UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION

FORM 10

(Mark One)

Q

 ̈

Commission File Number: 000-25901

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC.

|Delaware                            | 98-0509431                   
|----------------------------------- | -----------------------------
|(State
    or other jurisdiction of | (I.R.S.
    Empl. Ident. No.)
|incorporation or organization)      |                              

|                                                                                      
|--------------------------------------------------------------------------------------
|13/F, Shenzhen Special Zone Press Tower, Shennan Road                                 
|Futian District, Shenzhen, China 518034                                               
|(Address of principal executive offices, Zip Code)                                    
|                                                                                      
|(86) 755-8351-0888                                                                    
|(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 Exchange Act
during the past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes

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             | Q
|--------------------------- | ---------------------------------------------- | ----------------------------- | -
|Non-Accelerated Filer       |  ̈(Do not check if a smaller reporting company) | Smaller reporting
    company |  ̈

The number of shares outstanding of each of the issuer's classes of common
equity, as of April 30, 2008 is as follows:

Class of Securities
      
      Shares OutstandingCommon Stock, $0.0001 par value
      
      42,859,292


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

---

TABLE OF CONTENTS

|         | PART I                                                                                    | Page
|-------- | ----------------------------------------------------------------------------------------- | ----
|         |                                                                                           |     
|Item 1.  | Financial Statements                                                                      | 1   
|Item 2.  | Management's
    Discussion and Analysis of Financial Condition and Results of Operations | 22  
|Item 3.  | Quantitative and
    Qualitative Disclosures About Market Risk                            | 36  
|Item 4.  | Controls and
    Procedures                                                               | 37  
|         |                                                                                           |     
|         | PART II                                                                                   |     
|         |                                                                                           |     
|Item 1.  | Legal Proceedings                                                                         | 38  
|Item 1A. | Risk Factors                                                                              | 38  
|Item 2.  | Unregistered Sales of
    Equity Securities and Use of Proceeds                           | 38  
|Item 3.  | Defaults Upon Senior
    Securities                                                       | 38  
|Item 4.  | Submission of Matters
    to a Vote of Securities Holders                                 | 38  
|Item 5.  | Other Information                                                                         | 38  
|Item 6.  | Exhibits                                                                                  | 38  
|         |                                                                                           |     

---

PART I 
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
SUBSIDIARIES 
CONDENSED CONSOLIDATED BALANCE SHEETS 
AS OF MARCH 31, 2008 (UNAUDITED) AND DECEMBER 31, 2007 
Expressed in thousands of U.S. dollars 
(Except for share and per share amounts)

|                                                                                                                                                                                                                                                               |  | March 31,   |         | December 31, |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ------- | ------------ | -
|                                                                                                                                                                                                                                                               |  | 2008        |         | 2007         |  
|                                                                                                                                                                                                                                                               |  | (Unaudited) |         |              |  
|ASSETS                                                                                                                                                                                                                                                         | 
|CURRENT ASSETS                                                                                                                                                                                                                                                 |  |             |         |              |  
|Cash and cash equivalents                                                                                                                                                                                                                                      |  | $           | 77,112  |              | $
|Accounts receivable, net                                                                                                                                                                                                                                       |  |             | 78,174  |              |  
|Related party receivables                                                                                                                                                                                                                                      |  |             | 311     |              |  
|Inventories, net                                                                                                                                                                                                                                               |  |             | 38,019  |              |  
|Prepayments and deposits                                                                                                                                                                                                                                       |  |             | 4,238   |              |  
|Advances to suppliers                                                                                                                                                                                                                                          |  |             | 4,127   |              |  
|Other receivables                                                                                                                                                                                                                                              |  |             | 13,405  |              |  
|Tax refundable                                                                                                                                                                                                                                                 |  |             | 42      |              |  
|Deferred tax assets - current portion                                                                                                                                                                                                                          |  |             | 145     |              |  
|Total current assets                                                                                                                                                                                                                                           |  |             | 215,573 |              |  
|                                                                                                                                                                                                                                                               |  |             |         |              |  
|Deposits for acquisition for subsidiaries, intangible assets and properties                                                                                                                                                                                    |  |             | 56,932  |              |  
|Plant and equipment, net                                                                                                                                                                                                                                       |  |             | 25,347  |              |  
|Land use rights, net                                                                                                                                                                                                                                           |  |             | 1,436   |              |  
|Intangible assets                                                                                                                                                                                                                                              |  |             | 43,775  |              |  
|Goodwill                                                                                                                                                                                                                                                       |  |             | 52,375  |              |  
|Deferred financing cost                                                                                                                                                                                                                                        |  |             | 141     |              |  
|Deferred tax assets - non-current portion                                                                                                                                                                                                                      |  |             | 270     |              |  
|TOTAL ASSETS                                                                                                                                                                                                                                                   |  | $           | 395,849 |              | $
|                                                                                                                                                                                                                                                               |  |             |         |              |  
|LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                                                                                                                                                          
|CURRENT LIABILITIES                                                                                                                                                                                                                                            |  |             |         |              |  
|Notes payable - short term                                                                                                                                                                                                                                     |  | $           | 12,509  |              | $
|Accounts payable                                                                                                                                                                                                                                               |  |             | 22,076  |              |  
|Accrued expenses                                                                                                                                                                                                                                               |  |             | 4,716   |              |  
|Advances from customers                                                                                                                                                                                                                                        |  |             | 7,299   |              |  
|Taxes payable                                                                                                                                                                                                                                                  |  |             | 2,128   |              |  
|Deferred income                                                                                                                                                                                                                                                |  |             | 1,005   |              |  
|Total current liabilities                                                                                                                                                                                                                                      |  |             | 49,733  |              |  
|                                                                                                                                                                                                                                                               |  |             |         |              |  
|LONG-TERM LIABILITIES                                                                                                                                                                                                                                          |  |             |         |              |  
|Notes payable - long term                                                                                                                                                                                                                                      |  |             | -       |              |  
|Convertible notes payable                                                                                                                                                                                                                                      |  |             | 128,064 |              |  
|Total liabilities                                                                                                                                                                                                                                              |  |             | 177,797 |              |  
|                                                                                                                                                                                                                                                               |  |             |         |              |  
|MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES                                                                                                                                                                                                                 |  |             | 39      |              |  
|                                                                                                                                                                                                                                                               |  |             |         |              |  
|SHAREHOLDERS' EQUITY                                                                                                                                                                                                                                           |  |             |         |              |  
|Preferred stock, $0.0001 par value; 10,000,000 shares authorized, 0 shares issued and outstanding
Common stock, $0.0001 par value; 290,000,000 shares authorized, 42,859,292 (March 31, 2008) and 42,506,150 (December 31, 2007) shares issued and outstanding |  |             | 4       |              |  
|Additional paid-in capital                                                                                                                                                                                                                                     |  |             | 115,530 |              |  
|Retained earnings                                                                                                                                                                                                                                              |  |             | 81,298  |              |  
|Statutory reserves                                                                                                                                                                                                                                             |  |             | 804     |              |  
|Accumulated other comprehensive income                                                                                                                                                                                                                         |  |             | 20,377  |              |  
|Total shareholders' equity                                                                                                                                                                                                                                     |  |             | 218,013 |              |  
|TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                                                                                                                                                     |  | $           | 395,849 |              | $

See the accompanying notes to condensed consolidated financial statements

1

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CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
SUBSIDIARIES 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME 
FOR THE THREE MONTHS ENDED MARCH 31, 2008 and 2007 
Expressed in thousands of U.S. dollars 
(Except for share and per share amounts)

|                                                                                                                                                            |  | Three Months Ended March 31 |           
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ----------
|                                                                                                                                                            |  | 2008                        |           
|                                                                                                                                                            |  | (Unaudited)                 |           
|                                                                                                                                                            |  |                             |           
|Revenues                                                                                                                                                    |  | $                           | 71,777    
|                                                                                                                                                            |  |                             |           
|Cost of goods sold (including depreciation and amortization for the three months ended March 31, 2008 and 2007 of $83 and $0, respectively)                 |  |                             | 49,521    
|                                                                                                                                                            |  |                             |           
|Gross profit                                                                                                                                                |  |                             | 22,256    
|                                                                                                                                                            |  |                             |           
|Selling and marketing                                                                                                                                       |  |                             | 2,142     
|                                                                                                                                                            |  |                             |           
|General and administrative (including non-cash employee compensation for the three months  ended March 31, 2008 and 2007 of  $2,958 and $265, respectively) |  |                             | 7,162     
|                                                                                                                                                            |  |                             |           
|Depreciation and amortization                                                                                                                               |  |                             | 1,817     
|                                                                                                                                                            |  |                             |           
|Income from operations                                                                                                                                      |  |                             | 11,135    
|                                                                                                                                                            |  |                             |           
|Rental income received from related party                                                                                                                   |  |                             | -         
|                                                                                                                                                            |  |                             |           
|Interest income                                                                                                                                             |  |                             | 55        
|                                                                                                                                                            |  |                             |           
|Interest expense                                                                                                                                            |  |                             | (4,863)   
|                                                                                                                                                            |  |                             |           
|Other income, net                                                                                                                                           |  |                             | 320       
|                                                                                                                                                            |  |                             |           
|Income before income taxes and minority interest                                                                                                            |  |                             | 6,647     
|                                                                                                                                                            |  |                             |           
|Minority interest in loss of consolidated subsidiaries                                                                                                      |  |                             | 25        
|                                                                                                                                                            |  |                             |           
|Income taxes                                                                                                                                                |  |                             | (2,176)   
|                                                                                                                                                            |  |                             |           
|Net income                                                                                                                                                  |  |                             | 4,496     
|                                                                                                                                                            |  |                             |           
|Foreign currency translation gain                                                                                                                           |  |                             | 8,504     
|                                                                                                                                                            |  |                             |           
|COMPREHENSIVE INCOME                                                                                                                                        |  | $                           | 13,000    
|                                                                                                                                                            |  |                             |           
|NET INCOME PER SHARE                                                                                                                                        |  |                             |           
|BASIC                                                                                                                                                       |  | $                           | 0.11      
|DILUTED                                                                                                                                                     |  | $                           | 0.11      
|                                                                                                                                                            |  |                             |           
|WEIGHTED AVERAGE NUMBER OF SHARES                                                                                                                           |  |                             |           
|OUTSTANDING                                                                                                                                                 |  |                             |           
|BASIC                                                                                                                                                       |  |                             | 42,738,195
|DILUTED                                                                                                                                                     |  |                             | 42,796,797
|                                                                                                                                                            |  |                             |           

See the accompanying notes to condensed consolidated financial statements

2

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CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
SUBSIDIARIES 
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY 
FOR THE THREE MONTHS ENDED MARCH 31, 2008 (UNAUDITED) 
Expressed in thousands of U.S. dollars 
(Except for share and per share amounts)

|                                                                                                                                 | Common Stock |   |       |   |            |   | Accumulated |   |               |   |          
|-------------------------------------------------------------------------------------------------------------------------------- | ------------ | - | ----- | - | ---------- | - | ----------- | - | ------------- | - | ---------
|                                                                                                                                 |              |   |       |   | Additional |   |             |   | Other         |   |          
|                                                                                                                                 |              |   | Par   |   | Paid-in    |   | Retained    |   | Comprehensive |   | Statutory
|                                                                                                                                 | Shares       |   | Value |   | Capital    |   | Earnings    |   | Income        |   | Reserves 
|                                                                                                                                 |              |   |       |   |            |   |             |   |               |   |          
|                                                                                                                                 |              |   |       |   |            |   |             |   |               |   |          
|BALANCE AT JANUARY
    1, 2008                                                                                                   | 42,506,150   | $ | 4     | $ | 110,254    | $ | 76,802      | $ | 11,873        | $ | 804      
|                                                                                                                                 |              |   |       |   |            |   |             |   |               |   |          
|Issuance of restricted
    stock under Equity Incentive Plan
    and recognition of stock-based compensation                     | 181,500      |   | -     |   | 2,958      |   | -           |   | -             |   | -        
|                                                                                                                                 |              |   |       |   |            |   |             |   |               |   |          
|Forfeiture of
    restricted stock under Equity Incentive Plan                                                                   | (22,512)     |   | -     |   | -          |   | -           |   | -             |   | -        
|                                                                                                                                 |              |   |       |   |            |   |             |   |               |   |          
|Warrants exercised for
    cash per Securities Purchase
    Agreement                                                            | 57,776       |   | -     |   | 277        |   | -           |   | -             |   | -        
|                                                                                                                                 |              |   |       |   |            |   |             |   |               |   |          
|Common stock issued in
    connection with Exclusive Cooperation Agreement with Beijing DM Securities &
    Technology Co., Ltd. | 136,378      |   | -     |   | 2,041      |   | -           |   | -             |   | -        
|                                                                                                                                 |              |   |       |   |            |   |             |   |               |   |          
|Foreign currency
    translation gain                                                                                            | -            |   | -     |   | -          |   | -           |   | 8,504         |   | -        
|                                                                                                                                 |              |   |       |   |            |   |             |   |               |   |          
|Net income for the
    period                                                                                                    | -            |   | -     |   | -          |   | 4,496       |   | -             |   | -        
|                                                                                                                                 |              |   |       |   |            |   |             |   |               |   |          
|BALANCE AT MARCH
    31, 2008                                                                                                    | 42,859,292   | $ | 4     | $ | 115,530    | $ | 81,298      | $ | 20,377        | $ | 804      

