UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10−Q

(Mark One)



|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended: June 30, 2008



|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from ____________ to _____________



Commission File Number: 000-25901



CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC.

(Exact name of small business issuer as specified in its charter)



|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. Yesx                      Noo



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



The number of shares outstanding of each of the issuers classes of common equity, as of August 1, 2008 is as follows:



Class of Securities
  
  Shares OutstandingCommon Stock, $0.0001 par value
  
  45,122,541




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

Yeso                      Nox





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TABLE OF CONTENTS



|         | PART I                                                                                | Page
|-------- | ------------------------------------------------------------------------------------- | ----
|         |                                                                                       |     
|         |                                                                                       |     
|Item 1.  | Financial Statements                                                                  | 3   
|Item 2.  | Management's Discussion and Analysis of Financial Condition and Results of Operations | 29  
|Item 3.  | Quantitative and Qualitative Disclosures About Market Risk                            | 46  
|Item 4T. | Controls and Procedures                                                               | 47  
|         |                                                                                       |     
|         |                                                                                       |     
|         | PART II                                                                               |     
|         |                                                                                       |     
|         |                                                                                       |     
|Item 1.  | Legal Proceedings                                                                     | 48  
|Item 1A. | Risk Factors                                                                          | 48  
|Item 2.  | Unregistered Sales of Equity Securities and Use of Proceeds                           | 48  
|Item 3.  | Defaults Upon Senior Securities                                                       | 48  
|Item 4.  | Submission of Matters to a Vote of Securities Holders                                 | 48  
|Item 5.  | Other Information                                                                     | 49  
|Item 6.  | Exhibits                                                                              | 49  
|         |                                                                                       |     



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PART I

FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS.



CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

Expressed in thousands of U.S. dollars

(Except for share and per share amounts)



|                                                                           |  | June 30,    |         | December 31, |  
|-------------------------------------------------------------------------- |  | ----------- | ------- | ------------ | -
|                                                                           |  | 2008        |         | 2007         |  
|                                                                           |  | (Unaudited) |         |              |  
|                                                                           |  | USD         |         | USD          |  
|ASSETS                                                                     | 
|CURRENT ASSETS                                                             |  |             |         |              |  
|Cash and cash equivalents                                                  |  | $           | 88,595  |              | $
|Accounts receivable, net                                                   |  |             | 95,950  |              |  
|Related party receivables                                                  |  |             | 214     |              |  
|Inventories, net                                                           |  |             | 40,616  |              |  
|Prepayments and deposits                                                   |  |             | 4,979   |              |  
|Advances to suppliers                                                      |  |             | 8,699   |              |  
|Other receivables                                                          |  |             | 12,090  |              |  
|Tax refundable                                                             |  |             | --      |              |  
|Deferred tax assets - current portion                                      |  |             | 128     |              |  
|Total current assets                                                       |  |             | 251,271 |              |  
|                                                                           |  |             |         |              |  
|Deposits for acquisition of subsidiaries, intangible assets and properties |  |             | 36,395  |              |  
|Property, plant and equipment, net                                         |  |             | 34,436  |              |  
|Land use rights, net                                                       |  |             | 2,611   |              |  
|Intangible assets                                                          |  |             | 54,229  |              |  
|Goodwill                                                                   |  |             | 82,349  |              |  
|Deferred financing cost                                                    |  |             | 132     |              |  
|Deferred tax assets - non-current portion                                  |  |             | 257     |              |  
|TOTAL ASSETS                                                               |  | $           | 461,680 |              | $
|                                                                           |  |             |         |              |  



See the accompanying notes to condensed consolidated financial statements



3



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CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

Expressed in thousands of U.S. dollars

(Except for share and per share amounts)



|                                                                                                                                                                                                                                                              |  | June 30,    |         | December 31, |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ------- | ------------ | -
|                                                                                                                                                                                                                                                              |  | 2008        |         | 2007         |  
|                                                                                                                                                                                                                                                              |  | (Unaudited) |         |              |  
|                                                                                                                                                                                                                                                              |  | USD         |         | USD          |  
|LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                                                                                                                                                          | 
|CURRENT LIABILITIES                                                                                                                                                                                                                                           |  |             |         |              |  
|Notes payable - short term                                                                                                                                                                                                                                    |  | $           | 5,380   |              | $
|Accounts payable                                                                                                                                                                                                                                              |  |             | 32,916  |              |  
|Accrued expenses                                                                                                                                                                                                                                              |  |             | 6,614   |              |  
|Advances from customers                                                                                                                                                                                                                                       |  |             | 8,013   |              |  
|Taxes payable                                                                                                                                                                                                                                                 |  |             | 2,381   |              |  
|Payable for acquisition of business                                                                                                                                                                                                                           |  |             | 6,604   |              |  
|Deferred income                                                                                                                                                                                                                                               |  |             | 1,065   |              |  
|Total current liabilities                                                                                                                                                                                                                                     |  |             | 62,973  |              |  
|                                                                                                                                                                                                                                                              |  |             |         |              |  
|LONG-TERM LIABILITIES                                                                                                                                                                                                                                         |  |             |         |              |  
|Notes payable - long term                                                                                                                                                                                                                                     |  |             | --      |              |  
|Convertible notes payable                                                                                                                                                                                                                                     |  |             | 132,427 |              |  
|Total liabilities                                                                                                                                                                                                                                             |  |             | 195,400 |              |  
|                                                                                                                                                                                                                                                              |  |             |         |              |  
|MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES                                                                                                                                                                                                                |  |             | 34      |              |  
|                                                                                                                                                                                                                                                              |  |             |         |              |  
|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, 45,122,541 (June 30, 2008) and 42,506,150 (December 31, 2007) shares issued and outstanding |  |             | 5       |              |  
|Additional paid-in capital                                                                                                                                                                                                                                    |  |             | 149,100 |              |  
|Retained earnings                                                                                                                                                                                                                                             |  |             | 89,034  |              |  
|Statutory reserves                                                                                                                                                                                                                                            |  |             | 804     |              |  
|Accumulated other comprehensive income                                                                                                                                                                                                                        |  |             | 27,303  |              |  
|Total shareholders' equity                                                                                                                                                                                                                                    |  |             | 266,246 |              |  
|TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                                                                                                                                                    |  | $           | 461,680 |              | $



See the accompanying notes to condensed consolidated financial statements



4



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CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

Expressed in thousands of U.S. dollars

(Except for share and per share amounts)



|                                                                                                                                                              |  | Three Months Ended June 30, |            | Six Months Ended June 30, |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ---------- | ------------------------- | -
|                                                                                                                                                              |  | 2008                        |            | 2007                      |  
|                                                                                                                                                              |  | (Unaudited)                 |            | (Unaudited)               |  
|                                                                                                                                                              |  | USD                         |            | USD                       |  
|                                                                                                                                                              |  |                             |            |                           |  
|Revenues                                                                                                                                                      |  | $                           | 92,740     |                           | $
|                                                                                                                                                              |  |                             |            |                           |  
|Cost of goods sold
(including depreciation and amortization for the three and six months ended June 30, 2008 and 2007 of $203, $286, $0 and $0, respectively) |  |                             | 62,284     |                           |  
|                                                                                                                                                              |  |                             |            |                           |  
|Gross profit                                                                                                                                                  |  |                             | 30,456     |                           |  
|                                                                                                                                                              |  |                             |            |                           |  
|Selling and marketing                                                                                                                                         |  |                             | 2,991      |                           |  
|                                                                                                                                                              |  |                             |            |                           |  
|General and administrative                                                                                                                                    |  |                             | 11,084     |                           |  
|(including non-cash employee compensation for the three and six months ended June 30, 2008 and 2007 of $3,108, $6,066, $801 and $1,066, respectively)         |  |                             |            |                           |  
|                                                                                                                                                              |  |                             |            |                           |  
|Depreciation and amortization                                                                                                                                 |  |                             | 2,130      |                           |  
|                                                                                                                                                              |  |                             |            |                           |  
|Income from operations                                                                                                                                        |  |                             | 14,251     |                           |  
|                                                                                                                                                              |  |                             |            |                           |  
|Rental income received from related party                                                                                                                     |  |                             | --         |                           |  
|                                                                                                                                                              |  |                             |            |                           |  
|Interest income                                                                                                                                               |  |                             | 51         |                           |  
|                                                                                                                                                              |  |                             |            |                           |  
|Interest expense                                                                                                                                              |  |                             | (4,786     | )                         |  
|                                                                                                                                                              |  |                             |            |                           |  
|Other income, net                                                                                                                                             |  |                             | 367        |                           |  
|                                                                                                                                                              |  |                             |            |                           |  
|Income before income taxes and minority interest                                                                                                              |  |                             | 9,883      |                           |  
|                                                                                                                                                              |  |                             |            |                           |  
|Minority interest in income of consolidated subsidiaries                                                                                                      |  |                             | 6          |                           |  
|                                                                                                                                                              |  |                             |            |                           |  
|Income taxes                                                                                                                                                  |  |                             | (2,153     | )                         |  
|                                                                                                                                                              |  |                             |            |                           |  
|Net income                                                                                                                                                    |  |                             | 7,736      |                           |  
|                                                                                                                                                              |  |                             |            |                           |  
|Foreign currency translation gain                                                                                                                             |  |                             | 6,926      |                           |  
|                                                                                                                                                              |  |                             |            |                           |  
|Comprehensive income                                                                                                                                          |  | $                           | 14,662     |                           | $
|                                                                                                                                                              |  |                             |            |                           |  
|Net income per share                                                                                                                                          |  |                             |            |                           |  
|Basic                                                                                                                                                         |  | $                           | 0.18       |                           | $
|Diluted                                                                                                                                                       |  | $                           | 0.17       |                           | $
|                                                                                                                                                              |  |                             |            |                           |  
|Weighted average number of shares outstanding                                                                                                                 |  |                             |            |                           |  
|                                                                                                                                                              |  |                             |            |                           |  
|Basic                                                                                                                                                         |  |                             | 43,600,020 |                           |  
|Diluted                                                                                                                                                       |  |                             | 44,927,620 |                           |  

See the accompanying notes to condensed consolidated financial statements



5



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CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

SIX MONTHS ENDED JUNE 30, 2008 (UNAUDITED)

Expressed in thousands of U.S. dollars

(Except for share and per share amounts)



|                                                                                                                        |  | Common Stock |            | Additional
  Paid-in
Capital |   |     |                   | Accumulated Other |                      | Statutory
  
