3,485,844 in the six months ended June 30, 2011, from $3,644,147 in the same period last year, a decrease of 4%. Our sales volume during this period was negatively affected by the recent slow-down of real estate industry in China.

Cost of goods sold. Our cost of goods sold decreased $13,072, or 0.6%, to $2,234,669 in the six months ended June 30, 2011, from $2,247,741 in the same period in 2010. The decrease was mainly related to decreased sales volume.

Gross profit and gross margin. Our gross profit decreased $145,231, or 10%, to $1,251,175, in the six months ended June 30, 2011, from $1,396,406 in the same period in 2010. Gross profit as a percentage of revenue was 35.9% and 38.3% for the six months ended June 30, 2011 and 2010, respectively. For the six months ended June 30, 2011, we made a strategic decision to offer discount for the sales price of some products in an effort to gain more market share, which led to the decrease in our overall gross margin. Our new generation product which is scheduled to launch in the third quarter is expected to have a positive impact on our overall gross margin.

Selling and marketing expenses. Our selling and marketing expenses in the six months ended June 30, 2011 increased to $392,544, or 65%, from $238,586 in the same period last year. The increase was mainly due to increased sales and marketing activities, particularly sales exhibitions and other marketing promotion activities.

General and administrative expenses. Our administrative expenses increased $13,506, or 3%, to $509,603 in the six months ended June 30, 2011, from $496,097 in the same period in 2010. The increase in general and administrative expenses was mainly due to higher research and development expenses and increased cost of consulting services.

Government grant. Government grant income is recognized when the local authority approve the grant. We received $84,301 government grant in the six months ended June 30, 2010. The local authority delayed its approval for such grant in year 2011, as a result, we did not recognize any government grant income in 2011.

Income before income taxes. Our income before income taxes decreased to $348,571 in the six months ended June 30, 2011 from $769,056 in the same period last year. The decrease was mainly driven by the decrease in sales revenue and government grant and the increase in selling and marketing expenses and general and administrative expenses.

Income Tax. Our provision for income taxes decreased from $35,764 in the six months ended June 30, 2010 to $21,952 for the same period this year, mainly due to the decrease of taxable income.

Net income. In the six months ended June 30, 2011, we generated a net income of $326,619, a decrease of $406,673, or 55%, from a net income of $733,292 in the same period last year, as a result of the cumulative effect of the factors described above.

Liquidity and Capital Resources

As of June 30, 2011, we had cash and cash equivalents of $486,835. The following table summarizes the key cash flow metrics from our consolidated statements of cash flows for the six months ended June 30, 2011 and 2010.

Cash Flow

		Six Months Ended June 30,
		2011			2010
Net cash (used in) provided by operating activities	$	(6,942	)	$	230,039
Net cash used in investing activities		(670,159	)		(178,543	)
Net cash provided by (used in) financing activities		544,544			(49,755	)
Effects of exchange rate changes in cash		191,834			16,060
Net increase in cash and cash equivalents		59,277			17,801
Cash and cash equivalents at beginning of the period		427,558			409,718
Cash and cash equivalent at end of the period	$	486,835		$	427,519

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 $6,942 for the six months ended June 30, 2011, as compared to $230,039 net cash provided by operating activities for the same period in 2010. The increase in net cash used in operating activities resulted mainly from pricing discounts and increased spending for sales and marketing activities.

Investing Activities

Net cash used in investing activities for the six months ended June 30, 2011 was $670,159, as compared to $178,543 for the same period in 2010. We invested in new intangible assets to improve our research and development abilities.

Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2011 was $544,544, as compared to $49,755 net cash used in financing activities for the same period in 2010. We obtain a new short term bank loan in June 2011.

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.

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 June 30, 2011, the total outstanding amount due to Mr. Zhou was $556,864. These loans are generally unsecured, interest free and have no fixed repayment term.

We have entered into an agreement, dated December 10, 2007, with JW Junwei Financial Group (“Junwei”), pursuant to which, subject to the terms and conditions described therein, we are obligated to 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 us with financial advisory services over a five-year term commencing on January 1, 2008 and ending on December 31, 2012.

Seasonality

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

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 price changes in the Chinese economy and our industry and continually maintain effective cost controls 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, sales or expenses, results of operations, liquidity or capital expenditures, or capital resources that are material to an investment in our securities.

Critical Accounting Policies

Critical accounting policies are those we believe are most important to portraying our financial conditions and results of operations and also require the greatest amount of subjective or complex judgments by management. Judgments and uncertainties regarding the application of these policies may result in materially different amounts being reported under various conditions or using different assumptions. There have been no material changes to the critical accounting policies previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

Recent Accounting Pronouncements

See Note 6 to our unaudited consolidated financial statements included elsewhere in this report.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of 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 Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15(e), our management has carried out an evaluation, with the participation and under the supervision of our Chief Executive Officer, Mr. Mingchun Zhou, and Chief Financial Officer, Mr. Jiabo Fan, of the effectiveness of the design and operation of our disclosure controls and procedures, as of June 30, 2011. Based upon, and as of the date of this evaluation, Messrs. Zhou and Fan determined that, as of June 30, 2011, and as of the date that the evaluation of the effectiveness of our disclosure controls and procedures was completed, our disclosure controls and procedures were effective to satisfy the objectives for which they are intended.

Changes in Internal Control over Financial Reporting

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

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

PART II
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

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

ITEM 1A. RISK FACTORS.

Not Applicable.

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

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.
101		Interactive data files pursuant to Rule 405 of Regulation S-T*

* Furnished herewith

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: August 15, 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 Principal
		Accounting Officer)

China Skyrise Digital Service Inc. 10-Q