See the accompanying notes to condensed consolidated financial statements





3

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CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
SUBSIDIARIES CONDENSED 
CONSOLIDATED STATEMENTS OF CASH FLOWS 
FOR THE THREE MONTHS ENDED MARCH 31, 2008 and 2007 
Expressed in thousands of U.S. dollars 
(Except for share and per share amounts)

|                                                                                    |  | Three Months Ended March 31 |         
|----------------------------------------------------------------------------------- |  | --------------------------- | --------
|                                                                                    |  | 2008                        |         
|                                                                                    |  | (Unaudited)                 |         
|                                                                                    |  |                             |         
|CASH FLOWS FROM OPERATING ACTIVITIES:                                               |  |                             |         
|Net income                                                                          |  | $                           | 4,496   
|Adjustments to reconcile net income to net cash  used in operating
  
  activities: |  |                             |         
|Depreciation and amortization                                                       |  |                             | 1,900   
|Amortization of consultancy services                                                |  |                             | 33      
|Amortization of deferred financing cost                                             |  |                             | 9       
|Non-cash employee compensation                                                      |  |                             | 2,958   
|Redemption accretion on convertible notes                                           |  |                             | 4,363   
|Deferred taxes                                                                      |  |                             | 1       
|Minority interest                                                                   |  |                             | (25)    
|                                                                                    |  |                             |         
|Changes in operating assets and liabilities:                                        |  |                             |         
|(Increase) decrease in:                                                             |  |                             |         
|Accounts receivable                                                                 |  |                             | (12,396)
|Related party receivables                                                           |  |                             | 261     
|Other receivables                                                                   |  |                             | (3,077) 
|Inventories                                                                         |  |                             | 4,239   
|Prepayments and deposits                                                            |  |                             | 673     
|Advances to suppliers                                                               |  |                             | (1,133) 
|                                                                                    |  |                             |         
|(Decrease) increase in:                                                             |  |                             |         
|Accounts payable and accrued expenses                                               |  |                             | (1,277) 
|Advances from customers                                                             |  |                             | (1,393) 
|Taxes payable                                                                       |  |                             | (2,194) 
|Deferred income                                                                     |  |                             | 53      
|Net cash used in operating activities                                               |  |                             | (2,509) 
|                                                                                    |  |                             |         
|CASH FLOWS FROM INVESTING ACTIVITIES:                                               |  |                             |         
|Additions to plant and equipment                                                    |  |                             | (830)   
|Additions to intangible assets                                                      |  |                             | (543)   
|Deposits paid for acquisition of subsidiaries                                       |  |                             | (12,944)
|Deposits paid for acquisition of properties and intangible assets                   |  |                             | --      
|Proceeds from disposal of land use rights and properties                            |  |                             | 3,379   
|Net cash used in investing activities                                               |  |                             | (10,938)
|                                                                                    |  |                             |         
|CASH FLOWS FROM FINANCING ACTIVITIES:                                               |  |                             |         
|Cash received from (advanced to) directors                                          |  |                             | --      
|Warrants exercised                                                                  |  |                             | 277     
|Issuance of common stock, net of issuing expenses                                   |  |                             | --      
|New borrowings, net of issuing cost                                                 |  |                             | 4,274   
|Repayment of borrowings                                                             |  |                             | (5,827) 
|Net cash (used in) provided by financing activities                                 |  |                             | (1,276) 
|                                                                                    |  |                             |         
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                |  |                             | (14,723)
|Effect of exchange rate changes on cash                                             |  |                             | 2,764   
|Cash and cash equivalents, beginning of period                                      |  |                             | 89,071  
|                                                                                    |  |                             |         
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                            |  | $                           | 77,112  

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:

136,378 shares of common stock were
issued in satisfaction of the equity portion of the purchase price of
approximately $2,041 in the establishment of exclusive cooperation agreement
with Beijing DM Security & Technology Co., Ltd. ("DM") on January 18, 2008.
(Note 10)

See the accompanying notes to condensed consolidated financial statements

4

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CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
Expressed in thousands of U.S. dollars 
(Except for share and per share amounts)

1.
BASIS OF
PRESENTATION
The accompanying financial
statements, as of March 31, 2008 and for the three months ended March 31, 2008
and 2007, have been prepared by CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC.
(the "Company") without an audit. Pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"), certain information and footnote
disclosures normally included in the financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
("US GAAP") have been condensed or omitted pursuant to such rules and
regulations. These financial statements should be read in conjunction with the
financial statements and the notes thereto included in the Company's audited
annual financial statements for the year ended December 31, 2007, which are
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2007, filed with the SEC on March 10, 2008. Amounts as of December 31, 2007
are derived from these audited consolidated financial statements.
The preparation of financial
statements in conformity with US GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and the disclosure of contingent assets and liabilities. Actual
results could differ from these estimates.
In the opinion of the management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position as of March 31, 2008, results of
operations and cash flows for the three months ended March 31, 2008 and 2007,
have been made. The results of operations for the three months ended March 31,
2008 are not necessarily indicative of the operating results for the full year.
2.
SUMMARY OF
SELECTED SIGNIFICANT ACCOUNTING POLICIES
(a)
Accounting for
Computer Software to Be Sold, Leased or Otherwise Marketed
The Company accounts for software
development costs in accordance with Statement of Financial Accounting Standards
("SFAS") No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed." Costs related to establishing the
technological feasibility of a software product are expensed as incurred as a
part of research and development in general and administrative expenses. Costs
that are incurred to produce the finished product after technological
feasibility is established are capitalized and amortized over the estimated
economic life of 5 years. The Company performs periodic reviews to ensure that
unamortized program costs remain recoverable from future revenue.
As of March 31, 2008 and December
31, 2007, unamortized computer software costs were $2,899 and $2,383,
respectively. During the three months ended March 31, 2008 and 2007, $254 and
$246 amortization expense was charged to income, respectively.
(b)
Inventories
Inventories are stated at the lower
of cost, determined on a weighted average basis, or net realizable value. Net
realizable value is the estimated selling price in the ordinary course of
business less the estimated cost of completion and the estimated costs necessary
to make the sale.
When inventories are sold, their
carrying amount is charged to expense in the year in which the revenue is
recognized. Write-downs for declines in net realizable value or for losses of
inventories are recognized as an expense in the year the impairment or loss
occurs. There were no declines in net realizable value of inventory for the
three months ended March 31, 2008 and 2007.
During the three months ended March
31, 2008 and 2007, inventory purchases from the top five suppliers constituted
for approximately 60% and 89% of the total inventory purchases, respectively.
5

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CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
Expressed in thousands of U.S. dollars 
(Except for share and per share amounts)2.

SUMMARY OF SELECTED SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)

(c)

Accounts
Receivable

Trade receivables are recognized and
carried at the original invoice amount less allowance for any uncollectible
amounts. An estimate for doubtful accounts is made when collection of the full
amount is no longer probable. Bad debts are written off as incurred.

No trade receivable due from any single individual
customer exceeds 10% of total accounts receivable at March 31, 2008 and December
31, 2007.

(d)

Revenue
Recognition

The Company derives the bulk of its
revenue from the supply and installation of security and surveillance equipment
and the two deliverables do not meet the separation criteria under EITF issue
00-21. 99% of the installation contract amount is recognized as revenue when
installation is completed. 1% of the contract amount is deferred and amortized
to income over the one-year warranty period.

Revenue from the outright sale of
security and surveillance equipment is recognized when delivery occurs and risk
of ownership passes to the customers.

Revenues from sales of security and
surveillance video cameras and related products are recognized in accordance SAB
No. 104. Revenues are recognized when the following criterias are met:

(i)

Persuasive
evidence of an arrangement exists  The Company requires evidence of an
agreement with a customer specifying the terms and conditions of the products to
be delivered typically in the form of a signed contract or purchase order;

(ii)

Delivery has
occurred  For product sales, delivery generally takes place when titles to the
products are shipped to or accepted by the customer;

(iii)

The fee is
fixed or determinable  Fees are fixed or determinable based on the contract or
purchase order terms; and

(iv)

Collection is probable  The Company
performs a credit review of all customers with significant transactions to
determine whether a customer is creditworthy and collection is probable.

6

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CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
Expressed in thousands of U.S. dollars 
(Except for share and per share amounts)

2.

SUMMARY OF SELECTED SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)

(d)

Revenue Recognition - continued

Repairs and maintenance service
revenue is recognized when the service is performed.

The sales contracts generally
provide a one to three-year product warranty to customers from the date of
purchase. We estimated the costs of satisfying warranty claims based on an
analysis of past experience and provide for the future claims in the period the
revenue recognized. As of March 31, 2008 and December 31, 2007, no material
product warranty reserve was accrued. Warranty costs incurred by the Company
have not been material.

The Company derives a portion of its
revenue from one-year software upgrades. These services are typical
post-contract service ("PCS") arrangements according to AICPA Statement of
Position ("SOP") 97-2. Under SOP 97-2, PCS revenue may be recognized together
with the initial licensing fee on delivery of the software if all of the
following conditions are met:

(i)

The PCS fee is
included with the initial licensing fee;

(ii)

The PCS
included with the initial license is for one year or less;

(iii)

The estimated
cost of providing PCS during the arrangement is insignificant; and

(iv)

Unspecified
upgrades/enhancements offered during PCS arrangements historically have been and
are expected to continue to be minimal and infrequent.

Revenue from security and
surveillance system one year software upgrades is recognized when delivery
occurs and the risk of ownership passes to the customers, as the Company
believes it meets the conditions in compliance with SOP 97-2.

(e)

Research and
Development Costs

Research and development costs are
expensed as incurred. Research and development costs included in general and
administrative expenses for the three months ended March 31, 2008 and 2007
amounted to $59 and $21 respectively.

(f)

Advertising
Costs

The Company expenses advertising
costs as incurred or the first time advertising takes place. During the three
months ended March 31, 2008 and 2007, the Company incurred advertising costs of
approximately $55 and $100, respectively.

(g)

Retirement
Benefits

Retirement benefits in the form of
contributions under defined contribution retirement plans to the relevant
authorities are charged to the consolidated statements of income as incurred.
The retirement benefit expenses for the three months ended March 31, 2008 and
2007 were $218 and $54 respectively and are included in the selling and
marketing expenses and general and administrative expenses.

7

---

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
Expressed in thousands of U.S. dollars 
(Except for share and per share amounts)2.

SUMMARY OF SELECTED SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)

(h)

Share-based Payments

On February 7, 2007, the Company
adopted the 2007 Equity Incentive Plan ("Plan"), which has a five-year term and
provides for grants of stock options, stock appreciation rights, performance
units, restricted stock units and performance shares. The total number of shares
which may be issued under the plan is 8,000,000 shares of common stock. These
restricted stocks are share-based payments subject to the provisions of revised
Statement of Financial Accounting Standards ("SFAS") No.123, Share-Based Payment
("SFAS 123 (R)"). We adopted SAFS 123(R) on January 1, 2006, using the modified
prospective method. The provisions of SFAS 123(R) apply only to the awards
granted or modified after the date of adoption. The unrecognized expense of
awards not yet vested at the date of adoption, determined under the original
provisions of SFAS 123, is recognized in net profit in the periods after
adoption. The fair values of these restricted stock awards are equal to the
market value of the Company's stock on the date of grant, after taking into
account certain discounts. Such restricted stock is subject to the risk of
forfeiture upon the occurrence of certain events. During the three months ended
March 31, 2008 and 2007, the Company has recognized $2,958 and $265 of
compensation expense under the Plan, respectively. As of March 31, 2008 and
December 31, 2007, there was $39,249 and $39,814 of unrecognized compensation
expense related to the nonvested restricted stock, respectively. These expenses
are expected to be recognized over a four-year period.

(i)

Income taxes

The Company adopted the provisions
of Financial Accounting Standards Board ("FASB") Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes - an Interpretation of FASB
Statement No. 109, " ("FIN 48"), on January 1, 2007. The Company did not
have any material unrecognized tax benefits and there was no effect on its
financial condition or results of operations as a result of implementing FIN 48.

On March 16, 2007, the National
People's Congress of the People of Republic China ("PRC") determined to adopt a
new corporate income tax law in its fifth plenary session. The new corporate
income tax law unifies the application scope, tax rate, tax deduction and
preferential policy for both domestic and foreign-invested enterprises. The new
corporate income tax law became effective on January 1, 2008.