  Surplus |              |        |      
|----------------------------------------------------------------------------------------------------------------------- |  | ------------ | ---------- | ---------------------------- | - | --- | ----------------- | ----------------- | -------------------- | ---------------------- | ------------ | ------ | -----
|                                                                                                                        |  | Shares       |            | Par
Value                    |   |     | Retained
Earnings |                   | Comprehensive Income |                        | Reserve
Fund |        | Total
|                                                                                                                        |  |              |            | USD                          |   | USD |                   | USD               |                      | USD                    |              | USD    |      
|BALANCE AT JANUARY 1, 2008                                                                                              |  |              | 42,506,150 |                              | $ | 4   |                   | $                 | 110,254              |                        | $            | 76,802 |      
|Warrants exercised for cash per Securities Purchase Agreement                                                           |  |              | 57,776     |                              |   | --  |                   |                   | 277                  |                        |              | --     |      
|Common stock issued under Equity Incentive Plan                                                                         |  |              | 499,001    |                              |   | --  |                   |                   | 6,066                |                        |              | --     |      
|Forfeiture of restricted stock under Equity Incentive Plan                                                              |  |              | (27,845    | )                            |   | --  |                   |                   | --                   |                        |              | --     |      
|Common stock issued in connection with Exclusive Cooperation Agreement  with Beijing DM Security & Technology Co., Ltd. |  |              | 136,378    |                              |   | --  |                   |                   | 2,041                |                        |              | --     |      
|Common stock issued for acquisition of  Guangdong Stonesonic Digital Technique Co., Ltd.                                |  |              | 953,918    |                              |   | 1   |                   |                   | 14,489               |                        |              | --     |      
|Common stock issued for acquisition of  Shenzhen Longhorn Security Technology Co., Ltd.                                 |  |              | 790,502    |                              |   | --  |                   |                   | 12,030               |                        |              | --     |      
|Common stock issued for acquisition of Beijing Aurine Divine Land Technology Co., Ltd.                                  |  |              | 206,661    |                              |   | --  |                   |                   | 3,943                |                        |              | --     |      
|Foreign currency translation                                                                                            |  |              | --         |                              |   | --  |                   |                   | --                   |                        |              | --     |      
|                                                                                                                        |  |              |            |                              |   |     |                   |                   |                      |                        |              |        |      
|Net income for the period                                                                                               |  |              | --         |                              |   | --  |                   |                   | --                   |                        |              | 12,232 |      
|                                                                                                                        |  |              |            |                              |   |     |                   |                   |                      |                        |              |        |      
|BALANCE AT JUNE 30, 2008                                                                                                |  |              | 45,122,541 |                              | $ | 5   |                   | $                 | 149,100              |                        | $            | 89,034 |      



See the accompanying notes to condensed consolidated financial statements



6

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CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Expressed in thousands of U.S. dollars

(Except for share and per share amounts)



|                                                                                            |  | Six Months Ended June 30, |        
|------------------------------------------------------------------------------------------- |  | ------------------------- | -------
|                                                                                            |  | 2008                      |        
|                                                                                            |  | (Unaudited)               |        
|                                                                                            |  | USD                       |        
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                       |  |                           |        
|Net income                                                                                  |  | $                         | 12,232 
|Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |                           |        
|Depreciation and amortization                                                               |  |                           | 4,233  
|Provision for bad debts                                                                     |  |                           | 125    
|Amortization of consultancy services                                                        |  |                           | 67     
|Amortization of deferred financing cost                                                     |  |                           | 18     
|Non-cash employee compensation                                                              |  |                           | 6,066  
|Redemption accretion on convertible notes                                                   |  |                           | 8,726  
|Deferred taxes                                                                              |  |                           | 40     
|Minority interest                                                                           |  |                           | (31    
|                                                                                            |  |                           |        
|Changes in operating assets and liabilities:                                                |  |                           |        
|(Increase) decrease in:                                                                     |  |                           |        
|Accounts receivable                                                                         |  |                           | (25,839
|Related party receivables                                                                   |  |                           | 371    
|Inventories                                                                                 |  |                           | 11,692 
|Prepayments & deposits                                                                      |  |                           | (24    
|Advances to suppliers                                                                       |  |                           | (4,826 
|Other receivables                                                                           |  |                           | (1,207 
|                                                                                            |  |                           |        
|(Decrease) increase in:                                                                     |  |                           |        
|Accounts payable and accrued expenses                                                       |  |                           | 4,232  
|Advances from customers                                                                     |  |                           | (3,007 
|Taxes payable                                                                               |  |                           | (1,896 
|Deferred income                                                                             |  |                           | 91     
|Net cash provided by (used in) operating activities                                         |  |                           | 11,063 
|                                                                                            |  |                           |        

Continued



7



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CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

Expressed in thousands of U.S. dollars

(Except for share and per share amounts)



|                                                                                        |  | Six Months Ended June 30, |        
|--------------------------------------------------------------------------------------- |  | ------------------------- | -------
|                                                                                        |  | 2008                      |        
|                                                                                        |  | (Unaudited)               |        
|                                                                                        |  | USD                       |        
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                   |  |                           |        
|Additions to property, plant and equipment                                              |  |                           | (5,344 
|Additions to intangible assets                                                          |  |                           | (1,087 
|Additions to land use rights                                                            |  |                           | --     
|Deposits paid for acquisition of subsidiaries                                           |  |                           | (3,878 
|Deposits refunded for acquisition of subsidiaries                                       |  |                           | 11,898 
|Deposits paid for acquisition of properties and intangible assets                       |  |                           | (4,424 
|Proceeds from disposal of land use rights and properties                                |  |                           | 3,379  
|Net cash outflow for acquisition of subsidiaries
(net of cash acquired in acquisitions) |  |                           | (8,927 
|Net cash used in investing activities                                                   |  |                           | (8,383 
|                                                                                        |  |                           |        
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                   |  |                           |        
|Due to a director                                                                       |  |                           | --     
|Issuance of common stock, net of issuing expenses                                       |  |                           | --     
|Warrants exercised                                                                      |  |                           | 277    
|New borrowings, net of issuing cost                                                     |  |                           | 4,274  
|Repayment of borrowings                                                                 |  |                           | (13,855
|Net cash (used in) provided by financing activities                                     |  |                           | (9,304 
|                                                                                        |  |                           |        
|EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS                            |  |                           | 6,148  
|                                                                                        |  |                           |        
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                    |  |                           | (476   
|                                                                                        |  |                           |        
|Cash and cash equivalents, beginning of period                                          |  |                           | 89,071 
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                                |  | $                         | 88,595 



Continued



8



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CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

Expressed in thousands of U.S. dollars

(Except for share and per share amounts)



|SUPPLEMENTARY CASH FLOW INFORMATION: |  |   |       |  |  
|------------------------------------ |  | - | ----- |  | -
|                                     |  |   |       |  |  
|                                     |  |   |       |  |  
|Interest paid                        |  | $ | 899   |  | $
|Income taxes paid                    |  | $ | 2,364 |  | $



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 the exclusive cooperation agreement
with Beijing DM Security & Technology Co., Ltd. ("DM") on January 18, 2008.
(Note 11)

953,918 shares of common stock
issuable in satisfaction of the equity portion of the purchase price of
approximately $14,490 in the acquisition of Guangdong Stonesonic Digital
Technique Co., Ltd. ("Stonesonic") were issued on June 4, 2008. (Note 3)

790,502 shares of common stock
issuable in satisfaction of the equity portion of the purchase price of
approximately $12,030 in the acquisition of Shenzhen Longhorn Security
Technology Co., Ltd. ("Longhorn"), were issued on June 4, 2008. (Note 3)

206,661 shares of common stock
issuable in satisfaction of the equity portion of the purchase price of
approximately $3,943 in the acquisition of Beijing Aurine Divine Land Technology
Co., Ltd.. ("Guanling"), were issued on June 4, 2008. (Note 3)



See the accompanying notes to condensed consolidated financial statements

9



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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 June 30, 2008
and for the three and six months ended June 30, 2008 and 2007, have been
prepared by CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. (the "Company" or "CSST")
without 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 management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the Companys
financial position as of June 30, 2008, results of operations for the three
months and six months ended June 30, 2008 and 2007, and cash flows for the six
months ended June 30, 2008 and 2007, have been made. The results of operations
for the three months and six months ended June 30, 2008 are not necessarily
indicative of the operating results for the full year.

2.

SUMMARY OF SELECTED SIGNIFICANT
ACCOUNTING POLICIES

(a)

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 receivables due from one
individual customer exceeded 10% of total accounts receivable at June 30, 2008
and December 31, 2007.

(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 and six months ended June 30, 2008 and 2007.

During the three months and six
months ended June 30, 2008 and 2007, approximately 40%, 37%, 99% and 81%, of
total inventory purchases were from five suppliers, respectively.

10



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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)

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 June 30, 2008 and December 31,
2007, unamortized computer software costs were $2,921 and $2,383, respectively.
During the three and six months ended June 30, 2008 and 2007, $121, $375, $32
and $63 of amortization expense was charged to income, respectively.

(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 Emerging
Issues Task Force ("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 sales of security and
surveillance video cameras, surveillance equipment and related products are
recognized in accordance with Staff Accounting Bulletin ("SAB") No. 104: "Revenue
Recognition" ("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.

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
estimate the costs of satisfying warranty claims based on an analysis of past
experience and provide for the future claims in the period the revenue is
recognized. As of June 30, 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:

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)



2.

SUMMARY OF
SELECTED SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(d)

Revenue Recognition - continued

(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 and six months ended June 30, 2008 and
2007 were $287, $346, $87 and $108, respectively.

(f)

Advertising Costs

The Company expenses advertising
costs as incurred or the first time advertising takes place. During the three
and six months ended June 30, 2008 and 2007, the Company incurred approximately
$222, $277, $103 and $203, 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 (included in selling and marketing and general
and administrative expenses) for the three and six months ended June 30, 2008
and 2007 were $248, $466, $73 and $127, respectively.

(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)"). 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 and
six months ended June 30, 2008 and 2007, the Company has recognized $3,108,
$6,066, $801 and $1,066 of compensation expense under the Plan, respectively. As
of June 30, 2008 and December 31, 2007, there was $41,177 and $39,539 of
unrecognized compensation expense related to the nonvested restricted stock,
respectively. These expenses are expected to be recognized over a four-year
period.

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)

2.

SUMMARY OF
SELECTED SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(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s Republic of China ("PRC") adopted 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.

(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 and six months
ended June 30, 2008 and 2007. As of June 30, 2008 and 2007, warrants were
outstanding to acquire 30,006 and 610,015 shares of common stock.

Approximately 5,452,000 shares of
common stock underlying convertible notes were not included in the dilutive
calculation for the three and six months ended June 30, 2008 and 2007, as the
effect would be anti-dilutive.

The Company issued 1,951,081 shares
of common stock in connection with business acquisitions in the three months
ended June 30, 2008 (note 3). The impact of these shares has been included in
dilutive weighted average number of shares from the date of the closing of the
acquisitions.

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)

3.

BUSINESS ACQUISITIONS

In the second quarter of 2008, the Company acquired three
companies that are engaged in the security and surveillance business in China:
Stonesonic, Longhorn and Guanling.

On April 2, 2008, the Company entered into an equity transfer
agreement with the shareholder of Kit Grant Limited under which the Company
agreed to pay a total consideration of RMB227,038 (approximately $32,299) in
exchange for 100% ownership of Kit Grant Limited, the holding company of
Stonesonic, consisting of RMB125,000
(approximately $17,809) in cash and 953,918 shares of the Companys common stock
valued at RMB102,038 (approximately $14,490). $11,205 of the cash portion of the
purchase price was paid as a deposit in the first quarter of 2008. The balance
of the cash portion of the purchase price is expected to be paid in the third
quarter 2008. The Company issued 953,918 shares of the Companys common stock to
the shareholder of Kit Grant Limited and her designees in June 2008. Kit Grant
Limited is a holding company with no assets other than 100% of the equity
interests of Stonesonic. The acquisition was financed with proceeds from the
Company's February Notes and April Notes (as defined in note 14).

The operational control of Stonesonic passed to the Company
effective April 2, 2008. The results of Stonesonics operations from April 2,
2008 through June 30, 2008 are included in the Company's Consolidated Statements
of Income and Comprehensive Income.