(j)

Use of
Estimates

The preparation of financial
statements in conformity with US GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Management makes these estimates using the best information
available at the time the estimates are made; however actual results could
differ materially from those estimates.

8

---

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
Expressed in thousands of U.S. dollars 
(Except for share and per share amounts)

2.

SUMMARY OF SELECTED SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)

(k)

Earnings Per
Share

SFAS No. 128,Earnings Per Share,
requires dual presentation of basic and diluted earnings per share ("EPS) with a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. Basic EPS excludes
dilution. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity.

Earnings per basic share of common
stock is based on the weighted average number of shares of common stock
outstanding during each respective period. Earnings per diluted share of common
stock adds to basic weighted shares the weighted average number of shares
issuable under convertible securities, contingent issuances, stock options and
warrants outstanding during each respective period, using the if-converted or
treasury-stock methods.

The calculation of diluted earnings
per share is based on the outstanding warrants for the three months ended March
31, 2008 and 2007. As of March 31, 2008 and 2007, warrants were outstanding to
acquire 30,006 and 835,812 shares of common stock.

Approximately 5,452,000 and
3,333,000 shares of common stock underlying convertible notes were not included
in the dilutive calculation for the three months ended March 31, 2008 and 2007,
respectively, as the effect would be anti-dilutive.

3.

ACCOUNTS
RECEIVABLE

The Company provides an allowance for
doubtful accounts related to its receivables. The receivables and allowance
balances at March 31, 2008 and December 31, 2007 are as follows:

March 31, 2008
      December 31, 2007Accounts receivable
      $
      78,505
      $
      63,494Less: allowance for
      doubtful accounts
      
      (331)
      
      (288)Accounts receivable,
      net
      $
      78,174
      $
      63,206


4.

RELATED PARTY
RECEIVABLES

The Company had receivables from
several companies whose directors and shareholders are common with the Company.
All receivables arise from the rental of real estate properties. The receivables
are classified as related party receivables on the balance sheets. The balances
as of March 31, 2008 and December 31, 2007 are as follows:

March 31, 2008
      December 31, 2007Related party
      receivables
      $
      311
      $
      549Less: allowance for
      doubtful accounts
      
      --
      
      --Related party
      receivables, net
      $
      311
      $
      549


9

---

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
Expressed in thousands of U.S. dollars 
(Except for share and per share amounts)4.

RELATED PARTY RECEIVABLES (CONTINUED)

The Company had leased offices to
three related parties since January 1, 2004. The leases expired on December 31,
2007. The rental income was RMB990 ($127) for the three months ended March 31,
2007.

5.

INVENTORIES

Inventories consist of the following
as of March 31, 2008 and December 31, 2007:

March 31,
      December 31,2008
      
      2007Raw materials
      $
      12,153
      $
      9,386Work in progress
      
      1,894
      
      2,182Finished goods
      
      9,766
      
      9,761Installations in
      process
      
      14,780
      
      19,830Total
      
      38,593
      
      41,159Less: allowance for
      obsolete inventories
      
      (574)
      
      (553)Inventories, net
      $
      38,019
      $
      40,606


6.

PREPAYMENTS AND DEPOSITS

Prepayments and deposits consist of
the following as of March 31, 2008 and December 31, 2007:

March 31,
      December 31,2008
      
      2007Current portion
      $
      4,238
      $
      3,225Non current portion- Deposits paid for acquisition of subsidiaries
      
      36,260
      
      22,545- Deposits paid for acquisition of properties
      and intangible assets
      
      20,672
      
      23,898$
      56,932
      $
      46,443


The deposits paid for acquisition of
subsidiaries, properties and intangible assets are refundable. There are no commitments to acquire
the subsidiaries, properties and intangible assets.

7.

ADVANCE PAYMENTS

The Company has made payments to
unrelated suppliers in advance of receiving merchandise. The advance payments
are meant to ensure preferential pricing and delivery. The amounts advanced
under such arrangements totaled $4,127 and $2,877 as of March 31, 2008 and
December 31, 2007, respectively.

10

---

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
Expressed in thousands of U.S. dollars 
(Except for share and per share amounts)

8.
PLANT AND
EQUIPMENT
At March 31, 2008 and December 31,
2007, plant and equipment, at cost, consist of

March
      31,
      December 31,2008
      
      2007Buildings
      $
      18,461
      $
      17,564Leasehold
      improvements
      
      1,071
      
      1,029Plant and equipment
      
      3,156
      
      3,158Electronic equipment
      
      2,998
      
      2,444Motor vehicles
      
      3,622
      
      3,11329,308
      
      27,308Less: accumulated
      depreciation
      
      (3,961)
      
      (3,242)Plant and equipment,
      net
      $
      25,347
      $
      24,066


Depreciation expense for the three
months ended March 31, 2008 and 2007 was $635 and $169, respectively.

9.

LAND USE RIGHTS

Land use rights consist of the
following as of March 31, 2008 and December 31, 2007:

March 31, 2008
      December 31, 2007Cost of land use
      rights
      $
      1,485
      $
      1,428Less: accumulated
      amortization
      
      (49)
      
      (49)Land use rights, net
      $
      1,436
      $
      1,379


Amortization expense for the three months ended March
31, 2008 and 2007 was $6 and $8, respectively.

Amortization expense for the next five years and
thereafter is as follows:

2008 (for the remaining 9
      months)
      $
      222009
      
      302010
      
      302011
      
      302012
      
      30Thereafter
      
      1,294Total
      $
      1,436


The Company disposed of land use
rights and properties for total consideration of RMB 119,000 (approximately
$16,119) in December 2007. The remaining proceeds of RMB 24,000 (approximately
$3,379) was received in January 2008.

11

---

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
Expressed in thousands of U.S. dollars 
(Except for share and per share amounts)

10.
INTANGIBLE ASSETS

March 31, 2008
      
      December 31, 2007Trademarks (life of 11 to 25 years)
      $
      12,081
      $
      12,081Exclusive cooperation agreements (life of
      20 years)
      
      13,632
      
      8,834Customer base (life of 5 to 10 years)
      
      7,225
      
      7,225Patents (life of 10 years)
      
      4,532
      
      4,532Technical know-how (life of 9 to 10 years)
      
      5,397
      
      5,347Non-compete agreements (life of 5 years)
      
      1,303
      
      1,303Contracts in progress (life of 2 to 9
      months)
      
      410
      
      410Surveillance software (life of 5 years)
      
      4,841
      
      4,468Surveillance recording system (life of 5
      years)
      
      500
      
      500Less: accumulated amortization
      
      (6,146)
      
      (4,900)Intangible assets, net
      $
      43,775
      $
      39,800


On January 18, 2008, the Company
entered into an exclusive cooperation agreement with DM, which is engaged in the
business of designing, developing and selling security and surveillance
products, pursuant to which the parties have agreed, among other things, that
the Company's subsidiary, China Security & Surveillance Technology (PRC) Inc. ("CSST
PRC") will provide various items to DM, including training services, provision
of technology licenses, equipment, consultations, workforces and other related
services. DM will subcontract all its work to CSST PRC or its designees to the
extent permitted by the local laws and regulations at no less than 80% of the
face value of the contract. DM has agreed to add CSST PRC's name to its market
materials and its marketing and business development activities will be
conducted either in the name of both DM and CSST PRC or through a joint venture
established by the parties. The valuation of the agreement was determined by an
independent appraisal firm. The Company did not acquire any of the assets or
liabilities of DM, and the entire purchase price was allocated to an intangible
asset, consisting of an exclusive cooperation relationship. The Company's total
cost for entry into the exclusive cooperation agreement amounted to $4,798,
after taking into account of certain discounts of the shares issued to DM due to
the fact that the issued shares are restricted shares. 136,378 restricted shares
were issued in January 2008.

The amortization expense for the
three months ended March 31, 2008 and 2007 was $1,259 and $629, respectively.

Estimated amortization expense for
the next five years and thereafter is as follows:

2008 (for the remaining nine
      months)
      $
      3,9042009
      
      5,9642010
      
      5,0322011
      
      3,5502012
      
      2,940Thereafter
      
      22,385Total
      $
      43,775


12

---

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
Expressed in thousands of U.S. dollars 
(Except for share and per share amounts)

11.
NOTES PAYABLE
The following is a summary of the
Company's short-term and long-term notes payable as of March 31, 2008 and
December 31, 2007:

March 31,
      December 31,2008
      
      2007Bank loans
      
      
      $
      12,509
      $
      13,512Less: current
      portion
      
      
      
      (12,509)
      
      (12,814)Long-term portion
      
      
      $
      --
      $
      698Long-term
      Short-termnotes
      
      notes
      
      Total2008 (for the
      remaining nine months)
      $
      513
      $
      11,398
      $
      11,9112009
      
      598
      
      -
      
      598Total
      $
      1,111
      $
      11,398
      $
      12,509


In January 2008, the Company entered
into a loan agreement with Shanghai Pudong Development Bank. The Company
borrowed RMB30,000 (approximately $4,275) with an annual interest rate of 6.57%.
The loan is due in July 2008, and the interest is payable at the end of each
month. The loan agreement requires the Company to use the loan proceeds only for
the Company's operations. The bank has the right to increase the interest rate
and demand repayment of the entire loan principal and unpaid interest if the
Company uses the loan for any purpose other than operations.

On November 15, 2007, the Company
entered into a loan agreement with China Citic Bank. The Company borrowed
RMB30,000 (approximately $4,275) with an annual interest rate of 7.29%. The loan
is due in November 2008, and the interest is payable at the end of each month.
The loan agreement requires the Company to use the loan proceeds only for the
Company's operations. The loan is guaranteed by the CEO of the Company and
subsidiaries of the Company.

13

---

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
Expressed in thousands of U.S. dollars 
(Except for share and per share amounts)

11.
NOTES PAYABLE
(CONTINUED)
On October 15, 2007, the Company
entered into a loan agreement with Shanghai Pudong Development Bank. The Company
borrowed RMB20,000 (approximately $2,848) with an annual interest rate of
6.561%. The loan is due in October 2008, and the interest is payable at the end
of each month. The loan agreement requires the Company to use the loan proceeds
only for the Company's operations. The loan is guaranteed by subsidiaries of the
Company.
The long term note payable is from
Shenzhen Ping An Bank. As of March 31, 2008 and December 31, 2007, the liability
relating to this loan was RMB 7,800 (approximately $1,111) and RMB8,700
(approximately $1,290), respectively, consisting of a 3-year loan payable to
Shenzhen Ping An Bank. This loan was entered into on January 17, 2006 and
matures on March 3, 2009, with an annual interest rate of 6.435%. The loan
agreement requires the Company to use the loan proceeds only for the
construction of the Company's factory. The loan is collateralized by the
personal assets of the CEO of one of the Company's subsidiaries.
On February 16, 2007, the Company
entered into a loan agreement with Shanghai Pudong Development Bank. The Company
borrowed RMB 10,000 (approximately $1,425) with an annual interest rate of
6.39%. The loan is due in March 2008, and the interest is payable at the end of
each month. The loan agreement requires the Company to use the loan proceeds
only for the Company's operations. The bank has the right to increase the
interest rate and demand repayment of the entire loan principal and unpaid
interest if the Company uses the loan for any purpose other than operations. The
loan is guaranteed by the CEO of the Company and by Chuang Guan. The loan was
repaid in March 2008.
On February 2, 2007, the Company
entered into a loan agreement with Shanghai Pudong Development Bank. The Company
borrowed RMB 30,000 (approximately $4,275) with an annual interest rate of
6.12%. The loan is due in February 2008, and the interest is payable at the end
of each month. The loan agreement requires the Company to use the loan proceeds
only for the Company's operations. The bank has the right to increase the
interest rate and demand repayment of the entire loan principal and unpaid
interest if the Company uses the loan for any purpose other than operations. The
loan is guaranteed by the CEO of the Company and by Chuang Guan. The loan was
repaid in February 2008.
12.
DEFERRED INCOME
Deferred income balances as of March
31, 2008 and December 31, 2007 were $1,005 and $915 respectively, and
represented amounts invoiced but deferred as revenue as an estimated warranty
reserve.
13.
CONVERTIBLE
NOTES PAYABLE
On February 20, 2007, pursuant to a
notes purchase agreement and indenture with Citadel Equity Fund Ltd.
("Citadel"), the Company issued to Citadel $60,000 aggregate principal amount of
guaranteed senior unsecured convertible notes due 2012 (the "February Notes").
The terms of the February Notes indenture was subsequently amended on each of
March 29, 2007 and April 24, 2007. The February Notes financing replaced the
existing bridge financing that was closed on February 8, 2007 in which the
Company had issued to Citadel $60,000 aggregate principal amount of senior
notes. The February Notes bear an annual interest of 1%. All the net proceeds
from the sales of the February Notes are and will be used for the Company's
working capital and acquisition plan.
14

---

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
Expressed in thousands of U.S. dollars 
(Except for share and per share amounts)