On April 2, 2008, the Company entered into an equity transfer
agreement with the shareholder of Sincere On Limited, the holding company of
Longhorn, under which the Company
agreed to pay a total consideration of RMB120,558 (approximately $17,151) in
exchange for 100% ownership of Sincere On Limited, consisting of RMB36,000
(approximately $5,121) in cash and 790,502 shares of the Companys common stock
valued at RMB84,558 (approximately $12,030). RMB36,000 (approximately $5,121) of
the cash portion of the purchase price was paid before the execution of the
equity transfer agreement. The Company issued 790,502 shares of the Companys
common stock to the shareholder of Sincere On Limited and her designees in June
2008. Sincere On Limited is a holding company with no assets other than 100% of
the equity interests of Longhorn. The acquisition was financed with proceeds
from the Companys February Notes and April Notes (as defined in note 14).

The operational control of Longhorn passed to the Company
effective April 2, 2008. The results of Longhorn's operations from April 2, 2008
through June 30, 2008 are included in the Company's Consolidated Statements of
Income and Comprehensive Income.

On April 21, 2008, the Company entered into an equity
transfer agreement with the shareholder of Sharp Eagle (HK) Limited, the holding
company of Guanling, under which
the Company agreed to pay a total consideration of RMB39,110 (approximately
$5,587) in exchange for 100% ownership of Sharp Eagle (HK) Limited, consisting
of RMB12,500 (approximately $1,644) in cash and 206,661 shares of the Companys
common stock valued at RMB26,610 (approximately $3,943). RMB12,500
(approximately $1,644) of the purchase price was paid as a deposit in January,
2008. The Company issued 206,661 shares of its common stock to the shareholder
of Sharp Eagle (HK) Limited and her designees in June 2008. Sharp Eagle (HK)
Limited is a holding company with no assets other than 100% of the equity
interests of Guanling. The acquisition was financed with proceeds from the
Company's February Notes and April Notes. (as defined in note 14).

The operational control of Guanling passed to the Company
effective April 21, 2008. The results of Guanlings operations from April 21,
2008 through June 30, 2008 are included in the Company's Consolidated Statements
of Income and Comprehensive Income.

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)

3.

BUSINESS ACQUISITIONS (CONTINUED)

The following represents the purchase price allocation at the
dates of the acquisition of Stonesonic, Longhorn and Guanling based on a
preliminary valuation report that is subject to finalization which was prepared
by a third party appraisal firm:

|                              |  | Stonesonic |        | Longhorn |   | Guanling |   | Total |       
|----------------------------- |  | ---------- | ------ | -------- | - | -------- | - | ----- | ------
|                              |  |            |        |          |   |          |   |       |       
|Cash and cash equivalents     |  | $          | 1,623  |          | $ | 1,660    |   | $     | 638   
|Other current assets          |  |            | 6,837  |          |   | 2,545    |   |       | 3,652 
|Property, plant and equipment |  |            | 3,533  |          |   | 978      |   |       | 79    
|Other assets                  |  |            | 1,132  |          |   | --       |   |       | --    
|Intangible assets             |  |            | 5,947  |          |   | 4,990    |   |       | 690   
|Goodwill                      |  |            | 17,440 |          |   | 8,415    |   |       | 4,123 
|Current liabilities           |  |            | (3,522 | )        |   | (1,437   | ) |       | (3,595
|Long-term liabilities         |  |            | (691   | )        |   | --       |   |       | --    
|Total purchase price          |  | $          | 32,299 |          | $ | 17,151   |   | $     | 5,587 
|                              |  |            |        |          |   |          |   |       |       



The following table shows supplemental information of the results of operations on a pro forma basis for the three months and six months ended June 30, 2008 and 2007 as if the acquisition of Stonesonic, Longhorn and Guanling had been completed at the beginning of the respective periods of 2008 and 2007:



For the three months ended June 30, 2008 (Unaudited)



|                       |  | Historical |        |                                   |   |                       |  
|---------------------- |  | ---------- | ------ | --------------------------------- | - | --------------------- | -
|                       |  | CSST       |        | Stonesonic, Longhorn and Guanling |   | Pro Forma Adjustments |  
|                       |  |            |        |                                   |   |                       |  
|Revenues               |  | $          | 92,740 |                                   | $ | 711                   |  
|                       |  |            |        |                                   |   |                       |  
|Income from operations |  | $          | 14,251 |                                   | $ | (39                   | )
|                       |  |            |        |                                   |   |                       |  
|Net income             |  | $          | 7,736  |                                   | $ | (61                   | )
|                       |  |            |        |                                   |   |                       |  
|Net income per share   |  |            |        |                                   |   |                       |  
|Basic                  |  | $          | 0.18   |                                   |   |                       |  
|Diluted                |  | $          | 0.17   |                                   |   |                       |  



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)

3.

BUSINESS ACQUISITIONS (CONTINUED)

For the three months ended June 30, 2007 (Unaudited)

|                       |  | Historical |        |                                   |   |                       | 
|---------------------- |  | ---------- | ------ | --------------------------------- | - | --------------------- | 
|                       |  | CSST       |        | Stonesonic, Longhorn and Guanling |   | Pro Forma Adjustments | 
|                       |  |            |        |                                   |   |                       | 
|Revenues               |  | $          | 52,125 |                                   | $ | 5,280                 | 
|                       |  |            |        |                                   |   |                       | 
|Income from operations |  | $          | 9,646  |                                   | $ | 1,263                 | 
|                       |  |            |        |                                   |   |                       | 
|Net income             |  | $          | 4,265  |                                   | $ | 1,051                 | 
|                       |  |            |        |                                   |   |                       | 
|Net income per share   |  |            |        |                                   |   |                       | 
|Basic                  |  | $          | 0.12   |                                   |   |                       | 
|Diluted                |  | $          | 0.11   |                                   |   |                       | 



For the six months ended June 30, 2008 (Unaudited)

|                       |  | Historical |         |                                   |   |                       | 
|---------------------- |  | ---------- | ------- | --------------------------------- | - | --------------------- | 
|                       |  | CSST       |         | Stonesonic, Longhorn and Guanling |   | Pro Forma
Adjustments | 
|                       |  |            |         |                                   |   |                       | 
|Revenues               |  | $          | 164,517 |                                   | $ | 7,203                 | 
|                       |  |            |         |                                   |   |                       | 
|Income from operations |  | $          | 25,386  |                                   | $ | 246                   | 
|                       |  |            |         |                                   |   |                       | 
|Net income             |  | $          | 12,232  |                                   | $ | 76                    | 
|                       |  |            |         |                                   |   |                       | 
|Net income per share   |  |            |         |                                   |   |                       | 
|Basic                  |  | $          | 0.28    |                                   |   |                       | 
|Diluted                |  | $          | 0.28    |                                   |   |                       | 



For the six months ended June 30, 2007 (Unaudited)

|                       |  | Historical |        |                                   |   |                       | 
|---------------------- |  | ---------- | ------ | --------------------------------- | - | --------------------- | 
|                       |  | CSST       |        | Stonesonic, Longhorn and Guanling |   | Pro Forma Adjustments | 
|                       |  |            |        |                                   |   |                       | 
|Revenues               |  | $          | 90,576 |                                   | $ | 8,932                 | 
|                       |  |            |        |                                   |   |                       | 
|Income from operations |  | $          | 16,104 |                                   | $ | 1,346                 | 
|                       |  |            |        |                                   |   |                       | 
|Net income             |  | $          | 8,798  |                                   | $ | 1,081                 | 
|                       |  |            |        |                                   |   |                       | 
|Net income per share   |  |            |        |                                   |   |                       | 
|Basic                  |  | $          | 0.26   |                                   |   |                       | 
|Diluted                |  | $          | 0.24   |                                   |   |                       | 



The pro forma adjustments represent the amortization of the intangible assets arising upon the acquisitions of Stonesonic, Longhorn and Guanling.



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)

4.

ACCOUNTS RECEIVABLE

The Company provides an allowance for doubtful accounts
related to its receivables. The receivables and allowance balances at June 30,
2008 and December 31, 2007 are as follows:

|                                      |  | June 30,
 2008 |        | December 31,
2007 |  
|------------------------------------- |  | -------------- | ------ | ----------------- | -
|                                      |  |                |        |                   |  
|Accounts receivable                   |  | $              | 96,600 |                   | $
|Less: allowance for doubtful accounts |  |                | (650   | )                 |  
|Accounts receivable, net              |  | $              | 95,950 |                   | $



5.

RELATED PARTY RECEIVABLES

The Company had receivables from several companies whose
directors and shareholders are also directors or shareholders of 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 June 30, 2008 and December 31, 2007 are as follows:

|                                      |  | June 30,
  
  2008 |     | December 31,
2007 |  
|------------------------------------- |  | ------------------ | --- | ----------------- | -
|                                      |  |                    |     |                   |  
|Related party receivables             |  | $                  | 214 |                   | $
|Less: allowance for doubtful accounts |  |                    | --  |                   |  
|Related party receivables, net        |  | $                  | 214 |                   | $



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) and
RMB1,980 ($256) for the three and six months ended June 30, 2007, respectively.

|6. | INVENTORIES
|-- | -----------



Inventories consist of the following as of June 30, 2008 and December 31, 2007:

|                                         |  | June 30,
2008 |        | December 31,
2007 |  
|---------------------------------------- |  | ------------- | ------ | ----------------- | -
|                                         |  |               |        |                   |  
|Raw materials                            |  | $             | 17,891 |                   | $
|Work in progress                         |  |               | 3,469  |                   |  
|Finished goods                           |  |               | 10,995 |                   |  
|Installations in process                 |  |               | 9,228  |                   |  
|Total                                    |  |               | 41,583 |                   |  
|Less: allowance for obsolete inventories |  |               | (967   | )                 |  
|Inventories, net                         |  | $             | 40,616 |                   | $



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)

7.

PREPAYMENTS AND DEPOSITS

Prepayments and deposits consist of
the following as of June 30, 2008 and December 31, 2007:

|                                                                    |  | June 30,
2008 |        | December 31, 2007 |  
|------------------------------------------------------------------- |  | ------------- | ------ | ----------------- | -
|                                                                    |  |               |        |                   |  
|Current portion                                                     |  | $             | 4,979  |                   | $
|Non current portion
- Deposits paid for acquisition of subsidiaries |  |               | 16,197 |                   |  
|- Deposits paid for acquisition of intangible assets and properties |  |               | 20,198 |                   |  
|                                                                    |  | $             | 36,395 |                   | $



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

8.

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 $8,699 and $2,877 as of June 30, 2008 and December 31, 2007, respectively.

9.

PROPERTY, PLANT AND EQUIPMENT

At June 30, 2008 and December 31, 2007, property, plant and equipment, at cost, consist of

|                                   |  | June 30,
2008 |        | December 31,
2007 |  
|---------------------------------- |  | ------------- | ------ | ----------------- | -
|Buildings                          |  | $             | 21,013 |                   | $
|Leasehold improvements             |  |               | 2,650  |                   |  
|Plant and equipment                |  |               | 4,607  |                   |  
|Electronic equipment               |  |               | 7,598  |                   |  
|Motor vehicles                     |  |               | 4,418  |                   |  
|                                   |  |               | 40,286 |                   |  
|Less: accumulated depreciation     |  |               | (5,850 | )                 |  
|Property, plant and equipment, net |  | $             | 34,436 |                   | $



Depreciation expense for the three and six months
ended June 30, 2008 and 2007 was $885, $1,520, $228 and $405, respectively.