13.
CONVERTIBLE
NOTES PAYABLE (CONTINUED)
Under the February Notes indenture,
the February Notes are convertible, by the holders thereof, at any time on or
prior to maturity, into common stock of the Company initially at the conversion
price of $18 per share (subject to adjustment in certain circumstances,
including semi-annual reset of the conversion price and upon occurrence of
certain dilutive events, in each case subject to certain conditions). If the
February Notes are not converted before maturity, the February Notes will be
redeemed by the Company on the maturity date at a redemption price equal to 100%
of the principal amount of the February Notes then outstanding plus an
additional amount of 15.0% per annum, calculated on a quarterly compounded
basis, plus any accrued and unpaid interest. In addition, if the 45-day variable
weighted average price ("VWAP") during the one year period from February 16,
2009 to February 15, 2010 equals or is greater than $30.0 per share of common
stock, the Company shall, within one trading day, force holders of the February
Notes to convert 50% of the then-outstanding principal amount of the February
Notes at the then applicable conversion rate on a pro rata basis (the "February
Notes 2010 Mandatory Conversion"). If the 45-day VWAP during the one year period
from February 16, 2010 to February 15, 2011 equals or is greater than $35.0 per
share of common stock (the "February Notes 2011 Mandatory Conversion Trigger")
and the February Notes 2010 Mandatory Conversion had occurred, the Company
shall, within one trading day, force holders of the February Notes to convert
all of the then-outstanding principal amount of the February Notes at the then
applicable conversion price. If the February Notes 2011 Mandatory Conversion
Trigger occurs and the February Notes 2010 Mandatory Conversion had not
occurred, the Company shall, within one trading day, force holders of the
February Notes to convert 50% of the then-outstanding principal amount of the
February Notes at the then applicable conversion rate on a pro rata basis.
On April 24, 2007, pursuant to
another notes purchase agreement with Citadel, the Company issued to Citadel
$50,000 aggregate principal amount of guaranteed senior unsecured convertible
notes due 2012 (the "April Notes"). The April Notes bear an annual interest of
1%. All the net proceeds from the sales of the April Notes are and will be used
for the Company's working capital and acquisition plan.
Under the April Notes indenture, the
April Notes are convertible, by the holders thereof, at any time on or prior to
maturity, into common stock of the Company initially at the conversion price of
$23.60 per share (subject to adjustment in certain circumstances, including
semi-annual reset of the conversion price and upon occurrence of certain
dilutive events, in each case subject to certain conditions). If the April Notes
are not converted before maturity, the April Notes will be redeemed by the
Company on the maturity date at a redemption price equal to 100% of the
principal amount of the April Notes then outstanding plus an additional amount
of 15.0% per annum, calculated on a quarterly compounded basis, plus any accrued
and unpaid interest. In addition, if the 45-day VWAP during the one year period
from February 16, 2009 to February 15, 2010 equals or is greater than $40.0 per
share of common stock, the Company shall, within one trading day, force holders
of the April Notes to convert 50% of the then-outstanding principal amount of
the April Notes at the then applicable conversion rate on a pro rata basis (the
"April Notes 2010 Mandatory Conversion"). If the 45-day VWAP during the one year
period from February 16, 2010 to February 15, 2011 equals or is greater than
$45.00 per share of common stock (the "April Notes 2011 Mandatory Conversion
Trigger") and the April Notes 2010 Mandatory Conversion had occurred, the
Company shall, within one trading day, force holders of the April Notes to
convert all of the then-outstanding principal amount of the April Notes at the
then applicable conversion price. If the April Notes 2011 Mandatory Conversion
Trigger occurs and the April Notes 2010 Mandatory Conversion had not occurred,
the Company shall, within one trading day, force holders of the April Notes to
convert 50% of the then-outstanding principal amount of the April Notes at the
then applicable conversion rate on a pro rata basis.
The February Notes and April Notes
indentures, the notes purchase agreements and certain investor rights agreements
between the Company and Citadel entered into in connection with the February
Notes and April Notes financings contain various covenants that may limit the
Company's discretion in operating its business. In particular, the Company is
limited in its ability to merge, consolidate or transfer substantially all of
its assets, issue stock of subsidiaries, incur additional debt and create liens
on assets to secure debt. In addition, if there is a default, or if the Company
does not maintain certain financial covenants or does not maintain borrowing
availability in excess of certain pre-determined levels, the February Notes and
the April Notes may be accelerated with the balance becoming due and payable
immediately and the Company may be unable to incur additional indebtedness, make
restricted payments (including paying cash dividends on capital stock) or redeem
or repurchase capital stock. As of March 31, 2008 and December 31, 2007, the
Company has complied with all the required covenants.
15

---

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
Expressed in thousands of U.S. dollars 
(Except for share and per share amounts)

13.
CONVERTIBLE
NOTES PAYABLE (CONTINUED)
The Company has accreted $4,363 and
$1,163 for the three months ended March 31, 2008 and 2007 respectively of the
additional redemption amount related to the February Notes and April Notes,
which amount is included in interest expense.
Approximately $176 of legal fees and
other costs directly associated with the issuance of the February Notes and
April Notes is recorded as deferred financing costs in the balance sheet at
March 31, 2008 and December 31, 2007. The Company has amortized these financing
costs over the life of the February Notes and April Notes. The amortization for
the three months ended March 31, 2008 and 2007 was $9 and $0, respectively.
14.
ISSUANCE OF
COMMON STOCK AND WARRANTS
On July 6, 2006, the Company entered
into a definitive Securities Purchase Agreement with certain accredited
investors relating to the private placement of units, consisting of one share of
the Company's common stock and a warrant to purchase one-fifth of one share of
common stock.
Such Securities Purchase Agreement
was amended on each of July 30, 2006 and July 31, 2006 (as amended, the
"Securities Purchase Agreement"). Closing thereunder occurred on July 31, 2006.
The purchase price of each unit was $3.50 and the exercise price for each whole
warrant was set at $4.80. The warrants have a term of five years and include a
cashless exercise feature which does not apply when there is an effective
registration statement covering the shares underlying the warrants. In addition,
the Company had granted a put right to all of the investors which would have
allowed the investors to require the Company to repurchase all, but not less
than all, of the securities issued pursuant to the Securities Purchase Agreement
if the Company had failed to obtain the necessary governmental approvals to
consummate the acquisition of Cheng Feng on or before December 31, 2006. As such
governmental approvals were obtained before December 31, 2006 the put right has
terminated.
Pursuant to the Securities Purchase
Agreement, the Company sold 4,634,592 units to certain accredited investors at
$3.50 per unit for gross proceeds of $16,200.
Net proceeds to the Company from the
sale of all of the units pursuant to the Securities Purchase Agreement was
approximately $14,900. 57,776 and 354,285 warrants were exercised at $4.80 per
share during the three months ended March 31, 2008 and 2007, respectively.
The Company also issued warrants to
purchase 324,421 shares of its common stock with an exercise price of $4.20 to
two private placement agents as commission for their services in connection with
the private placement. During the three months ended March 31, 2008 and 2007, 0
and 227,095 of such warrants were exercised using the cashless exercise feature,
respectively.

16

---

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
Expressed in thousands of U.S. dollars 
(Except for share and per share amounts)

14.
ISSUANCE OF
COMMON STOCK AND WARRANTS (CONTINUED)
A summary of the status of the Company's warrants issued in 2006 as described
above, and the changes during the three months ended March 31, 2008 and 2007, is
presented below:

2008
    
    
    2007Weighted
    
    
    
    WeightedAverage
    
    
    
    AverageExercise
    
    
    ExerciseShares
    
    Prices
    
    Shares
    
    PricesOutstanding at beginning of period
    87,782
    $
    4.80
    1,417,292
    $
    4.40Granted
    
    -
    
    -
    
    -
    
    -Exercised
    
    (57,776)
    
    (4.80)
    
    (581,380)
    
    (4.57)Outstanding at end of
    period
    
    30,006
    $
    4.80
    
    835,912
    $
    4.28Warrants exercisable at end of period
    
    30,006
    $
    4.80
    
    835,912
    $
    4.28


15.

EQUITY INCENTIVE
PLAN

On February 7, 2007, the Company adopted the 2007 Equity
Incentive Plan which was amended in February 2008 (the "Plan"). The Plan has a
five-year term and provides for grants of stock options, stock appreciation
rights, performance units, restricted stock units and performance shares. The
total number of shares which may be issued under the Plan are 8,000,000 shares
of common stock. During the three months ended March 31, 2008 and 2007, 181,500
and 1,052,100 shares of restricted stock were granted. The shares issued vest
over a four-year period, and at issue resulted in total deferred compensation of
$2,652 and $11,184, respectively. The fair values of these restricted stock
awards are equal to the fair value of the Company's stock on the date of grant
after taking into account certain discounts. Such restricted stock is subject to
the risk of forfeiture upon the occurrence of certain events. During the three
months ended March 31, 2008 and 2007, the Company recognized $2,958 and $265,
respectively, of compensation expense under the Plan. As of March 31, 2008 and
December 31, 2007, there was $39,249 and $39,814 of unrecognized compensation
expense related to the nonvested restricted stock. This cost is expected to be
recognized over a four-year period.

The following table summarizes the status of the Company's nonvested restricted stock awards during the three months ended March 31, 2008
and 2007:

Nonvested Restricted Stock and
    
    Nonvested Restricted Stock andStock Unit Awards
    
    Stock Unit Awards2008
    
    2007Weighted
    
    
    WeightedAverage Grant
    
    
    Average GrantNumber of Shares
    Date Fair Values
    Number of Shares
    Date Fair ValuesOutstanding at the beginning of the period
    2,241,471
    $
    17.39
    
    -
    $
    -Granted
    181,500
    
    14.61
    
    1,052,100
    
    10.63Vested
    (175,243)
    
    (16.88)
    
    (21,919)
    
    (10.63)Forfeited
    (22,512)
    
    (11.48)
    
    -
    
    -Outstanding at the end of the period
    2,225,216
    $
    17.27
    
    1,030,181
    $
    10.63


17

---

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
Expressed in thousands of U.S. dollars 
(Except for share and per share amounts)

16.
CONSOLIDATED
SEGMENT DATA
Segment information is consistent with how management reviews
the businesses, makes investing and resource allocation decisions and assesses
operating performance. The Company has set up
a new segment for distribution of security and safety products and realigned its management and segment reporting structure effective March 31,
2008. The segment data presented reflects this new segment structure. The
Company reports financial and operating information in the following three
segments:
(a)
System
installation: designs, sells, installs, services and monitors electronics
security systems to residential, commercial, industrial and governmental
customers (the "Installation Segment");
(b)
Manufacturing
of security and safety products: designs, manufactures and sells security and
safety products, including intrusion security, access control and video
management systems (the "Manufacturing Segment"); and
(c)
Distribution of
security and safety products: sells security and safety products, including
intrusion security, access control and video management systems (the
"Distribution Segment").
The Company also provides general corporate services to its segments and
these costs are reported as "corporate and others."
Selected information in the new segment structure is presented in the
following tables for the three months ended March 31, 2008 and 2007:
Revenues by segment for the three months ended March 31, 2008 and 2007 are as
follows:

Revenues(1)
    
    2008
    
    2007Installation Segment
    $
    59,540
    $
    34,031Manufacturing Segment
    
    8,128
    
    4,420Distribution Segment
    
    4,109
    
    --$
    71,777
    $
    38,451


(1) Revenues by operating segments excludes intercompany transactions.

18

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CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
Expressed in thousands of U.S. dollars 
(Except for share and per share amounts)

16.
CONSOLIDATED SEGMENT DATA
(CONTINUED)
Income by segment for the three months ended March 31, 2008 and 2007 are as
follows:

Income from
    operations:
    
    2008
    
    2007Installation Segment
    $
    14,974
    $
    8,482Manufacturing Segment
    
    1,087
    
    (159)Distribution Segment
    
    590
    
    --Corporate and others
    (1)
    
    (5,516)
    
    (1,865)Income from operations
    
    11,135
    
    6,458Corporate other income
    
    320
    
    619Corporate interest income
    
    55
    
    82Corporate interest
    expense
    
    (4,863)
    
    (1,319)Income before income taxes and minority interest
    
    6,647
    
    5,840Minority interest in
    loss of consolidated subsidiaries
    
    25
    
    9Income taxes
    
    (2,176)
    
    (1,316)Net income
    $
    4,496
    $
    4,533


(1) Includes non-cash compensation, professional fee and consultancy fee for
the Company.

Non cash employee compensation by segment for the three months ended March
31, 2008 and 2007 are as follows:

Non cash employee
    compensation:
    
    2008
    
    2007Installation Segment
    $
    436
    $
    123Manufacturing Segment
    
    558
    
    71Distribution Segment
    
    347
    
    -Corporate and others
    
    1,617
    
    71$
    2,958
    $
    265


19

---

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
Expressed in thousands of U.S. dollars 
(Except for share and per share amounts)

16.
CONSOLIDATED
SEGMENT DATA (CONTINUED)
Total assets by segment at March 31, 2008 and December 31, 2007 are as
follows:

Total assets
    
    March 31,
    
    December 31,2008
    
    2007Installation Segment
    $
    168,779
    $
    152,495Manufacturing Segment
    
    103,530
    
    146,683Distribution Segment
    
    30,759
    
    --Corporate and others
    (1)
    
    92,781
    
    78,225$
    395,849
    $
    377,403


(1) Includes deposit paid for acquisition of subsidiaries, properties and
intangible assets.

Depreciation and amortization by segment for the three months ended March 31,
2008 and 2007 are as follows:

Depreciation and
    amortization:
    
    2008
    
    2007Installation Segment
    $
    867
    $
    510Manufacturing Segment
    
    614
    
    290Distribution Segment
    
    301
    
    --Corporate and others
    
    118
    
    6$
    1,900
    $
    806


17.

SUBSEQUENT
EVENTS

Acquisition of Guangdong Stonesonic Digital Technique Co., Ltd. ("Stonesonic")

On April 2, 2008, the Company entered into an equity transfer
agreement relating to the acquisition of 100 percent of the equity of Kit Grant
Limited which is the holding company of Stonesonic. The results of operations of
Stonesonic will be included in the Company's consolidated financial statements
beginning on April 2, 2008.

The Company agreed to pay a total consideration of RMB227,038
(approximately $32,400) in exchange for 100% ownership of Kit Grant Limited,
consisting of RMB125,000 (approximately $17,800) in cash and RMB102,038
(approximately $14,600) in the Company's shares of common stock. The number of
shares issuable in satisfaction of the equity portion of the purchase price is
953,918 which will be issued within 90 days following the execution of the
agreement.

20

---

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
SUBSIDIARIES 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 
Expressed in thousands of U.S. dollars 
(Except for share and per share amounts)

17.
SUBSEQUENT
EVENTS (CONTINUED)
Acquisition of Shenzhen Longhorn Security Technology Co., Ltd. ("Longhorn")

On April 2, 2008, the Company entered into an equity transfer
agreement relating to the acquisition of 100 percent of the equity of Sincere On
Limited which is the holding company of Longhorn. The results of operations of
Longhorn will be included in the Company's consolidated financial statements
beginning on April 2, 2008.
The Company agreed to pay a total consideration of RMB120,558
(approximately $17,200) in exchange for 100% ownership of Sincere On Limited,
consisting of RMB36,000 (approximately $5,100) in cash and RMB84,560
(approximately $12,100) in the Company's shares of common stock. The number of
shares issuable in satisfaction of the equity portion of the purchase price is
790,502 which will be issued within 90 days following the execution of the
agreement.
Acquisition of Beijing Aurine Divine Land Technology Co., Ltd.. ("Guanling")

On April 21, 2008, the Company entered into an equity
transfer agreement relating to the acquisition of 100 percent of the equity of
Sharp Eagle (HK) Limited, which is the holding company of Guanling. The results
of operations of Guanling will be included in the Company's consolidated
financial statements beginning on April 21, 2008.
The Company agreed to pay a total consideration of RMB 39,110
(approximately $5,590) in exchange for 100% ownership of Sharp Eagle (HK)
Limited, consisting of RMB 12,500 (approximately $1,790) in cash and RMB 26,610
(approximately $3,800) in the Company's shares of common stock. The number of
shares issuable in satisfaction of the equity portion of the purchase price is
206,661 which will be issued within 90 days following the execution of the
agreement.

21

---

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Special Note Regarding Forward Looking StatementsThis Quarterly Report on Form 10-Q, including the following
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," 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. Such statements include, among others, those
concerning our expected financial performance and strategic and operational
plans, 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 that a number of risks
and uncertainties could cause actual results of the Company to differ materially
from those anticipated, expressed or implied in the forward-looking statements.
The words "believe," "expect," "anticipate," "project," "targets," "optimistic,"
"intend," "aim," "will" or similar expressions are intended to identify
forward-looking statements. All statements other than statements of historical
fact are statements that could be deemed forward-looking statements. Risks and
uncertainties that could cause actual results to differ materially from those
anticipated include risks related to new and existing products; any projections
of sales, earnings, revenues, margins or other financial items; any statements
of the plans, strategies and objectives of management for future operations; any
statements regarding future economic conditions or performance; uncertainties
related to conducting business in China; any statements of belief or intention;
any of the factors mentioned in the "Risk Factors" section of our Annual Report
on Form 10-K for the year ended December 31, 2007 and subsequent SEC filings.
The Company assumes no obligation and does not intend to update any
forward-looking statements, except as required by law.
Use of terms

Except as otherwise indicated by the context, references in
this Form 10-Q to "CSR," "we," "us," "our," "our Company," or "the Company" are
to China Security & Surveillance Technology, Inc., a Delaware corporation and
its consolidated subsidiaries. Unless the context otherwise requires, all
references to
  "Cheng Feng" are to Shanghai Cheng Feng
  Digital Technology Co. Ltd., a corporation incorporated in the People's
  Republic of China and an indirect, wholly owned subsidiary of the Company;

"Chuang Guan" are to Shenzhen Chuang
  Guan Intelligence Network Technology Co., Ltd., a corporation incorporated in
  the People's Republic of China;

"CSST HK" are to China Security &
  Surveillance Technology (HK) Ltd., a Hong Kong corporation and an indirect,
  wholly owned subsidiary of the Company;

"CSST PRC" are to China Security &
  Surveillance Technology (PRC) Inc., a corporation incorporated in the People's
  Republic of China and a direct, wholly owned subsidiary of the Company;

"DM" are to Beijing DM Security &
  Technology Co., Ltd., a corporation incorporated in the People's Republic of
  China;

"Golden" are to Golden Group Corporation
  (Shenzhen) Limited, a corporation incorporated in the People's Republic of
  China and an indirect, wholly owned subsidiary of the Company;

"Guanling" are to Beijing Aurine Divine
  Land Technology Co., Ltd., a corporation incorporated in the People's Republic
  of China and an indirect, wholly owned subsidiary of the Company;

"HiEasy" are to HiEasy Electronic
  Technology Development Co., Ltd., a corporation incorporated in the People's
  Republic of China and an indirect, wholly owned subsidiary of the Company;

"Hongtianzhi" are to Shenzhen
  Hongtianzhi Electronics Co., Ltd., a corporation incorporated in the People's
  Republic of China and an indirect, wholly owned subsidiary of the Company;

"Longhorn" are to Shenzhen Longhorn
  Security Technology Co., Ltd., a corporation incorporated in the People's
  Republic of China and an indirect, wholly owned subsidiary of the Company;

"Minking" are to Changzhou Minking
  Electronics Co., Ltd., a corporation incorporated in the People's Republic of
  China and an indirect, wholly owned subsidiary of the Company;

"Tsingvision" are to Hangzhou
  Tsingvision Intelligence System Co., Ltd., a corporation incorporated in the
  People's Republic of China and an indirect, wholly owned subsidiary of the
  Company;

"Safetech" are to China Safetech
  Holdings Limited, a British Virgin Islands corporation and a wholly owned
  subsidiary of the Company;

22

---



- "Stonesonic" are to Guangdong Stonesonic
  Digital Technique Co., Ltd., a corporation incorporated in the People's
  Republic of China and an indirect, wholly owned subsidiary of the Company;
- "BVI" are to the British Virgin Islands;
- "PRC" and "China" are to the People's
  Republic of China;
- "U.S. dollar," "$" and "US$" are to
  United States dollars;
- "RMB" are to Yuan Renminbi of China;
- "Securities Act" are to Securities Act
  of 1933, as amended; and
- "Exchange Act" are to the Securities
  Exchange Act of 1934, as amended.

Overview of Our Business

China Security & Surveillance Technology, Inc. is a Delaware
holding company whose China-based operating subsidiaries are primarily engaged
in manufacturing, distributing, installing and servicing security and
surveillance products and systems and developing security and surveillance
related software in China. Our customers are mainly comprised of (i) commercial
entities (including airports, hotels, real estate, banks, mines, railways,
supermarkets and entertainment venues); (ii) governmental entities (including
customs agencies, courts, public security bureaus and prisons), and (iii)
non-profit organizations (including schools, museums, sports arenas and
libraries). These account for approximately 60%, 39% and 1% of our revenues for
the three months ended March 31, 2008, respectively.

Our sales network covers most of China's populated areas and
we do not rely on any particular region for our business. Among our
subsidiaries, Golden has 28 branch offices in provincial cities, Cheng Feng has
23 distribution points, Hongtianzhi has 53 distribution points, HiEasy has 16
distribution points, Minking has 14 distribution points and Tsingvision has 4
distribution points.

In the first quarter of 2008, we established an exclusive
cooperation relationship with DM, a corporation incorporated in China which
is engaged in the business of designing, developing and selling security and
surveillance products. Pursuant to the exclusive cooperation agreement that was
entered into on January 18, 2008, the parties have agreed, among other things,
that our subsidiary CSST PRC will provide various services to DM, including
training services, provision of technology licenses, equipment, consultations
and other related services. DM will subcontract all its business to CSST PRC or
its designees to the extent permitted by the PRC laws and regulations at no less
than 80% of the face value of the contract. DM agrees to add CSST PRC's name
into its market materials and any of its marketing and business development
activities will be conducted either in the name of both DM and CSST PRC or
through a joint venture established by the parties. The term of the agreement is
20 years which is automatically renewable for another 20 years unless terminated
by CSST PRC. Please see our current report on Form 8-K filed on January 25, 2008
for more details.

Recent Developments

On April 2, 2008, we entered into an equity transfer
agreement with our subsidiary Safetech, and Ms. Aiqi Chen, the sole owner of Kit
Grant Limited, a Hong Kong corporation, pursuant to which Safetech purchased
100% of Kit Grant Limited from Ms. Chen. Kit Grant Limited is a holding company
that owns all the outstanding equity of Stonesonic, a PRC company. Stonesonic is
a leading monitoring equipment solutions provider in China that has a broad
array of large flat panel display equipment. Under the agreement, our Company
will pay a total consideration of RMB227.04 million (approximately $32.4
million) in exchange for 100% ownership of Kit Grant Limited, consisting of
RMB125 million (approximately $17.8 million) in cash and RMB102.04 million
(approximately $14.6 million) in shares of the Company's common stock. The
number of shares issuable in satisfaction of the equity portion of the purchase
price is 953,918 which will be issued within 90 days following the execution of
the agreement. Please see our Current Report on Form 8-K filed on April 8, 2008
for more details.

On April 2, 2008, we entered into an equity transfer
agreement with our subsidiary Safetech and Ms. Weilan Zhuang, the sole owner of
Sincere On Limited, a Hong Kong corporation, pursuant to which Safetech
purchased 100% of Sincere On Limited from Ms. Weilan Zhuang. Sincere On Limited
is a holding company that owns all the outstanding equity of Longhorn, a PRC
company. Longhorn specializes in the manufacture and installation of security
alarm systems in China. Under the agreement, our Company will pay a total
consideration of RMB120.56 million (approximately $17.20 million) in exchange
for 100% ownership of Sincere On Limited, consisting of RMB36 million
(approximately $5.10 million) in cash and RMB84.56 million (approximately $12.10
million) in our Company's shares of common stock. The number of shares issuable
in satisfaction of the equity portion of the purchase price is 790,502 which
will be issued within 90 days following the execution of the agreement. Please
see our Current Report on Form 8-K filed on April 8, 2008 for more details.

23

---



On April 21, 2008, we entered into an equity transfer
agreement with our subsidiary Safetech and Weilan Zhuang, the sole owner of
Sharp Eagle (HK) Limited, a Hong Kong corporation ("Sharp Eagle") pursuant to
which Safetech purchased 100% ownership of Sharp Eagle from Ms. Zhuang. Sharp
Eagle is a holding company that owns all the outstanding equity of Guanling, a
corporation incorporated in China. Under the agreement, the Company will pay a
total consideration of RMB 39.11 million (approximately $5.59 million) in
exchange for 100% ownership of Sharp Eagle, consisting of RMB 12.50 million
(approximately $1.79 million) in cash and RMB 26.61 million (approximately $3.80
million) in the Company's shares of common stock. The number of shares issuable
in satisfaction of the equity portion of the purchase price is 206,661 which
will be issued within 90 days following the execution of the Equity Transfer
Agreement. Please see our Current Report on Form 8-K filed on April 25, 2008 for
more details.