18



---





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.

LAND USE RIGHTS

Land use rights consist of the following as of June 30, 2008 and December 31, 2007:

|                               |  | June 30,
2008 |       | December 31,
2007 |  
|------------------------------ |  | ------------- | ----- | ----------------- | -
|                               |  |               |       |                   |  
|Cost of land use rights        |  | $             | 2,874 |                   | $
|Less: Accumulated amortization |  |               | (263  | )                 |  
|Land use rights, net           |  | $             | 2,611 |                   | $

Amortization expense for the three and six months ended June 30, 2008 and 2007 was $15, $21, $12 and $20, respectively.



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



2008 (for the remaining 6 months)
  
  $
  312009
  
  
  612010
  
  
  612011
  
  
  612012
  
  
  612013
  
  
  61Thereafter
  
  
  2,275Total
  
  $
  2,611




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) were received in January 2008.

11. INTANGIBLE ASSETS

|                                                    |   | June 30,
  
  2008 |   | December 31,
  
  2007 |  
|--------------------------------------------------- | - | ------------------ | - | ---------------------- | -
|                                                    |   |                    |   |                        |  
|Trademarks (life of 11 to 25 years)                 | $ | 14,645             | $ | 12,081                 |  
|Exclusive cooperation agreements (life of 20 years) |   | 13,632             |   | 8,834                  |  
|Customer base (life of 5 to 10 years)               |   | 8,488              |   | 7,225                  |  
|Patents (life of 10 years)                          |   | 4,541              |   | 4,532                  |  
|Technical know-how (life of 9 to 10 years)          |   | 13,239             |   | 5,347                  |  
|Non-compete agreements (life of 5 years)            |   | 1,303              |   | 1,303                  |  
|Contracts in progress (life of 2 to 9 months)       |   | 410                |   | 410                    |  
|Surveillance software (life of 5 years)             |   | 5,507              |   | 4,468                  |  
|Surveillance recording system (life of 5 years)     |   | 500                |   | 500                    |  
|Less: accumulated amortization                      |   | (8,036             | ) | (4,900                 | )
|Intangible assets, net                              | $ | 54,229             | $ | 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, technology licenses, equipment, consulting services, personnel 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 marketing 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 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.



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)

11.

INTANGIBLE
ASSETS - CONTINUED

The Company acquired Stonesonic, Longhorn and Guanling during
the second quarter of 2008. The valuations and allocation of the intangible
assets were determined by a third party appraisal firm.

The amortization expense for the three and six months ended
June 30, 2008 and 2007 was $1,433, $2,692, $844 and $1,465, respectively.

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

2008 (for the remaining six months)
  $
  3,23420097,2662010
  
  6,36320114,7962012
  
  4,027Thereafter
  
  28,543Total
  $
  54,229


12.

NOTES PAYABLE

The following is a summary of the Companys short-term and long-term notes
payable as of June 30, 2008 and December 31, 2007:

|                      |  | June 30,
2008 |        | December 31, 2007 |  
|--------------------- |  | ------------- | ------ | ----------------- | -
|                      |  |               |        |                   |  
|Bank loans            |  | $             | 5,380  |                   | $
|Less: current portion |  |               | (5,380 | )                 |  
|Long-term portion     |  | $             | --     |                   | $

On November 15, 2007, the Company entered into a loan
agreement with China Citic Bank. The Company borrowed RMB30,000 (approximately
$4,374) 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.

The long term note payable is from Shenzhen Ping An Bank. As
of June 30, 2008 and December 31, 2007, the liability relating to this loan was
RMB 6,900 (approximately $1,006) 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.

In January 2008, the Company entered into a loan agreement
with Shanghai Pudong Development Bank. The Company borrowed RMB30,000
(approximately $4,374) with an annual interest rate of 6.57%. The loan was due
in July 2008, and the interest was payable at the end of each month. The loan
was repaid in April 2008.

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)

12.

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 $2,916) with an annual interest rate of 6.561%. The loan was due
in October 2008, and the interest was payable at the end of each month. The loan
was repaid in the second quarter of 2008.

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 was due
in March 2008 and was repaid when due.

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 was due
in February 2008 and was repaid when due.

13.

DEFERRED INCOME

Deferred income balances as of June 30, 2008 and December 31,
2007 were $1,065 and $915, respectively, and represented amounts invoiced but
deferred as revenues as an estimated warranty reserve.

14.

CONVERTIBLE
NOTES PAYABLE

On February 20, 2007, pursuant to a note 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
interest at 1% per annum. The net proceeds from the sales of the February Notes
are and will be used for the Companys working capital and acquisition plans.

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.

21



---





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.

CONVERTIBLE
NOTES PAYABLE - CONTINUED

On April 24, 2007, pursuant to another note 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 interest at 1% per annum. 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 June 30, 2008 and December 31, 2007, the Company has
complied with all the required covenants.

The Company has accreted $4,363, $8,726, $3,812 and $4,975
for the three and six months ended June 30, 2008 and 2007 respectively of the
additional redemption amount related to the February Notes and April Notes,
which amount 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 June 30, 2008 and December
31, 2007. The Company is amortizing these financing costs over the life of the
February Notes and April Notes. During the three and six months ended June 30,
2008 and 2007, approximately $9, $18, $9 and $9 was amortized to interest
expense, respectively.

15.

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 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 Shanghai Cheng Feng Digital Technology Co., Ltd. ("Cheng Feng")
on or before December 31, 2006. As such governmental approvals were obtained
before December 31, 2006, the put right has terminated.

22



---





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)

15.

ISSUANCE OF
COMMON STOCK AND WARRANTS - CONTINUED

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 were approximately $14,900, 57,776, 128,571 and 482,856 warrants were exercised at $4.80 per share during
the three and six months ended June 30, 2008 and 2007, respectively.

In conjunction with execution of the Securities Purchase
Agreement, the Company also executed a registration rights agreement under which
it was obligated to file registration statements on Form S-4 and Form S-1, or
any other available form, to register the shares and the shares underlying the
warrants for resale, within 45 days and 55 days after the closing date,
respectively. The Company was obligated to use its best efforts to cause the
registration statement to be declared effective within 150 days of the closing
date, and was liable for payment of penalties to the purchasers in the event the
registration statement had not declared effective within the 150-day period. The
Company filed the registration statements on Form S-4 and Form S-1 on October 3,
2006 and October 23, 2006 which were declared effective on November 13, 2006 and
November 15, 2006, 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. 97,326, and 324,421 of such warrants were exercised using the
cashless exercise feature during the three and six months ended June 30, 2007.

A summary of the status of the Companys warrants issued in
2006 as described above, and the changes during the three months ended June 30,
2008 and 2007, is presented below:

|                                |  | 2008   |        | 2007                      |  
|------------------------------- |  | ------ | ------ | ------------------------- | -
|                                |  |        |        | Weighted Average Exercise |  
|                                |  | Shares |        | Prices                    |  
|Outstanding at April 1          |  |        | 30,006 |                           | $
|Granted                         |  |        | --     |                           |  
|Exercised                       |  |        | --     |                           |  
|Outstanding at June 30          |  |        | 30,006 |                           |  
|Warrants exercisable at June 30 |  |        | 30,006 |                           | $



A summary of the status of the Companys warrants issued in 2006 as described above, and the changes during the six months ended June 30, 2008 and 2007, is presented below:



|                                |  | 2008   |         | 2007                      |  
|------------------------------- |  | ------ | ------- | ------------------------- | -
|                                |  |        |         | Weighted Average Exercise |  
|                                |  | Shares |         | Prices                    |  
|Outstanding at January 1        |  |        | 87,782  |                           | $
|Granted                         |  |        | --      |                           |  
|Exercised                       |  |        | (57,776 | )                         |  
|Outstanding at June 30          |  |        | 30,006  |                           |  
|Warrants exercisable at June 30 |  |        | 30,006  |                           | $



23



---





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.

EQUITY INCENTIVE
PLAN

On February 7, 2007, the Company adopted the 2007 Equity
Incentive 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. As of June 30, 2008 and December 31,
2007, the shares issued vest over a four-year period, and at issue resulted in
total deferred compensation of $51,401 and $43,698, 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. Such restricted stock is subject to the
risk of forfeiture upon the occurrence of certain events. During the three and
six months ended June 30, 2008 and 2007, the Company has recognized $3,108,
$6,066, $801 and $1,066 of compensation expense under the plan, respectively. As
of June 30, and December 31, 2007, there was $41,177 and $39,539 of unrecognized
compensation expense related to the nonvested restricted stock, respectively.
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 June 30, 2008
and 2007:

|                       | Nonvested Restricted Stock and |                  | Nonvested Restricted Stock and
|---------------------- | ------------------------------ | ---------------- | ------------------------------
|                       | Stock Unit Awards              |                  | Stock Unit Awards             
|                       | 2008                           |                  | 2007                          
|                       |                                | Weighted         |                               
|                       |                                | Average Grant    |                               
|Number of Shares       | Date Fair Values               | Number of Shares | Date Fair Values              
|                       |                                |                  |                               
|Outstanding at April 1 | 2,225,216                      | $                | 17.27                         
|Granted                | 317,501                        |                  | 16.10                         
|Vested                 | (184,244)                      |                  | (16.84)                       
|Forfeited              | (5,333)                        |                  | (14.09)                       
|Outstanding at June 30 | 2,353,140                      | $                | 17.15                         



The following table summarizes the status of the Companys nonvested restricted stock awards during the six months ended June 30, 2008 and 2007:



|                         | Nonvested Restricted Stock and |                  | Nonvested Restricted Stock and
|------------------------ | ------------------------------ | ---------------- | ------------------------------
|                         | Stock Unit Awards              |                  | Stock Unit Awards             
|                         | 2008                           |                  | 2007                          
|                         |                                | Weighted         |                               
|                         |                                | Average Grant    |                               
|Number of Shares         | Date Fair Values               | Number of Shares | Date Fair Values              
|                         |                                |                  |                               
|Outstanding at January 1 | 2,241,471                      | $                | 17.39                         
|Granted                  | 499,001                        |                  | 15.56                         
|Vested                   | (359,487)                      |                  | (16.85)                       
|Forfeited                | (27,845)                       |                  | (12.37)                       
|Outstanding at June 30   | 2,353,140                      | $                | 17.15                         



24

---





CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Expressed in thousands of U.S. dollars

(Except for share and per share amounts)



17.

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 January 1, 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 and six months ended June 30,
2008 and 2007:

Revenues by segment for the three months ended June 30, 2008
and 2007 are as follows:



|Revenues(1)           |   | 2008   |   | 2007  
|--------------------- | - | ------ | - | ------
|                      |   |        |   |       
|Installation Segment  | $ | 62,151 | $ | 39,362
|Manufacturing Segment |   | 20,363 |   | 12,763
|Distribution Segment  |   | 10,226 |   | --    
|                      |   |        |   |       
|                      | $ | 92,740 | $ | 52,125



Revenues by segment for the six months ended June 30, 2008 and 2007 are as
follows:



|Revenues(1)           |   | 2008    |   | 2007  
|--------------------- | - | ------- | - | ------
|                      |   |         |   |       
|Installation Segment  | $ | 121,691 | $ | 73,393
|Manufacturing Segment |   | 28,491  |   | 17,183
|Distribution Segment  |   | 14,335  |   | --    
|                      |   |         |   |       
|                      | $ | 164,517 | $ | 90,576



(1) Revenues by operating segments exclude intercompany transactions.