Reportable Operating Segments

Segment information is consistent with how management reviews
the businesses, makes investing and resource allocation decisions and assesses
operating performance. The Company has set up
a new segment for distribution of security and safety products and realigned its management and segment reporting structure effective March 31,
2008. During the three months ended March 31, 2008, we set up a new segment 
Distribution Segment. The Company reports financial and operating information in
the following three segments:

(a)

System
installation: designs, sells, installs, services and monitors electronics
security systems to residential, commercial, industrial and governmental
customers (the "Installation Segment");

(b)

Manufacturing of
security and safety products: designs, manufactures and sells security and
safety products, including intrusion security, access control and video
management systems (the "Manufacturing Segment"); and

(c)

Distribution of
security and safety products: sells security and safety products, including
intrusion security, access control and video management systems (the
"Distribution Segment").

The Company also provides general corporate services to its
segments and these costs are reported as "Corporate and others."

24

---



First Quarter Financial Performance Highlights

We continued to experience strong demand for our products and
services during the first quarter of 2008 and growth in our revenues. The
security and surveillance product market in China continued to expand in the
first quarter of 2008 due, in part, to several programs and regulatory drivers
initiated by the Chinese government, such as State Ordinance 458 and the Safe
City program, which require many public places, including city-wide surveillance
systems, traffic conjunctions, critical government locations, cyber cafés, bars
and discotheques, to install security systems. In addition, the economic
development in China and the fact that the population in China in general is
becoming relatively wealthier also contributed to increased demand for security
and surveillance products within various industries and organizations, such as
residential estates, factories and shopping centers. Our first fiscal quarter
financial results also benefited from the consolidation of Hongtianzhi, Mingking,
HiEasy and Tsingvision which were acquired in second and third quarters of 2007
and contributed approximately $8.14 million revenues in aggregate, accounting
for approximately 11.2% of the total revenues of the first quarter of 2008.

The following are some financial highlights for the first quarter of 2008:

- Revenues:
  Revenues increased $33.33 million, or 86.7%, to $71.78 million for the three
  months ended March 31, 2008, from $38.45 million for the three months ended
  March 31, 2007.
- Gross margin:
  Gross margin was 31.0% for the three months ended March 31, 2008, compared to
  26.3% for the three months ended March 31, 2007. Such increase was primarily
  due to a change of product mix and better economies of scale.
- Income from
  operations: Income from operations increased $4.68 million, or 72.4%, to
  $11.14 million for the three months ended March 31, 2008, from $6.46 million
  in 2007.
- Operating margin: Operating
  margin (the ratio of income from operations to revenues, expressed as a
  percentage) was 15.5% for the three months ended March 31, 2008, compared to
  16.8% in 2007.
- Net income:
  Net income decreased $0.03 million, or 0.7%, to $4.50 million for the three
  months ended March 31, 2008, from $4.53 million for the three months ended
  March 31, 2007.
- Net margin: Net margin (the ratio
  of net income to revenues, expressed as a percentage) was 6.26% for the three
  months ended March 31, 2008, compared to 11.79% for the three months ended
  March 31, 2007. The decrease was primarily due to non-cash expenses.
- Fully diluted net income per share:
  Fully diluted net income per share was $0.11 for the three months ended March
  31, 2008, as compared to $0.13 for the three months ended March 31, 2007.
- Non-cash items : Non-cash items
  included (i) the redemption accretion on convertible notes of $4.36 million,
  (ii) depreciation and amortization of $1.90 million, and (iii) non-cash
  employee compensation expense of $2.96 million for the three months ended
  March 31, 2008. Total non-cash items are $9.22 million, representing an
  increase of $6.99 million, or 313.45%, from $2.23 million during the three
  months ended March 31, 2007.

Our net income, as reported in our results of operations for
the period ended March 31, 2008 and 2007 were approximately $4.50 million, and
$4.53 million. Our net income was materially impacted by depreciation and
amortization of long-lived assets in the subsidiaries we acquired, non cash
employee compensation recognized pursuant to SFAS 123 (R) and redemption
accretion on convertible notes. In the table below, we have presented a non-GAAP
financial disclosure to provide a quantitative analysis of the impact of the
depreciation and amortization of long-lived assets in the subsidiaries we
acquired, non cash employee compensation and redemption accretion on convertible
notes on our net income and net income per share. Because these items do not
require the use of current assets, management does not include these items in
its analysis of our financial results or how we allocate our resources. Because
of this, we deemed it meaningful to provide this non-GAAP disclosure of the
impact of these significant items on our financial results.

25

---



The following table summarizes the Company's non-cash
components during the three months ended March 31, 2008 and 2007:

All amounts, other than for share and per share amounts, in
millions of U.S. dollars

|                                                                   | Three Months Ended March 31, |      |           
|------------------------------------------------------------------ | ---------------------------- | ---- | ----------
|                                                                   |                              |      |           
|Non-cash items                                                     |                              | 2008 |           
|                                                                   |                              |      |           
|Depreciation and amortization                                      | $                            | 1.82 | $         
|                                                                   |                              |      |           
|Depreciation and
    amortization (included in cost of goods sold) |                              | 0.08 |           
|                                                                   |                              |      |           
|Non-cash employee compensation                                     |                              | 2.96 |           
|                                                                   |                              |      |           
|Redemption accretion
    on convertible notes                      |                              | 4.36 |           
|                                                                   |                              |      |           
|Total                                                              | $                            | 9.22 | $         
|                                                                   |                              |      |           
|Non-cash items per
    share basic                                 |                              |      |           
|                                                                   |                              |      |           
|Depreciation and amortization                                      | $                            | 0.04 | $         
|                                                                   |                              |      |           
|Non-cash employee
    compensation                                 |                              | 0.07 |           
|                                                                   |                              |      |           
|Redemption accretion on convertible notes                          |                              | 0.11 |           
|                                                                   |                              |      |           
|Total non-cash
    items per share basic                           | $                            | 0.22 | $         
|                                                                   |                              |      |           
|Non-cash items per share diluted                                   |                              |      |           
|                                                                   |                              |      |           
|Depreciation and
    amortization                                  | $                            | 0.04 | $         
|                                                                   |                              |      |           
|Non-cash employee compensation                                     |                              | 0.07 |           
|                                                                   |                              |      |           
|Redemption accretion
    on convertible notes                      |                              | 0.10 |           
|                                                                   |                              |      |           
|Total non-cash items per share -- diluted                          | $                            | 0.21 | $         
|                                                                   |                              |      |           
|Net income per
    share  basic                                   | $                            | 0.11 | $         
|                                                                   |                              |      |           
|Net income per share - diluted                                     | $                            | 0.11 | $         
|                                                                   |                              |      |           
|Weighted average
    number of shares outstanding                  |                              |      |           
|                                                                   |                              |      |           
|Basic                                                              | 42,738,195                   |      | 33,108,640
|                                                                   |                              |      |           
|Diluted                                                            | 42,796,797                   |      | 34,268,180

26

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Results of Operations

The following table sets forth key components of our results of operations
for the three months ended March 31, 2008 and 2007, in dollars and as a
percentage of revenues.
All amounts, other than percentages, in millions of U.S.
dollars
2008
    
    2007Revenues
    $
    71.78
    
    100.0%
    $
    38.45
    
    100.0%Cost of goods sold
    (including depreciation and
    amortization amounted $0.08 and $0, respectively)
    
    (49.52)
    
    69.0%
    
    (28.33)
    
    73.7%Gross profit
    
    22.26
    
    31.0%
    
    10.12
    
    26.3%Selling and marketing
    
    (2.14)
    
    2.9%
    
    (0.60)
    
    1.6%General and administrative
    
    (4.20)
    
    5.8%
    
    (1.98)
    
    5.2%Non-cash employee
    compensation
    
    (2.96)
    
    4.1%
    
    (0.27)
    
    0.7%Depreciation and amortization
    
    (1.82)
    
    2.5%
    
    (0.81)
    
    2.1%Income from
    operations
    
    11.14
    
    15.5%
    
    6.46
    
    16.8%Other income
    
    0.40
    
    0.5%
    
    0.71
    
    1.8%Interest expense, cash
    
    (0.50)
    
    0.7%
    
    (0.16)
    
    0.4%Redemption accretion on
    convertible notes
    
    (4.36)
    
    6.0%
    
    (1.16)
    
    3.0%Income before
    income taxes
    
    6.68
    
    9.3%
    
    5.85
    
    15.2%Income taxes
    
    (2.18)
    
    3.0%
    
    (1.32)
    
    3.4%Net income
    $
    4.50
    
    6.3%
    $
    4.53
    
    11.8%

Revenues

Our revenues are generated from system installations and
manufacturing and distribution of security and safety products. During the first
quarter of 2008, we experienced solid growth in revenues. Revenues increased
from $38.45 million for the first quarter of 2007 to $71.78 million for the
first quarter of 2008, representing an 86.7% increase. Such increase was mainly
attributable to growth in the security and surveillance market in China, the
increased market demand for our products, our increased brand recognition and
the acquisition of several companies in the second and third quarter of 2007 as
discussed in details below. Our strategic efforts to increase our distribution
channels during 2005 and 2006 and sufficient working capital from our recent
fundraising activities also allowed us to successfully take advantage of the
growth in market demand in the future. Historically, the first quarter has
generally been a slow quarter for us due to the Chinese New Year holiday and the
third quarter has generally been the strongest quarter. Management expects the
same trend in 2008 and that revenue growth will remain strong in the remainder
of 2008.

27

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After Hongtianzhi, HiEasy, Minking and Tsingvision became our
wholly owned subsidiaries, we consolidated the financial results of these four
companies beginning in the second and third quarters of 2007, which contributed
$2.66 million, $1.45 million, $3.49 million, and $0.54 million to revenues in
the first quarter of 2008. We consolidated the financial results of Cheng Feng
starting from the third quarter of 2006. As Cheng Feng's acquisition has
surpassed the one year anniversary, we have included these revenues in our
organic growth since the fourth quarter of 2007. Cheng Feng had revenues of
$4.11 million in the first quarter of 2008.

The following table shows the components of revenues recognized in the first
quarter of 2008:

(In millions of U.S. dollars)

|Revenues from the Installation Segment recognized from installation
    contracts signed in 2007                                        | $ | 35.0
|--------------------------------------------------------------------------------------------------------------------------------------- | - | ----
|Revenues from the
    Installation Segment recognized from installation contracts signed in 2008                                        | $ | 24.6
|Revenues from the Manufacturing Segment recognized from manufacturing
    contracts signed in 2007                                      | $ | 3.3 
|Revenues from the
    Manufacturing Segment recognized from manufacturing contracts signed in 2008                                      | $ | 4.8 
|Revenues from the Distribution Segment                                                                                                  | $ | 4.1 
|Total revenues
    recognized in 2008                                                                                                   | $ | 71.8
|Revenues deferred                                                                                                                       | $ | 1.0 
|Backlog of contracts
    for system installation and manufacturing of security and safety products
    signed before March 31, 2008 (1) | $ | 50.1

(1) We have conservatively not included the letter of
intents, framework agreements and various signed partnership agreements in our
backlog numbers as they are subject to final binding individual agreements to be
entered into at later dates.

Our revenues are generated from three business segments:
Installation Segment, Manufacturing Segment and Distribution Segment. The
following table shows the different segments comprising our total revenues for
the three months ended March 31, 2008 and 2007.

All amounts in millions of U.S. dollars

|Revenues              |   | 2008  |  | 2007  
|--------------------- | - | ----- |  | ------
|Installation Segment  | $ | 59.54 |  | 83.0% 
|Manufacturing Segment |   | 8.13  |  | 11.3% 
|Distribution Segment  |   | 4.11  |  | 5.7%  
|Total                 | $ | 71.78 |  | 100.0%

For the three months ended March 31, 2008 and 2007, our
Installation Segment generated revenues of $59.54 million and $34.03 million
which represented 83.0% and 88.5% of our total revenues, respectively. The
increase in revenues was mainly due to the following factors: First, demand for
security and surveillance products has grown in China, which we attribute in
part to the population in China in general becoming relatively wealthier; as
well as increased demand within various industries and organizations, such as
residential estates, factories and shopping centers. Second, the Chinese
government initiated several programs and regulatory drivers during 2006, such
as State Ordinance 458 and the "3111" program, that require many public places,
including city-wide surveillance systems, traffic surveillance systems, critical
government locations, cyber cafés, bars and discotheques, to install security
systems. Third, our strategic efforts to increase our distribution channels
during 2007 and 2008 allowed us to successfully take advantage of the growth in
market demand in the first quarter of 2008. Fourth, we have been successful in
raising sufficient working capital to facilitate expansion in the China market.
Finally, our increased brand recognition in 2007 also contributed to the growth
in sales revenue.

For the three months ended March 31, 2008 and 2007, our
Manufacturing Segment generated revenues of $8.13 million and $4.42 million,
representing 11.3% and 11.5% of our total revenues, respectively. During the
first quarter of 2008, we established a new segment  our Distribution Segment
which generated revenues of $4.11 million, representing 5.7% of our total
revenues. Management believes that revenues from the installation projects will
continue to be the Company's major revenue source in the next a few years. With
the acquisitions of Stonesonic, Longhorn and Guanling in April 2008 and other
planned acquisitions, management believes that the percentage of revenues from
the Manufacturing Segment and the Distribution Segment will increase in the
future.

28

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Management expects growth in all three segments to remain
strong in the remainder of 2008 due to (i) continued growth in the security and
surveillance market both within the corporate and government sectors, (ii)
better capitalization of the Company to fuel its growth, (iii) continuing to
enhance our branding and profiling in China, and (iv) acquisition strategy
intended to boost our market share and competitiveness.

Cost of goods sold

Our cost of goods sold is primarily comprised of the costs of
our raw materials, labor and overhead. Cost of goods sold for the first quarter
of 2008 increased by 74.8% to $49.52 million as compared to $28.33 million for
the same period last year. The increase was generally in line with the increase
of revenues.

Gross profit and gross margin

Our gross profit is equal to the difference between our
revenues and our cost of goods sold. Our gross profit increased $12.14 million,
or 120.00%, to $22.26 million for the three months ended March 31, 2008 from
$10.12 million for the same period last year. Gross margin for the three months
ended March 31, 2008 was 31.0%, as compared to 26.3% for the same period of
2007. The increase in our gross margin was primarily driven by the increased
economies of scale.

The following table shows the different segment components
comprising our gross profit margin over the three months ended March 31, 2008
and 2007.

|Gross
    Margin      | 2008  |  | 2007 
|--------------------- | ----- |  | -----
|Installation Segment  | 29.7% |  | 27.8%
|Manufacturing Segment | 35.9% |  | 22.2%
|Distribution Segment  | 39.9% |  | --   
|Total                 | 31.0% |  | 26.3%

For the three months ended March 31, 2008, gross margins of
the Installation Segment and Manufacturing Segment were approximately 29.7% and
35.9%, respectively, compared to 27.8% and 22.2% for the same period last year.
Gross margin of our newly established segment Distribution Segment was 39.9% in
the first quarter of 2008. Gross margins of the Installation Segment increased
because our project scale increased, our margin for those projects increased.
Gross margin for the Manufacturing Segment increased to 35.9% for the three
months ended March 31, 2008 from 22.2% for the same period last year. The
increase in our gross margin was primarily driven by the increased economies of
scale. For the three months ended March 31, 2008, gross margin of the
Distribution Segment was 39.9%. Such high gross margin was mainly because our
software solution generally has a higher margin.

Selling and marketing expenses

Our selling and marketing expenses are comprised primarily of
sales commissions, the cost of advertising and promotional materials, salaries
and fringe benefits of sales personnel, after-sale support services and other
sales related costs. Our selling and marketing expenses increased $1.54 million,
or 256.70%, to $2.14 million for the three months ended March 31, 2008 from $0.6
million for the same period in 2007. This dollar increase was primarily
attributable to the consolidation of the financial results of Cheng Feng,
Hongtianzhi, HiEasy, Minking and Tsingvision, which incurred selling and
marketing expenses associated with sales of their products. As a percentage of
revenues, our selling and marketing expenses increased to 2.9% for the three
months ended March 31, 2008 from 1.6% for the same period in 2007. The
percentage increase was mainly due to the hiring of additional staff and
increased cost in promotion of our products to new customers.

29

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General and administrative expenses

General and Administrative expenses consist primarily of
compensation and benefits to our general management, finance and administrative
staff, professional advisor fees, audit fees and other expenses incurred in
connection with general operation. Our general and administrative expenses
increased $2.22 million, or 112.1%, to $4.20 million for the three months ended
March 31, 2008 from $1.98 million of the same period in 2007. As a percentage of
revenues, general and administrative expenses increased to 5.8% for the three
months ended March 31, 2008 from 5.2% for the same period in 2007. The dollar
and percentage increase was mainly due to the increase of the non-cash employee
compensation as discussed below, the hiring of additional staff, and
professional expenses related to the costs of being a public reporting company.

Non-cash employee compensation

Effective February 7, 2007, our board of directors adopted
our 2007 Equity Incentive Plan (the "Plan"). The Plan was subsequently amended
and approved by the Company's stockholders in February 2008. The Plan provides
for grants of stock options, stock appreciation rights, performance units,
restricted stock, restricted stock units and performance shares. A total of
8,000,000 shares of our common stock may be issued under the Plan. During the
three months ended March 31, 2008, we granted an aggregate of 181,500 shares of
restricted stock pursuant to the Plan to our employees and consultants. These
shares will vest with respect to each of the employees and consultants over a
period of four years.

Non-cash employee compensation for the three months ended
March 31, 2008 increased to $2.96 million from $0.27 million for the same period
in 2007, primarily as a result of the adoption of the Plan and grants to
employees and consultants made under the Plan.

Depreciation and amortization

Our depreciation and amortization costs increased $1.09
million, or 134.6%, to $1.90 million (including $0.08 million depreciation and
amortization costs included under cost of goods sold) for the three months ended
March 31, 2008 from $0.81 million for the same period in 2007. As a percentage
of revenues, depreciation and amortization expenses increased to 2.6% for the
three months ended March 31, 2008 from 2.1% for the same period in 2007. Such
dollar and percentage increase was primarily due to the amortization of
intangible assets from the acquisition of Cheng Feng, Hongtianzhi, HiEasy,
Minking and Tsingvision and the establishment of exclusive cooperation
relationship with Chuang Guan and DM. The amortization of intangible assets
increased as a result of these acquisitions.

Income from operations

Our income from operations increased $4.68 million, or 72.4%,
to $11.14 million for the three months ended March 31, 2008 as compared to $6.46
million for the same period in 2007. As a percentage of revenues, income from
operations decreased to 15.5% for the three months ended March 31, 2008 from
16.8% for the same period in 2007. Such percentage decrease was primarily due to
the increase of our selling and marketing expenses, general and administrative
expenses and non-cash employee compensation as discussed above.

The following table shows the different segments comprising
our income from operations for the three months ended March 31, 2008 and 2007.

30

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All amounts in millions of U.S. dollars

|Income from
    operations |   | 2008   |        | 2007
|-------------------------- | - | ------ | ------ | ----
|Installation Segment       | $ | 14.97  | 134.5% | $   
|Manufacturing Segment      |   | 1.09   | 9.8%   |     
|Distribution Segment       |   | 0.59   | 5.3%   |     
|Corporate and others       |   | (5.51) | -49.6% |     
|Total                      | $ | 11.14  | 100.0% | $   

Income from operations related to the Installation Segment
increased 83.7%, or $6.82 million to $14.97 million for the three months ended
March 31, 2008, compared to $8.15 million for the same period in 2007. Such
increase was mainly due to higher demand of total one-stop-shop installations
from customers. We finished more projects than we planned in the first quarter
of 2008.

Income from operations related to the Manufacturing Segment
increased 781.3%, or $1.25 million to $1.09 million for the three months ended
March 31, 2008, compared to the operating loss of $0.16 million for the same
period in 2007. Such increase was mainly due to the acquisitions we made in the
second and third quarter of 2007, which greatly increased our sales of
manufactured products. The Company expects that the Manufacturing Segment margin
will continue to increase as we integrate the recently completed acquisitions
which will allow us to further benefit from economies of scale.

Income from operations related to our newly established
Distribution Segment was $0.59 million for the three months ended March 31,
2008.

Loss from operations related to the Corporate and others
increased 260.1% or $3.98 million for the three months ended March 31, 2008,
compared to $1.53 million for the same period in 2007. Such increase was mainly
due to the increase of non-cash compensation as discussed above and professional
expenses related to the costs of being a public reporting company.

Other income

Our other income decreased $0.31 million, or 43.7% to $0.40
million for the three months ended March 31, 2008 from $0.71 million for the
same period in 2007. As a percentage of revenues, other income decreased to 0.5%
for the three months ended March 31, 2008 from 1.8% for the same period in 2007.
Such percentage decreased was primarily because we did not receive any rental
income from related parties in the first quarter of 2008. Those land use rights
and buildings were disposed in 2007.

Interest expense (excluding redemption accretion on convertible notes)

During the first quarter of 2008, we borrowed funds under 3
short-term loans from local Chinese banks and incurred a total interest expense
of $0.22 million. For the convertible notes, we paid $0.28 million interest
during the three months ended March 31, 2008.

Redemption accretion on convertible notes

Redemption accretion on convertible notes for the three
months ended March 31, 2008 was $4.36 million, as compared to $1.16 million for
the same period in 2007. We raised $110 million from the issuance of convertible
notes in February and April 2007 to finance our acquisitions. The redemption
accretion on convertible notes will not be repaid if the convertible notes are
converted into shares of our common stock before their respective maturities.

31

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Income before taxes

Our income before taxes increased $0.83 million, or 14.2%, to
$6.68 million for the three months ended March 31, 2008 from $5.85 million for
the same period in 2007. As a percentage of revenues, income before taxes
decreased to 9.3% from 15.20% for the same period in 2007. Such percentage
decrease was primarily due to increased non-cash expenses, including the
redemption accretion on convertible notes, depreciation and amortization and
non-cash employee compensation as discussed above.

Income Taxes

China Security & Surveillance Technology, Inc. is subject to
the United States federal income tax at a tax rate of 34%. No provision for
income taxes in the United States has been made as China Security & Surveillance
Technology, Inc. had no united States taxable income during the three months
ended March 31, 2008.

Our wholly owned subsidiary Safetech was incorporated in the
British Virgin Island and, under the current laws of the BVI, is not subject to
income taxes.

Before January 1, 2008, foreign invested enterprises ("FIEs")
established in the PRC were generally subject to an enterprise income tax ("EIT")
rate of 33.0%, which included a 30.0% state income tax and a 3.0% local income
tax. FIEs established in Shenzhen Special Economic Zone, such as our Chinese
subsidiaries Golden and certain high-technology company were subject to reduced
tax rate. On March 16, 2007, the National People's Congress of China passed the
new Enterprise Income Tax Law ("EIT Law"), and on November 28, 2007, the State
Council of China passed the Implementing Rules for the EIT Law ("Implementing
Rules") which took effect on January 1, 2008. The EIT Law and Implementing Rules
impose a unified EIT of 25.0% on all domestic-invested enterprises and FIEs,
unless they qualify under certain limited exceptions. Therefore, nearly all FIEs
are subject to the new tax rate alongside other domestic businesses rather than
benefiting from the FEIT, and its associated preferential tax treatments,
beginning January 1, 2008.

Despite these pending changes, the 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 shall gradually increase
their EIT rate by 2% per year until the tax rate reaches 25%. In addition, the
Old FIEs that are eligible for the "two-year exemption and three-year half
reduction" or "five-year exemption and five-year half-reduction" under the
original EIT Law, are allowed to remain to enjoy their preference until these
holidays expire. The discontinuation of any such special or preferential tax
treatment or other incentives would have an adverse effect on any organization's
business, fiscal condition and current operations in China.

In addition to the changes to the current tax structure,
under the EIT Law, an enterprise established outside of China with "de facto
management bodies" within China is considered a resident enterprise and will
normally be subject to an EIT of 25.0% on its global income. The Implementing
Rules define the term "de facto management bodies" as "an establishment that
exercises, in substance, overall management and control over the production,
business, personnel, accounting, etc., of a Chinese enterprise." If the PRC tax
authorities subsequently determine that the Company should be classified as a
resident enterprise, then the organization's global income will be subject to PRC income tax of 25.0%.

Our subsidiary Golden is subject to an EIT rate of 15% for
the fiscal year 2008. Our subsidiary Hongtianzhi is located in Shenzhen and its
corporate tax rate is 7.5% as it receives a lower tax rate as a high-tech
company. Our subsidiary Cheng Feng is subject to an EIT rate of 15% for fiscal
year 2008 due to the software and high technology company status. HiEasy,
Minking and Tsingvision are subject to an EIT rate of 25% .

Income taxes increased $0.86 million to $2.18 million for the
three months ended March 31, 2008 from $1.32 million for the same period of
2007. We paid more taxes during the first three months of 2008 primarily because
of the increased income before income taxes during that period.

32

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Net income

Net income decreased $0.03 million, or 0.7%, to $4.50 million
for the three months ended March 31, 2008 from $4.53 million for the same period
in 2007. As a percentage of revenues, net income decreased to 6.3% for the three
months ended March 31, 2008 from 11.8% for the same period in 2007. This
percentage decrease was mainly due to the increase of non-cash expenses
including the redemption accretion on our convertible notes, depreciation and
amortization and non-cash employee compensation as discussed above.

Foreign Currency Translation Gains

Our operating subsidiaries are located in China. The
operating subsidiaries purchase all products and render services in China, and
receive payment from customers in China using RMB as the functional currency. We
do not engage in currency hedging.

We incurred a foreign currency translation gain of $8.50
million for the three months ended March 31, 2008 as compared with the foreign
currency translation gain of $0.80 million for the same period in 2007.

On July 21, 2005, China reformed its foreign currency
exchange policy, revalued RMB by 2.1 percent and allowed the RMB to appreciate
as much as 0.3 percent per day against the U.S. dollar. As a result, we
implemented different exchange rates in translating RMB into U.S. dollars in our
financial statements for fiscal quarter ended March 31, 2008 and 2007.