25

---





CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Expressed in thousands of U.S. dollars

(Except for share and per share amounts)



17.

CONSOLIDATED SEGMENT DATA -
(CONTINUED)

Income by segment for the three months ended June 30, 2008 and 2007 are as follows:



|Income from operations:                                |   | 2008    |   | 2007   
|------------------------------------------------------ | - | ------- | - | -------
|                                                       |   |         |   |        
|Installation Segment                                   | $ | 17,545  | $ | 8,947  
|                                                       |   |         |   |        
|Manufacturing Segment                                  |   | 2,165   |   | 2,124  
|                                                       |   |         |   |        
|Distribution Segment                                   |   | (203)   |   | --     
|                                                       |   |         |   |        
|Corporate and others (1)                               |   | (5,256) |   | (1,425)
|                                                       |   |         |   |        
|Income from operations                                 |   | 14,251  |   | 9,646  
|                                                       |   |         |   |        
|Corporate other income                                 |   | 367     |   | 355    
|                                                       |   |         |   |        
|Corporate interest income                              |   | 51      |   | 143    
|Corporate interest expense                             |   | (4,786) |   | (4,105)
|Income before income taxes and minority interest       |   | 9,883   |   | 6,039  
|Minority interest in loss of consolidated subsidiaries |   | 6       |   | (7)    
|Income taxes                                           |   | (2,153) |   | (1,767)
|Net income                                             | $ | 7,736   | $ | 4,265  



Income by segment for the six months ended June 30, 2008 and 2007 are as follows:



|Income from operations:                                |   | 2008     |   | 2007   
|------------------------------------------------------ | - | -------- | - | -------
|                                                       |   |          |   |        
|Installation Segment                                   | $ | 32,519   | $ | 17,429 
|                                                       |   |          |   |        
|Manufacturing Segment                                  |   | 3,252    |   | 1,965  
|                                                       |   |          |   |        
|Distribution Segment                                   |   | 387      |   | --     
|                                                       |   |          |   |        
|Corporate and others (1)                               |   | (10,772) |   | (3,290)
|                                                       |   |          |   |        
|Income from operations                                 |   | 25,386   |   | 16,104 
|                                                       |   |          |   |        
|Corporate other income                                 |   | 687      |   | 974    
|                                                       |   |          |   |        
|Corporate interest income                              |   | 106      |   | 225    
|Corporate interest expense                             |   | (9,649)  |   | (5,424)
|Income before income taxes and minority interest       |   | 16,530   |   | 11,879 
|Minority interest in loss of consolidated subsidiaries |   | 31       |   | 2      
|Income taxes                                           |   | (4,329)  |   | (3,083)
|Net income                                             | $ | 12,232   | $ | 8,798  



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



26

---





CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Expressed in thousands of U.S. dollars

(Except for share and per share amounts)



17.

CONSOLIDATED SEGMENT DATA -
(CONTINUED)

Non-cash employee compensation by segment for the three months ended June 30, 2008 and 2007 are as follows:



|Non cash employee compensation: |   | 2008  |   | 2007
|------------------------------- | - | ----- | - | ----
|                                |   |       |   |     
|Installation Segment            | $ | 468   | $ | 380 
|                                |   |       |   |     
|Manufacturing Segment           |   | 620   |   | 210 
|                                |   |       |   |     
|Distribution Segment            |   | 345   |   | --  
|                                |   |       |   |     
|Corporate and others            |   | 1,675 |   | 211 
|                                |   |       |   |     
|                                | $ | 3,108 | $ | 801 



Non-cash employee compensation by segment for the six months ended June 30, 2008 and 2007 are as follows:



|Non cash employee compensation: |   | 2008  |   | 2007 
|------------------------------- | - | ----- | - | -----
|                                |   |       |   |      
|Installation Segment            | $ | 904   | $ | 503  
|                                |   |       |   |      
|Manufacturing Segment           |   | 1,178 |   | 281  
|                                |   |       |   |      
|Distribution Segment            |   | 692   |   | --   
|                                |   |       |   |      
|Corporate and others            |   | 3,292 |   | 282  
|                                |   |       |   |      
|                                | $ | 6,066 | $ | 1,066



Total assets by segment at June 30, 2008 and December 31, 2007 are as follows:



|Total assets:            |   | June 30, |   | December 31,
|------------------------ | - | -------- | - | ------------
|                         |   | 2008     |   | 2007        
|                         |   |          |   |             
|Installation Segment     | $ | 203,355  | $ | 152,495     
|                         |   |          |   |             
|Manufacturing Segment    |   | 163,345  |   | 146,683     
|                         |   |          |   |             
|Distribution Segment     |   | 41,400   |   | --          
|                         |   |          |   |             
|Corporate and others (1) |   | 53,580   |   | 78,225      
|                         |   |          |   |             
|                         | $ | 461,680  | $ | 377,403     



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



27

---





CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Expressed in thousands of U.S. dollars

(Except for share and per share amounts)



17.

CONSOLIDATED SEGMENT DATA -
(CONTINUED)

Depreciation and amortization by segment for the three months ended June 30, 2008 and 2007 are as follows:



|Depreciation and amortization: |   | 2008  |   | 2007 
|------------------------------ | - | ----- | - | -----
|                               |   |       |   |      
|Installation Segment           | $ | 811   | $ | 429  
|                               |   |       |   |      
|Manufacturing Segment          |   | 1,079 |   | 641  
|                               |   |       |   |      
|Distribution Segment           |   | 403   |   | --   
|                               |   |       |   |      
|Corporate and others           |   | 40    |   | 14   
|                               |   |       |   |      
|                               | $ | 2,333 | $ | 1,084



Depreciation and amortization by segment for the six months ended June 30, 2008 and 2007 are as follows:



|Depreciation and amortization: |   | 2008  |   | 2007 
|------------------------------ | - | ----- | - | -----
|                               |   |       |   |      
|Installation Segment           | $ | 1,678 | $ | 939  
|                               |   |       |   |      
|Manufacturing Segment          |   | 1,693 |   | 931  
|                               |   |       |   |      
|Distribution Segment           |   | 704   |   | --   
|                               |   |       |   |      
|Corporate and others           |   | 158   |   | 20   
|                               |   |       |   |      
|                               | $ | 4,233 | $ | 1,890

18.

SUBSEQUENT EVENTS

Acquisition of Shenzhen Jin Lin Technology Co., Ltd. (Jin Lin)  On July 7, 2008, the Company entered into an equity transfer agreement under which the Company agreed to pay RMB68,582 (approximately $10,000) in exchange for 100% ownership of Long Top Limited, consisting of RMB 40,000 (approximately $5,830) in cash and shares of the Companys common stock valued at RMB28,582 (approximately $4,170). In July 2008, the Company paid RMB13,000 (approximately $1,900) of the cash portion of the purchase price, the remaining RMB27,000 (approximately $3,930) of the cash consideration will be paid upon Long Top Limited and Jin Lins achievement of certain financial thresholds. The number of shares of common stock issuable in satisfaction of the equity portion of the purchase price is 268,870, which will be issued in the third quarter of 2008.  Long Top Limited is a holding company, the only assets of which are 100% of the equity of Jin Lin. The results of operations of Jin Lin will be included in the Companys consolidated financial statements beginning July 7, 2008.  Private placement transaction to certain non-U.S. investors  On July 23, 2008, the Company consummated a private placement transaction in which it issued 722,544
units to certain non-U.S. investors for an aggregate gross cash purchase price of $10,000 at per share price of $13.84. Each
unit consists of one share of the Companys common stock and a warrant to purchase one-fifth of one share of common stock. The exercise price for each whole warrant is $19.23. The warrants have a term of 3 years and include a cashless exercise feature.


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



Special Note Regarding Forward Looking Statements



This 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, our future operating results, our expectations regarding the market for security and surveillance products, our expectations regarding the continued growth of the security and surveillance market, 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 our actual results to differ materially from those anticipated, expressed or implied in the forward-looking statements. These risks and uncertainties include, but not limited to, the factors mentioned in the Risk Factors section of our Annual Report on Form 10-K for the year ended December 31, 2007, and other risks mentioned in this Form 10-Q or in our other reports filed with the Securities Exchange Commission (the SEC). 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. 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;

·

Jin Lin are to Shenzhen Jin Lin Technology Co., Ltd., a corporation incorporated in the Peoples Republic of China and an indirect, wholly owned subsidiary of the Company;

·

Kit Grant are to Kit Grant Limited, a Hong Kong corporation 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;

·

Long Top are to Long Top Limited,  a Hong Kong corporation and an indirect, wholly owned subsidiary of the Company;



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·

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;

·

Sharp Eagle are to Sharp Eagle (HK) Limited, a Hong Kong corporation and an indirect, wholly owned subsidiary of the Company;

·

Sincere On are to Sincere On Limited, a Hong Kong corporation and an indirect, wholly owned subsidiary of the Company;

·

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 55%, 44% and 1% of our revenues for the three months ended June 30, 2008, respectively.



Our sales network covers most of Chinas populated areas and we do not rely on any particular region for our business. Our subsidiaries collectively have more than 150 branch offices and distribution points.



In the second quarter of 2008, we acquired three companies that are engaged in the security and surveillance business in China: Stonesonic, Longhorn and Guanling.



On April 2, 2008, we purchased 100% ownership of Kit Grant Limited which is a holding company that owns all the outstanding equity of Stonesonic. Stonesonic is a leading monitoring equipment solutions provider in China that has a broad array of large flat panel display equipment. Under the equity purchase agreement, we agreed to pay a total consideration of RMB227.0 million (approximately $32.3 million) in exchange for 100% ownership of Kit Grant Limited, consisting of RMB125 million (approximately $17.8 million) in cash and  953,918 shares of our common stock valued at RMB102.04 million (approximately $14.5 million). Please see our Current Report on Form 8-K filed on April 8, 2008 for more details.



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On April 2, 2008, we acquired 100% ownership of Sincere On Limited which is a holding company that owns all the outstanding equity of Longhorn. Longhorn specializes in the manufacture and installation of security alarm systems in China. Under the equity purchase agreement, we agreed to pay a total consideration of RMB120.6 million (approximately $17.2 million) in exchange for 100% ownership of Sincere On Limited, consisting of RMB36.0 million (approximately $5.1 million) in cash and 790,502 shares of our common stock valued at RMB84.56 million (approximately $12.0 million).  Please see our Current Report on Form 8-K filed on April 8, 2008 for more details.



On April 21, 2008, we acquired 100% ownership of Sharp Eagle (HK) Limited which is a holding company that owns all the outstanding equity of Guanling. Guanling is the appointed sales agent of Panasonic, Axis Communications and Samsung in China, for closed-circuit surveillance systems, public broadcasting equipments and plasma TV.  Under the agreement, we agreed to pay a total consideration of RMB 39.1 million (approximately $5.6 million) in exchange for 100% ownership of Sharp Eagle, consisting of RMB 12.5 million (approximately $1.6 million) in cash and 206,661 shares of our common stock valued at RMB 26.6 million (approximately $3.9 million).  Please see our Current Report on Form 8-K filed on April 25, 2008 for more details.