For the three months ended March 31, 2008, the exchange rates
of 7.019, 7.1034 and 8.04 were implemented in calculating the assets and
liabilities, revenue and expenses, and shareholders' equity, respectively, which
results in an $8.50 million foreign currency translation gain in the first
quarter of 2008. In the first quarter of 2007, the exchange rates of 7.734,
7.774 and 8.04 were implemented in calculating the assets and liabilities,
revenue and expenses, and shareholders' equity, respectively, which results in a
$0.80 million foreign currency translation gain in such period.

Liquidity and Capital Resources

General

As of March 31, 2008 and December 31, 2007, we had cash and
cash equivalents of $77.1 million and $89.1 million, respectively. The following
table provides detailed information about our net cash flow for the three months
ended March 31, 2008 and 2007.

Cash Flow All amounts in millions of U.S. dollars

|                                                         |   | Three months ended
|-------------------------------------------------------- | - | ------------------
|                                                         |   | March 31,         
|                                                         |   | 2008              
|                                                         |   |                   
|Net
    cash used in operating activities                | $ | (2.50)            
|Net cash used in
    investing activities                |   | (10.94)           
|Net
    cash (used in) provided by financing activities  |   | (1.28)            
|                                                         |   |                   
|Net (decrease)
    increase in cash and cash equivalents | $ | (14.72)           

Operating Activities:

Net cash used in operating activities was $2.50 millionfor the three
months ended March 31, 2008, which is an increase of $0.92 million from the
$1.58 million of the net cash used in operating activities for the same period
in 2007. The decrease was mainly due to an increase in advance payments,
prepayment and deposits and trade receivables.

33

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Investing Activities:

Our main uses of cash for investing activities during the
first quarter of 2008 were deposits for the acquisition of subsidiaries and
businesses and for property, plant and equipment.

Net cash used in investing activities for the three months
ended March 31, 2008 was $10.94 million, which is a decrease of $9.96 millionfrom net cash used in investing activities of $20.90 million in the same
period of 2007. Such decrease was primarily due to decreased deposits for
acquisitions of subsidiaries and proceeds from the disposal of land use rights
and properties in 2008.

We closed the acquisition of Stonesonic and Longhorn on April
2, 2008. We also closed the acquisition of Guanling on April 21, 2008. In
addition, we have signed letters of intent to acquire Shenzhen Alean Technology
Development Co., Ltd., and Shenzhen Jin Lin Technology Co., Ltd. Pursuant to the
letters of intent, the cash consideration for these two intended acquisitions is
expected to total $20 million with additional consideration to be paid in
equity. Consummation of these two acquisitions is subject to customary closing
conditions, including execution of definitive agreement and receipt of
governmental approval. We expect to finance the cash portion of the purchase
price with the net proceeds from our $50 million convertible notes financing
that closed in April 2007. The number of our shares to be included in the equity
portion of the purchase price for Stonesoinc, Longhorn and Guanling acquisitions
will be subject to the achievement of certain net income performance targets
over a two-year period. The acquisitions of Stonesonic, Longhorn and Guanling
are expected to be accretive to earnings upon closing and are expected to
provide support to the Company's city-wide projects.

Financing Activities:

Net cash used in financing activities in the three months
ended March 31, 2008 totaled $1.28 millionas compared to $63.33 millionprovided by financing activities in the same period of 2007. The net cash
use in financing activities was mainly attributable to the repayment of bank
loans in the first quarter of 2008, whereas the net cash provided by financing
activities in the three months ended March 31, 2007 was mainly attributable to
proceeds from the convertible notes received in February 2007.

Loan Facilities

As of March 31, 2008, the amounts, maturity dates and term of each of our
bank loans were as follows.

All amounts in millions of U.S. dollars

|Bank                             |   | Amount | Maturity Date     | Duration
|-------------------------------- | - | ------ | ----------------- | --------
|                                 |   |        |                   |         
|Shanghai Pudong Development Bank | $ | 4.28   | July 2008         | 6 months
|                                 |   |        |                   |         
|China Citic Bank                 |   | 4.28   | November
    2008 | 1 year  
|                                 |   |        |                   |         
|Shanghai Pudong Development Bank |   | 2.84   | October 2008      | 1 year  
|                                 |   |        |                   |         
|Shenzhen Ping An Bank            |   | 1.11   | March
    2009    | 3 years 
|                                 |   |        |                   |         
|Total                            | $ | 12.51  |                   |         

34

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In January 2008, we entered into a loan agreement with
Shanghai Pudong Development Bank pursuant to which the Company borrowed RMB30
million (approximately $4.28 million) with an annual interest rate of 6.57%. The
loan is due in July 2008 and the interest is payable at the end of each month.
The bank has the right to increase the interest rate and demand repayment of the
entire loan principal and unpaid interest if we use the loan for any purpose
other than operations.

On October 3, 2006, we signed a banking facility agreement
with China Construction Bank ("CCB") under which CCB agreed to provide a new
receivable-based facility to support our efforts in securing new contracts
relating to the Safe City Project initiative, also known as "Plan 3111." This
facility will provide three possible financing options: (1) the government takes
a loan from CCB to finance the project; (2) we sell the accounts receivable to
CCB, 85% of the total account receivables value will be paid by CCB to the
Company and the remaining 15% will be collected by CCB from the government; from
the 15% collected from the government, CCB will retain certain finance charges
and pay the remainder over to Company; or (3) we take a loan from CCB to finance
the project. As part of this agreement, we will make periodic deposits with CCB,
which, depending upon the specific project, will provide a maximum factoring
capacity of five to ten times the amount deposited. None of the facility has
been drawn down as of the date of this Report.

We believe that our currently available working capital,
after receiving the aggregate proceeds of our capital raising activities and the
credit facilities referred to above and in our Annual Report on Form 10-K filed
on March 10, 2008, should be adequate to sustain our operations at our current
levels through at least the next twelve months.

Obligations Under Material Contracts

Below is a table setting forth our material contractual obligations as of
March 31, 2008:

All amounts in millions of U.S. dollars

|                                | Payments due by period
|------------------------------- | ----------------------
|                                |                       
|                                |                       
|                                |                       
|Long-Term Debt Obligations      | $                     
|Operating Lease
    Obligations |                       
|Total                           | $                     

Recent Pronouncements

In March 2008, the
FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging
Activities  an amendment of FASB Statement No. 133" ("SFAS 161") effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008. SFAS 161 requires an entity to provide enhanced disclosures
about derivative instruments and hedging activities.

In December 2007, the
FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS 141R"),
effective 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, 2008. SFAS 141R establishes principles and requirements for how an
acquirer recognizes and measures identifiable assets acquired, liabilities
assumed, any noncontrolling interest in the acquiree and goodwill. SFAS 141R
also expands disclosure requirements for business combinations.

In December 2007, the
FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial
Statements  an amendment of ARB No. 51" ("SFAS 160") effective for fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008. SFAS 160 establishes accounting and reporting standards for
the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. The adoption of SFAS 160 is not expected to have a material effect
on the Company's consolidated financial statements.

Critical Accounting Policies

See Item 7,
Management's Discussion and Analysis of Results of Operations and Financial
Condition in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2007, for a discussion of the Company's critical accounting
policies.



35

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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.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Interest Rate Risk

We are exposed to interest rate risk due primarily to our
short-term bank loans. Although the interest rates are fixed for the terms of
the loans, interest rates are subject to change upon renewal. Since September,
2007, the People's Bank of China has increased the interest rate of Renminbi
bank loans with a term of six months or less by 0.2% and loans with a term of
six to 12 months by 0.3%. The new interest rates are approximately 6.5% and 7.3%
for Renminbi bank loans with a term six months or less and loans with a term of
six to 12 months, respectively. The change in interest rates has no impact on
our bank loans secured before July 28, 2007. We monitor interest rates in
conjunction with our cash requirements to determine the appropriate level of
debt balances relative to other sources of funds. We have not entered into any
hedging transactions in an effort to reduce our exposure to interest rate risk.

Foreign Exchange Risk

The value of the Renminbi against the U.S. dollar and other
currencies is affected by, among other things, changes in China's political and
economic conditions. Since July 2005, the Renminbi has no longer been pegged to
the U.S. Dollar. Although the People's Bank of China regularly intervenes in the
foreign exchange market to prevent significant short-term fluctuations in the
exchange rate, the Renminbi may appreciate or depreciate significantly in value
against the U.S. dollar in the medium to long term. Moreover, it is possible
that in the future, PRC authorities may lift restrictions on fluctuations in the
Renminbi exchange rate and lessen intervention in the foreign exchange market.

Because substantially all of our earnings and cash assets are
denominated in Renminbi, but our reporting currency is the U.S. dollar,
fluctuations in the exchange rate between the U.S. dollar and the Renminbi will
affect our balance sheet and our earnings per share in U.S. dollars. In
addition, appreciation or depreciation in the value of the Renminbi relative to
the U.S. dollar would affect our financial results reported in U.S. dollar terms
without giving effect to any underlying change in our business or results of
operations. Fluctuations in the exchange rate will also affect the relative
value of any dividend we issue in the future that will be exchanged into U.S.
dollars and earnings from, and the value of, any U.S. dollar-denominated
investments we make in the future.

Very limited hedging transactions are available in China to
reduce our exposure to exchange rate fluctuations. To date, we have not entered
into any hedging transactions in an effort to reduce our exposure to foreign
currency exchange risk. While we may enter into hedging transactions in the
future, the availability and effectiveness of these transactions may be limited,
and we may not be able to successfully hedge our exposure at all. In addition,
our foreign currency exchange losses may be magnified by PRC exchange control
regulations that restrict our ability to convert Renminbi into foreign
currencies.

Inflation

Inflationary factors such as increases in the cost of our product and
overhead costs may adversely affect our operating results.

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Although we do not believe that inflation has had a material
impact on our financial position or results of operations to date, a high rate
of inflation in the future may have an adverse effect on our ability to maintain
current levels of gross margin and selling, general and administrative expenses
as a percentage of net revenues if the selling prices of our products do not
increase with these increased costs.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. We
maintain a system of disclosure controls and procedures. The term "disclosure
controls and procedures," as defined by regulations of the SEC, means controls
and other procedures that are designed to ensure that information required to be
disclosed in the reports that we file or submit to the SEC under the Exchange
Act, is recorded, processed, summarized and reported, within the time periods
specified in the SEC's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports that we file or submit
to the SEC under the Exchange Act is accumulated and communicated to our
management, including our principal executive officer and our principal
financial officer, or persons performing similar functions, as appropriate to
allow timely decisions to be made regarding required disclosure. Each of Guoshen
Tu, our Chief Executive Officer, and Terence Yap, our Chief Financial Officer,
have evaluated the design and operating effectiveness of our disclosure controls
and procedures as of March 31, 2008. Based upon their evaluation, these
executive officers have concluded that our disclosure controls and procedures
are effective as of March 31, 2008.
Changes in Internal Control over Financial Reporting.
There has been no change to our internal control over financial reporting during
the quarter ended March 31, 2008 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.

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OTHER INFORMATION

ITEM 1. LEGAL
PROCEEDINGS

From time to time, we may have disputes that arise in the
ordinary course of its business. Currently, there are no material legal
proceedings to which we are a party, or to which any of our property is subject,
that we expect to have a material adverse effect on our financial condition.

ITEM 1A. RISK FACTORS

There are no material changes from the risk factors
previously disclosed in Part I, Item 1A. "Risk Factors" of our Annual Report on
Form 10-K for the year ended December 31, 2007, filed with the SEC on March 10,
2008.

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

In January 2008, pursuant to an exclusive cooperation
agreement with DM, we issued 136,378 shares of our common stock to DM. The
issuance was made in an offshore transaction pursuant to Regulation S under the
Securities Act.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

|Exhibit Number | Description                                                                                                                                                             
|-------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |                                                                                                                                                                         
|31.1           | Certification of
    Principal Executive Officer filed pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.                                                   
|               |                                                                                                                                                                         
|31.2           | Certification of
    Principal Financial Officer filed pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.                                                   
|               |                                                                                                                                                                         
|32.1           | Certification 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           | Certification of
    Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
DATED: May 5, 2008

China
      Security & Surveillance Technology, Inc.By:
      /s/ Guoshen TuPrincipal Executive
      OfficerBy:
      /s/ Terence YapPrincipal Financial
      Officer


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EXHIBIT INDEX

|Exhibit Number | Description                                                                                                                                                             
|-------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |                                                                                                                                                                         
|31.1           | Certification of
    Principal Executive Officer filed pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.                                                   
|               |                                                                                                                                                                         
|31.2           | Certification of
    Principal Financial Officer filed pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.                                                   
|               |                                                                                                                                                                         
|32.1           | Certification 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           | Certification 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.

40

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