Recent Developments



On July 7, 2008, we acquired 100% ownership of Long Top Limited which is the holding company that owns all the outstanding equity of Jin Lin.   Jin Lin is engaged in professional intelligent security monitoring systems and intelligent transportation system product development. Under the equity transfer agreement, we agreed to pay RMB68.6 million (approximately $10.0 million) in exchange for 100% ownership of Jin Lin, consisting of RMB 40.0 million (approximately $5.8 million) in cash and 268,870 shares of our common stock valued at RMB28.6 million (approximately $4.2 million). In July, 2008, the Company has paid RMB13.0 million (approximately $1.9 million) of the cash portion of the purchase price, the remaining RMB27.0 million (approximately $3.9 million) of the cash consideration will be paid upon Long Top and Jin Lins achievement of certain financial thresholds. The equity portion of the purchase price is expected to be issued in the third quarter of 2008. Please see our Current Report on Form 8-K filed on July 11, 2008 for more details.



On July 23, 2008, we consummated a private placement transaction in which it issued 722,544 units to certain non-U.S. investors for an aggregate gross cash purchase price of $10 million at per share price of $13.84.  Each unit consists of one share of our common stock and a warrant to purchase one-fifth of one share of common stock. The exercise price for each whole warrant is $19.23. The warrants have a term of 3 years and include a cashless exercise feature.



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 January 1, 2008. During 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.



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Second Quarter Financial Performance Highlights



We continued to experience strong demand for our products and services during the second fiscal quarter of 2008 and growth in our revenues and net income. The security and surveillance product market in China continued to expand in the second 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 second fiscal quarter financial results also benefited from the consolidation of the three newly acquired companies, which contributed approximately $11.0 million revenues in aggregate, accounting for approximately 11.9% of the total revenues of the second fiscal quarter of 2008.



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



·

Revenues: Revenues increased $40.61 million, or 77.9%, to $92.74 million for the second quarter of 2008, from $52.13 million for the same quarter of last year.

·

Gross margin: Gross margin was 32.8% for the second quarter of 2008, compared to 28.6% for the same period in 2007.

·

Income from operations: Income from operations increased $4.60 million, or 47.7%, to $14.25 million for the second quarter of 2008, from $9.65 million for the same period last year.

·

Operating margin: Operating margin (the ratio of income from operations to revenues, expressed as a percentage) was 15.4% for the second quarter of 2008, compared to 18.5% during the same period in 2007.

·

Net income: Net income increased $3.47 million, or 81.3%, to $7.74 million for the second quarter of 2008, from $4.27 million for the same period of last year.

·

Net margin: Net margin (the ratio of net income to revenues, expressed as a percentage) was 8.3% for the second quarter of 2008, compared to 8.2% for the same period in 2007.

·

Fully diluted net income per share: Fully diluted net income per share was $0.17 for the second quarter of 2008, as compared to $0.11 for the same period last year.

·

Non-cash items: Non-cash items included (i) the redemption accretion on convertible notes was $4.36 million for the second quarter of 2008, as compared to $3.82 million for the same period last year, (ii) depreciation and amortization was $2.33 million for the second quarter of 2008, as compared to $1.08 million for the same period last year, and (iii) non-cash employee compensation expense was $3.11 million for the second quarter of 2008, as compared to $0.80 million for the same period last year. Total non-cash items are $9.80 million for the second quarter of 2008, an increase of $4.10 million, or 71.9%, from $5.70 million for the same period last year.



Our net income for the three months ended June 30, 2008 and 2007 was $7.74 million and $4.27 million, respectively. Our net income for the six months ended June 30, 2008 and 2007 was $12.23 million and $8.80 million, respectively. 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.



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The following table summarizes the Companys non-cash components during the three months ended June 30, 2008 and 2007.



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



|                                                               |  | Three Months Ended June 30, |            |      |  
|-------------------------------------------------------------- |  | --------------------------- | ---------- | ---- | -
|Non-cash items                                                 |  | 2008                        |            | 2007 |  
|Depreciation and amortization                                  |  | $                           | 2.13       |      | $
|Depreciation and amortization (included in cost of goods sold) |  |                             | 0.20       |      |  
|Non-cash employee compensation                                 |  |                             | 3.11       |      |  
|Redemption accretion on convertible notes                      |  |                             | 4.36       |      |  
|Total                                                          |  | $                           | 9.80       |      | $
|                                                               |  |                             |            |      |  
|Non-cash items per share - basic                               |  |                             |            |      |  
|Depreciation and amortization                                  |  | $                           | 0.05       |      | $
|Non-cash employee compensation                                 |  |                             | 0.07       |      |  
|Redemption accretion on convertible notes                      |  |                             | 0.10       |      |  
|Total non-cash items per share - basic                         |  | $                           | 0.22       |      | $
|                                                               |  |                             |            |      |  
|Non-cash items per share - diluted                             |  |                             |            |      |  
|Depreciation and amortization                                  |  | $                           | 0.05       |      | $
|Non-cash employee compensation                                 |  |                             | 0.07       |      |  
|Redemption accretion on convertible notes                      |  |                             | 0.10       |      |  
|Total non-cash items per share - diluted                       |  | $                           | 0.22       |      | $
|                                                               |  |                             |            |      |  
|Net income per share - basic                                   |  | $                           | 0.18       |      | $
|Net income per share - diluted                                 |  | $                           | 0.17       |      | $
|                                                               |  |                             |            |      |  
|Weighted average number of shares outstanding                  |  |                             |            |      |  
|Basic                                                          |  |                             | 43,600,020 |      |  
|Diluted                                                        |  |                             | 44,927,620 |      |  



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The following table summarizes the Companys non-cash components during the six months ended June 30, 2008 and 2007:



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



|                                                               |  | Six Months Ended June 30, |            |      |  
|-------------------------------------------------------------- |  | ------------------------- | ---------- | ---- | -
|Non-cash items                                                 |  | 2008                      |            | 2007 |  
|Depreciation and amortization                                  |  | $                         | 3.95       |      | $
|Depreciation and amortization (included in cost of goods sold) |  |                           | 0.29       |      |  
|Non-cash employee compensation                                 |  |                           | 6.07       |      |  
|Redemption accretion on convertible notes                      |  |                           | 8.73       |      |  
|Total                                                          |  | $                         | 19.04      |      | $
|                                                               |  |                           |            |      |  
|Non-cash items per share - basic                               |  |                           |            |      |  
|Depreciation and amortization                                  |  | $                         | 0.10       |      | $
|Non-cash employee compensation                                 |  |                           | 0.14       |      |  
|Redemption accretion on convertible notes                      |  |                           | 0.20       |      |  
|Total non-cash items per share - basic                         |  | $                         | 0.44       |      | $
|                                                               |  |                           |            |      |  
|Non-cash items per share - diluted                             |  |                           |            |      |  
|Depreciation and amortization                                  |  | $                         | 0.10       |      | $
|Non-cash employee compensation                                 |  |                           | 0.13       |      |  
|Redemption accretion on convertible notes                      |  |                           | 0.20       |      |  
|Total non-cash items per share - diluted                       |  | $                         | 0.43       |      | $
|                                                               |  |                           |            |      |  
|Net income per share - basic                                   |  | $                         | 0.28       |      | $
|Net income per share - diluted                                 |  | $                         | 0.28       |      | $
|                                                               |  |                           |            |      |  
|Weighted average number of shares outstanding                  |  |                           |            |      |  
|Basic                                                          |  |                           | 43,169,108 |      |  
|Diluted                                                        |  |                           | 43,853,283 |      |  





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Results of Operations



The following table sets forth key components of our results of operations for the periods indicated, in millions of U.S. dollars and as a percentage of revenues.



All amounts, other than percentages, in millions of U.S. dollars



|                                                                                                                                                 | Three months ended June 30, | Six months ended June 30,
|------------------------------------------------------------------------------------------------------------------------------------------------ | --------------------------- | -------------------------
|                                                                                                                                                 | 2008                        | 2007                     
|Revenues                                                                                                                                         | $                           | 92.74                    
|Cost of goods sold (including depreciation and amortization for the three and six months ended June 30, 2008 and 2007 of $0.2, $0.29, $0 and $0) |                             | (62.28)                  
|Gross profit                                                                                                                                     |                             | 30.46                    
|Selling and marketing                                                                                                                            |                             | (2.99)                   
|General and administrative                                                                                                                       |                             | (7.98)                   
|Non-cash employee compensation                                                                                                                   |                             | (3.11)                   
|Depreciation and amortization                                                                                                                    |                             | (2.13)                   
|Income from operations                                                                                                                           |                             | 14.25                    
|Other income                                                                                                                                     |                             | 0.42                     
|Interest expense, Cash                                                                                                                           |                             | (0.42)                   
|Redemption accretion on        convertible notes                                                                                                 |                             | (4.36)                   
|Income before income taxes                                                                                                                       |                             | 9.89                     
|Income taxes                                                                                                                                     |                             | (2.15)                   
|Net income                                                                                                                                       | $                           | 7.74                     



Comparison of Three Months Ended June 30, 2008 and June 30, 2007



Revenues.



Our revenues are generated from system installations and manufacturing and distribution of security and safety products. During the three months ended June 30, 2008, we experienced solid growth in revenues. Revenues increased $40.61 million, or 77.9%, to $92.74 million for the three months ended June 30, 2008 from $52.13 million for the three months ended June 30, 2007. The increase in revenues 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 three companies in the second quarter of 2008. 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 second quarter of 2008.



After Stonesonic, Longhorn and Guanling became our wholly owned subsidiaries in April 2008, we consolidated the financial results of these three companies beginning in the second quarter of 2008, which contributed $4.23 million, $3.26 million, and $3.49 million to our revenues in the second quarter of 2008. We consolidated the financial results of Hongtianzhi, HiEasy, Minking and Tsingvision from the second and third quarters of 2007 and Cheng Feng starting from the third quarter of 2006. Hongtianzhi, HiEasy, Minking and Tsingvision had revenues of $5.27 million, $2.80 million, $4.80 million and $0.37 million in the second quarter of 2008. 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 $6.73 million in the second quarter of 2008.



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



(In millions of U.S. dollars)



|Revenues from the Installation Segment recognized from installation contracts signed before the first quarter of 2008          | $ | 25.1
|------------------------------------------------------------------------------------------------------------------------------ | - | ----
|Revenues from the Installation Segment recognized from installation contracts signed in  the second quarter of 2008            | $ | 37.0
|Revenues from the Manufacturing Segment recognized from manufacturing contracts signed before the first quarter of 2008        | $ | 0.9 
|Revenues from the Manufacturing Segment recognized from manufacturing contracts signed in  the second quarter of 2008          | $ | 19.5
|Revenues from the Distribution Segment                                                                                         | $ | 10.2
|Total revenues recognized in the second quarter of 2008                                                                        | $ | 92.7
|Revenues deferred                                                                                                              | $ | 1.1 
|Backlog of contracts for system installation and manufacturing of security and safety products signed before June 30, 2008 (1) | $ | 42.2



(1) We have conservatively not included letters of intent, framework agreements and various other agreements in our backlog numbers as they are subject to final binding 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 June 30, 2008 and 2007.



All amounts, except percentage of revenues, in millions of U.S. dollars



|                      |  | Three months ended June 30,
|--------------------- |  | ---------------------------
|Revenues              |  | 2008                       
|Installation Segment  |  | $                          
|Manufacturing Segment |  |                            
|Distribution Segment  |  |                            
|Total                 |  | $                          



For the three months ended June 30, 2008 and 2007, our Installation Segment generated revenues of $62.15 million and $39.37 million which represented 67.0% and 75.5% of our total revenues, respectively.  Such 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 second 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 2008 also contributed to the growth in sales revenue.



For the three months ended June 30, 2008 and 2007, our Manufacturing Segment generated revenues of $20.36 million and $12.76 million, representing 22% and 24.5% of our total revenues, respectively.  Such increase in revenues was mainly attributed to the acquisition of Stonesonic and Longhorn and organic growth in the Manufacturing Segment.



In the first quarter of 2008, we established a new segment  Distribution Segment, which generated revenues of $10.23 million, representing 11% of our total revenues for the three months ended June 30, 2008.



Management believes that revenues from the Installation Segment will continue to be the Companys major revenue source in the next a few years. With the recent acquisitions of Stoneonic, Longhorn and Guanling and other planned acquisitions, management believes that the percentage of revenues from the Manufacturing Segment and the Distribution Segment will increase in the future.



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) continued enhancement  of our branding and profiling in China, and (iv) an acquisition strategy intended to boost our market share and competitiveness.



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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 second quarter of 2008 increased by 67.2% to $62.28 million, as compared to $37.23 million for the same period last year. The increase was mainly due to the reasons as described below.



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 $15.56 million, or 104.4%, to $30.46 million for the three months ended June 30, 2008, from $14.90 million for the same period last year. Gross margin for the three months ended June 30, 2008 was 32.8%, as compared to 28.6% for the same period of 2007.  The increase in our gross margin was primarily driven by the cost savings derived from the increase in economies of scale.



The following table shows the different segment components comprising our gross profit margin over the three months ended June 30, 2008 and 2007.



|                      |  | Three months ended June 30,
|--------------------- |  | ---------------------------
|Gross Margin          |  | 2008                       
|Installation Segment  |  |                            
|Manufacturing Segment |  |                            
|Distribution Segment  |  |                            
|Total                 |  |                            



For the three months ended June 30, 2008, gross margins of the Installation Segment and Manufacturing Segment were approximately 34.0% and 35.0%, respectively, compared to 27.8% and 31.0% for the same period last year. Gross margin of our newly established Distribution Segment was 21.6% in the second quarter of 2008. The gross margin of the Installation Segment increased because as the scale of our projects increased, our margin for those projects increased.  The increase in our gross margin of Manufacturing Segment was primarily driven by increased economies of scale. For the three months ended June 30, 2008, gross margin of the Distribution Segment was 21.6%.



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 $2.13 million, or 247.7%, to $2.99 million for the three months ended June 30, 2008 from $0.86 million for the same period in 2007. This dollar increase was primarily attributable to the consolidation of the financial results of Tsingvision, Stonesonic, Longhorn and Guanling which incurred selling and marketing expenses associated with sales of their products. As a percentage of revenues, our selling and marketing expenses increased to 3.2% for the three months ended June 30, 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.



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 $5.47 million, or 217.9%, to $7.98 million for the three months ended June 30, 2008 from $2.51 million for the same period in 2007. As a percentage of revenues, general and administrative expenses increased to 8.6% for the three months ended June 30, 2008 from 4.8% for the same period in 2007. The dollar and percentage increase was mainly due to the consolidation of the financial results of Stonesonic, Longhorn and Guanling, the hiring of additional staff, the increased costs in connection with improving our internal controls and professional expenses related to the costs of these newly acquired subsidiaries became part of a public reporting company.



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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 June 30, 2008, we granted an aggregate of 317,501 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 June 30, 2008 increased to $3.11 million from $0.80 million for the same period in 2007, primarily because we granted more shares of restricted stock under the Plan in the second quarter of 2008.



Depreciation and amortization



Our depreciation and amortization costs increased $1.25 million, or 115.7%, to $2.33 million (including $0.20 million depreciation and amortization costs included under cost of goods sold) for the three months ended June 30, 2008 from $1.08 million for the same period in 2007. As a percentage of revenues, depreciation and amortization expenses increased to 2.5% for the three months ended June 30, 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 Tsingvision, Stonesonic, Longhorn, and Guanling and the establishment of exclusive cooperation relationship with DM.



Income from operations



Our income from operations increased $4.60 million, or 47.7%, to $14.25 million for the three months ended June 30, 2008 as compared to $9.65 million for the same period in 2007. As a percentage of revenues, income from operations decreased to 15.4% for the three months ended June 30, 2008 from 18.5% 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 June 30, 2008 and 2007.



All amounts, except percentage of income from operations, in millions of U.S. dollars



|                       |  | Three months ended June 30,
|---------------------- |  | ---------------------------
|Income from operations |  | 2008                       
|Installation Segment   |  | $                          
|Manufacturing Segment  |  |                            
|Distribution Segment   |  |                            
|Corporate and others   |  |                            
|Total                  |  | $                          



Income from operations related to the Installation Segment increased 96.1%, or $8.60 million to $17.55 million for the three months ended June 30, 2008, compared to $8.95 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 second quarter of 2008.



Income from operations related to the Manufacturing Segment increased
1.9%, or $0.04 million to $2.17 million for the three months ended June 30, 2008, compared to income from operations of $2.13 million for the same period in 2007.  Our acquisitions in the second quarters of 2007 and 2008 greatly increased our sales of manufactured products.  However,  during the three months ended June 30, 2008, our Manufacturing Segment hired additional staff to meet the anticipated growth of the Manufacturing Segment which largely offset the growth in revenues.  We expect 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.



Loss from operations related to our new Distribution Segment, which was still under development, was $0.2 million for the three months ended June 30, 2008.



Loss from operations related to the Corporate and others increased 268.5% or $3.84 million to $5.27 million for the three months ended June 30, 2008, compared to $1.43 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.



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Other income



Our other income decreased $0.07 million, or 14.3% to $0.42 million for the three months ended June 30, 2008 from $0.49 million for the same period in 2007. As a percentage of revenues, other income decreased to 0.5% for the three months ended June 30, 2008 from 0.9% for the same period in 2007. Such percentage decrease was primarily because we did not receive any rental income from related parties in the second quarter of 2008.  Those rental properties were disposed of in 2007.



Interest expense (excluding redemption accretion on convertible notes)



During the second quarter of 2008, we had two bank loans from local Chinese banks outstanding and incurred a total interest expense of $0.42 million, as compared to $0.29 million for the same period in 2007. For the convertible notes, we paid $0.28 million interest during the three months ended June 30, 2008.



Redemption accretion on convertible notes



Redemption accretion on convertible notes for the three months ended June 30, 2008 was $4.36 million, as compared to $3.81 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.



Income before taxes



Our income before taxes increased $3.85 million, or 63.7%, to $9.89 million for the three months ended June 30, 2008 from $6.04 million for the same period in 2007. As a percentage of revenues, income before taxes decreased to 10.7% from 11.6% 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 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 June 30, 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 other high-technology subsidiaries, were subject to a 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, beginning January 1, 2008, nearly all FIEs and other domestic businesses are subject to the new tax rate rather than benefiting from the foreign enterprise income tax and its associated preferential tax treatments.



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 50% tax reduction or five-year exemption and five-year 50% tax reduction under the original EIT Law, are allowed to continue their preference until these holidays expire.



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, the organization's global income will be subject to PRC income tax of 25%.



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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% because 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 its software and status as a high technology company. HiEasy, Minking, Tsingvision, Stonesonic and Guanling are subject to an EIT rate of 25%. Longhorn is exempt from EIT in 2008.



Income taxes increased $0.38 million to $2.15 million for the three months ended June 30, 2008 from $1.77 million for the same period of 2007. We paid more taxes during the three months ended June 30, 2008 primarily because of the increased income before income taxes during that period.



Net income



Net income increased $3.47 million, or 81.3%, to $7.74 million for the three months ended June 30, 2008 from $4.27 million for the same period in 2007.



Comparison of Six Months Ended June 30, 2008 and June 30, 2007



Revenue



During the six months ended June 30, 2008, we experienced solid growth in revenues. The following table shows the different segments comprising our total revenues for the six months ended June 30, 2008 and 2007.



All amounts, except percentage of revenues, in millions of U.S. dollars



| |                       | Six months ended June 30,
| | --------------------- | -------------------------
| | Revenues              |                          
| | Installation Segment  |                          
| | Manufacturing Segment |                          
| | Distribution Segment  |                          
| | Total                 |                          



For the six months ended June 30, 2008 and 2007, our Installation Segment generated revenues of $121.69 million and $73.39 million which represented 74% and 81% 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 six months 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 six months ended June 30, 2008 and 2007, our Manufacturing Segment generated revenues of $28.49 million and $17.19 million, representing 17.3% and 19% of our total revenues, respectively.  The increase in revenues was mainly attributed to the acquisition of Stonesonic and Longhorn.



In the first six months of 2008, we established a new segment  our Distribution Segment, which generated revenues of $14.34 million, representing 8.7% of our total revenues for the six months ended June 30, 2008.



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Cost of goods sold



Cost of goods sold for the six months ended June 30, 2008 increased by 70.5% to $111.81 million, as compared to $65.57 million for the same period last year. The increase was primarily due to the reasons as described below.



Gross profit and gross margin



Our gross profit increased $27.7 million, or 110.8%, to $52.71 million for the six months ended June 30, 2008, from $25.01 million for the same period last year. Gross margin for the six months ended June 30, 2008 was 32.0%, as compared to 27.6% for the same period of 2007. The increase in our gross margin was primarily driven by the change of product mix and increased economies of scale.



The following table shows the different segment components comprising our gross profit margin over the six months ended June 30, 2008 and 2007.



|                      |  | Six months ended June 30,
|--------------------- |  | -------------------------
|Gross Margin          |  | 2008                     
|Installation Segment  |  |                          
|Manufacturing Segment |  |                          
|Distribution Segment  |  |                          
|Total                 |  |                          



For the six months ended June 30, 2008, gross margins for the Installation Segment and Manufacturing Segment were approximately 31.9% and 35.2%, respectively, compared to 27.4% and 28.8% for the same period last year. Gross margin for our newly established Distribution Segment was 26.8% in the first six months of 2008. The gross margin for the Installation Segment increased because of the increase of the scale of our projects.  The increase in gross margin for the Manufacturing Segment was primarily driven by increased economies of scale. For the six months ended June 30, 2008, gross margin for Distribution Segment was 26.8%.



Selling and marketing expenses



Our selling and marketing expenses increased $3.67 million, or 251.4%, to $5.13 million for the six months ended June 30, 2008 from $1.46 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, Tsingvision, Stonesonic, Longhorn and Guanling which incurred selling and marketing expenses associated with sales of their products. As a percentage of revenues, our selling and marketing expenses increased to 3.1% for the six months ended June 30, 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.



General and administrative expenses



Our general and administrative expenses increased $7.69 million, or 171.3%, to $12.18 million for the six months ended June 30, 2008 from $4.49 million of the same period in 2007. As a percentage of revenues, general and administrative expenses increased to 7.4% for the six months ended June 30, 2008 from 5.0% for the same period in 2007. The dollar and percentage increase was mainly due to the consolidation of the financial results of Stonesonic, Longhorn and Guanling, the hiring of additional staff, the increased costs in connection with improving our internal controls and professional expenses related to the costs of the newly acquired subsidiaries became part of a public reporting company.



Non-cash employee compensation



During the six months ended June 30, 2008, we granted an aggregate of 499,001 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 six months ended June 30, 2008 increased to $6.07 million from $1.07 million for the same period in 2007, primarily because we granted more shares of restricted stock under the Plan in the first six months of 2008.



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Depreciation and amortization



Our depreciation and amortization costs increased $2.35 million, or 124.3%, to $4.24 million (including $0.29 million depreciation and amortization costs included under cost of goods sold) for the six months ended June 30, 2008 from $1.89 million for the same period in 2007. As a percentage of revenues, depreciation and amortization expenses increased to 2.6% for the six months ended June 30, 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 Tsingvision, Stonesonic, Longhorn, and Guanling and the establishment of exclusive cooperation relationship with DM. The amortization of intangible assets increased as a result of these acquisitions.



Income from operations



Our income from operations increased $9.28 million, or 57.6%, to $25.38 million for the six months ended June 30, 2008 as compared to $16.10 million for the same period in 2007. As a percentage of revenues, income from operations decreased to 15.4% for the six months ended June 30, 2008 from 17.8% 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 six months ended June 30, 2008 and 2007.



All amounts, except percentage of income from operations, in millions of U.S. dollars



|                       |  | Six months ended June 30,
|---------------------- |  | -------------------------
|Income from operations |  | 2008                     
|Installation Segment   |  | $                        
|Manufacturing Segment  |  |                          
|Distribution Segment   |  |                          
|Corporate and others   |  |                          
|Total                  |  | $                        



Income from operations related to the Installation Segment increased 86.6%, or $15.09 million to $32.52 million for the six months ended June 30, 2008, compared to $17.43 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 six months of 2008.



Income from operations related to the Manufacturing Segment increased 65.8%, or $1.29 million to $3.25 million for the six months ended June 30, 2008, compared to income from operations of $1.96 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 and the acquisitions we made in the second quarter of 2008, which greatly increased our sales of manufactured products.



Income from operations related to our newly established Distribution Segment was $0.39 million for the six months ended June 30, 2008.



Loss from operations related to Corporate and others increased 227.7% or $10.78 million for the six months ended June 30, 2008, compared to $3.29 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.



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Other income



Our other income decreased $0.38 million, or 31.4% to $0.83 million for the six months ended June 30, 2008 from $1.21 million for the same period in 2007. As a percentage of revenues, other income decreased to 0.5% for the six months ended June 30, 2008 from 1.3% for the same period in 2007. Such percentage decrease was primarily because we did not receive any rental income from related parties in the second quarter of 2008. Those rental properties were disposed of in 2007.



Interest expense (excluding redemption accretion on convertible notes)



We had three bank loans from local Chinese banks outstanding in the first quarter of 2008 and two loans outstanding in the second quarter of 2008, as a result, we incurred a total interest expense of $0.92 million, as compared to $0.45 million of the same period in 2007. For the convertible notes, we paid $0.55 million interest during the six months ended June 30, 2008.



Redemption accretion on convertible notes



Redemption accretion on convertible notes for the six months ended June 30, 2008 was $8.73 million, as compared to $4.98 million for the same period in 2007.



Income before taxes



Our income before taxes increased $4.68 million, or 39.4%, to $16.56 million for the six months ended June 30, 2008 from $11.88 million for the same period in 2007. As a percentage of revenues, income before taxes decreased to 10.1% from 13.1% 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



Our income taxes increased $1.25 million to $4.33 million for the six months ended June 30, 2008 from $3.08 million for the same period of 2007. We paid more taxes during the first six months of 2008 as a result of increased income during that period.



Net income



Net income increased $3.43 million, or 39.0%, to $12.23 million for the six months ended June 30, 2008 from $8.80 million for the same period in 2007. As a percentage of revenues, net income decreased to 7.4% for the six months ended June 30, 2008 from 9.7% for the same period in 2007. This percentage decrease was mainly due to the non-cash expenses such as redemption accretion on convertible notes, depreciation and amortization and non-cash employee compensation.



Liquidity and Capital Resources



General



As of June 30, 2008, we had cash and cash equivalents (including restricted cash) of $88.60 million. The following table sets forth a summary of our net cash flows for the periods indicated.



CASH FLOW

(All amounts in millions of U.S. dollars)



|                                                    |  | Six Months Ended June 30, |       
|--------------------------------------------------- |  | ------------------------- | ------
|                                                    |  | 2008                      |       
|Net cash provided by (used in) operating activities |  | $                         | 11.06 
|Net cash used in investing activities               |  | $                         | (8.38)
|Net cash (used in) provided by financing activities |  | $                         | (9.30)
|Effect of exchange rate changes on cash             |  | $                         | 6.15  
|Net cash (outflow) inflow                           |  | $                         | (0.47)



Operating Activities



Net cash provided by operating activities in the six months ended June 30, 2008 totaled $11.06 million as compared to $3.78 million net cash used in operating activities for the same period of 2007. The increase of net cash provided by operating activities in the six months ended June 30, 2008 was primarily due to decreases in inventories.



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Investing Activities



Our main uses of cash for investing activities during the first six months 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 six months ended June 30, 2008 was $8.38 million, which is a decrease of $44.03 million from net cash used in investing activities of $52.41 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.,
Shenzhen Coson Technology Limited, Zhuhai DIT Digital Co., Ltd., Shenzhen
Skyrise Technology Limited and Shenzhen Jin Lin Technology Co., Ltd. Pursuant to the letters of intent, the cash consideration for these
intended acquisitions is expected to total $22 million with additional consideration to be paid in equity. Consummation of these 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 Stonesonic, 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 six months ended June 30, 2008 totaled $9.30 million as compared to $116.48 million provided 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 six months of 2008, whereas the net cash provided by financing activities in the six months ended June 30, 2007 was mainly attributable to proceeds from the two convertible notes received in February 2007 and in April 2007.



Loan Facilities



As of June 30, 2008, the amount, maturity date and duration of each of our bank loans were as follows:



All amounts in millions of U.S. dollars



|Bank                  |   | Amount | Maturity Date | Duration
|--------------------- | - | ------ | ------------- | --------
|                      |   |        |               |         
|China Citic Bank      | $ | 4.37   | November 2008 | 1 year  
|                      |   |        |               |         
|Shenzhen Ping An Bank |   | 1.01   | March 2009    | 3 years 
|                      |   |        |               |         
|Total                 | $ | 5.38   |               |         



In January 2008, we entered into a loan agreement with Shanghai Pudong Development Bank pursuant to which the Company borrowed RMB30 million (approximately $4.37 million) with an annual interest rate of 6.57%. The loan was due in July 2008 and the interest is payable at the end of each month. The bank was repaid in April 2008.



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.



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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 June 30, 2008:



All amounts in millions of U.S. dollars

|                            |  | Payments due by period |       
|--------------------------- |  | ---------------------- | ------
|                            |  | Total                  |       
|Long-term debt obligations  |  | $                      | 111.01
|Operating lease obligations |  |                        | 0.88  
|Total                       |  | $                      | 111.89



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. The adoption of SFAS 161 is not expected to have a material effect on the Companys consolidated financial statements.



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. The Company is currently evaluating the potential impact that the adoption of SFAS 141R will have on its consolidated financial statements.



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.



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.



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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.



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.



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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 June 30, 2008. Based upon their evaluation, these executive officers have concluded that our disclosure controls and procedures are effective as of June 30, 2008.



Changes in Internal Control over Financial Reporting. There has been no change to our internal control over financial reporting during the six months ended June 30, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



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PART II

OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



From time to time, we may have disputes that arise in the ordinary course of our business. Currently, there are no 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



On April 2, 2008, pursuant to an Equity Transfer Agreement with Aiqi Chen, the sole owner of Kit Grant, we agreed to issue 953,918 shares of our common stock to Ms. Chen as part of the total consideration for the acquisition of 100% of the equity interest of  Kit Grant. The offer and sales of the securities were made in an offshore transaction pursuant to Regulation S under the Securities Act.



On April 2, 2008, pursuant to an Equity Transfer Agreement with Ms. Weilan Zhuang, the sole owner of Sincere On, we agreed to issue 790,502 shares of our common stock to Ms. Zhuang as part of the total consideration for the acquisition of 100% of the equity interest of Sincere On. The offer and sales of the securities were made in an offshore transaction pursuant to Regulation S under the Securities Act.



On April 21, 2008, pursuant to an Equity Transfer Agreement with Ms. Weilan Zhuang, the sole owner of Sharp Eagle, we agreed to issue 206,661shares of our common stock to Ms. Zhuang as part of the total consideration for the acquisition of 100% of the equity interest of Sharp Eagle. The offer and sales of the securities were made in an offshore transaction pursuant to Regulation S under the Securities Act.



ITEM 3. DEFAULTS UPON SENIOR SECURITIES



There were no defaults upon senior securities in the quarter ended June 30, 2008.



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



On June 18, 2008, the Company held an annual meeting at which a majority of the Companys shareholders elected five directors and approved the ratification of GHP Horwath, P.C. as the Company's independent accountants for fiscal year 2008.



The following table sets forth the matters voted upon at the annual meeting and the results of the voting on each matter voted upon:



|Matter Voted Upon                                                                           |  | Votes For |            | Withheld |  | Votes Against |  | Abstentions |       | Broker
Non-Votes | 
|------------------------------------------------------------------------------------------- |  | --------- | ---------- | -------- |  | ------------- |  | ----------- | ----- | ---------------- | 
|Election of Guoshen Tu to the Companys Board of Directors                                  |  |           | 28,345,204 |          |  | 614,172       |  |             | 0     |                  | 
|Election of Terence Yap to the Companys Board of Directors                                 |  |           | 28,344,165 |          |  | 615,211       |  |             | 0     |                  | 
|Election of Peter Mak to the Companys Board of Directors                                   |  |           | 28,653,285 |          |  | 306,091       |  |             | 0     |                  | 
|Election of Runsen Li to the Companys Board of Directors                                   |  |           | 28,654,630 |          |  | 304,746       |  |             | 0     |                  | 
|Election of Robert Shiver to the Companys Board of Directors                               |  |           | 28,653,030 |          |  | 306,346       |  |             | 0     |                  | 
|Approval of GHP Horwath, P.C. as the Companys independent accountants for fiscal year 2008 |  |           | 28,949,080 |          |  | 0             |  |             | 6,101 |                  | 



Each of the above matters was approved by the stockholders at the annual meeting.



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ITEM 5. OTHER INFORMATION



N/A



ITEM 6. EXHIBITS



|Exhibit Number |  | Description                                                                                                                                                     
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |  |                                                                                                                                                                 
|10.1           |  | Form of Confirmation of Successful Subscription, dated July 23, 2008                                                                                            
|               |  |                                                                                                                                                                 
|10.2           |  | Form of Subscription Application, dated July 23, 2008                                                                                                           
|               |  |                                                                                                                                                                 
|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 thereunto duly authorized.



DATED: August 4, 2008





| |                                                |               
| | ---------------------------------------------- | --------------
| | China Security & Surveillance Technology, Inc.
| |                                                |               
| | By:                                            | /s/ Guoshen Tu
| | Guoshen Tu                                    
| | Principal Executive Officer                   



| |                             |                
| | --------------------------- | ---------------
| | By:                         | /s/ Terence Yap
| | Terence Yap                
| | Principal Financial Officer





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EXHIBIT INDEX



|Exhibit Number |  | Description                                                                                                                                                     
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |  |                                                                                                                                                                 
|10.1           |  | Form of Confirmation of Successful Subscription, dated July 23, 2008                                                                                            
|               |  |                                                                                                                                                                 
|10.2           |  | Form of Subscription Application, dated July 23, 2008                                                                                                           
|               |  |                                                                                                                                                                 
|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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