---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10Q

(Mark One)

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

For the quarterly period ended: June 30, 2010

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

For the transition period from ________ to ________

Commission File Number: 001-33774

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 RoadFutian District, Shenzhen, China 518034(Address of principal executive offices, Zip Code)

(86) 755-8351-0888(Registrants
telephone number, including area code)

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

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X]     No [   ]

Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes [   ]     No [   ]

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

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

Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes [  
]     No[X]

The number of shares outstanding of each of the issuers classes
of common equity, as of July 22, 2010 is as follows:

|Class of Securities             | Shares Outstanding
|------------------------------- | ------------------
|Common Stock, $0.0001 par value | 86,652,168        

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TABLE OF CONTENTS

|               |                                                                                             | Page
|-------------- | ------------------------------------------------------------------------------------------- | ----
|               |                                                                                             |     
|PART
      I   |                                                                                             |     
|               |                                                                                             |     
|Item
      1.  | Financial
      Statements                                                                  | [1] 
|Item
      2.  | Management's
      Discussion and Analysis of Financial Condition and Results of Operations | [24]
|Item
      3.  | Quantitative
      and Qualitative Disclosures About Market Risk                            | [40]
|Item
      4.  | Controls
      and Procedures                                                               | [40]
|               |                                                                                             |     
|PART
      II  |                                                                                             |     
|               |                                                                                             |     
|Item
      1.  | Legal
      Proceedings                                                                     | [41]
|Item
      1A. | Risk
      Factors                                                                          | [41]
|Item
      2.  | Unregistered
      Sales of Equity Securities and Use of Proceeds                           | [41]
|Item
      3.  | Defaults
      Upon Senior Securities                                                       | [41]
|Item
      4.  | (Removed
      and Reserved)                                                                | [41]
|Item
      5.  | Other
      Information                                                                     | [41]
|Item
      6.  | Exhibits                                                                                    | [41]

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PART IFINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETSAS OF
JUNE 30, 2010 (UNAUDITED) AND DECEMBER 31, 2009Expressed in
thousands of U.S. dollars(Except for share and per share amounts)

|**ASSETS**                                                                            |  
|------------------------------------------------------------------------------------- | -
|                                                                                      |  
|                                                                                      |  
|Cash and cash equivalents                                                             | $
|Accounts receivable, net                                                              |  
|Inventories, net                                                                      |  
|Prepayments and deposits                                                              |  
|Advances to suppliers                                                                 |  
|Other receivables                                                                     |  
|Deferred tax assets - current portion                                                 |  
|Total current assets                                                                  |  
|                                                                                      |  
|Deposits paid for acquisition of subsidiaries, properties
      and intangible assets |  
|Plant and equipment, net                                                              |  
|Land use rights, net                                                                  |  
|Intangible assets                                                                     |  
|Goodwill                                                                              |  
|Deferred financing cost                                                               |  
|TOTAL ASSETS                                                                          | $

Continued

1

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CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)AS OF JUNE 30, 2010 (UNAUDITED) AND DECEMBER 31, 2009Expressed in thousands of U.S. dollars(Except for share and per share amounts)

|**LIABILITIES AND EQUITY**                                                                                                                                                                           |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -
|                                                                                                                                                                                                     |  
|                                                                                                                                                                                                     |  
|CURRENT LIABILITIES                                                                                                                                                                                  |  
|                                                                                                                                                                                                     |  
|Notes payable                                                                                                                                                                                        | $
|Obligations under product financing arrangements  short
      term                                                                                                                                  |  
|Guaranteed senior unsecured notes payable 
      short term                                                                                                                                         |  
|Accounts and bills payable                                                                                                                                                                           |  
|Accrued expenses                                                                                                                                                                                     |  
|Advances from customers                                                                                                                                                                              |  
|Taxes payable                                                                                                                                                                                        |  
|Payable for acquisition of businesses, properties and land
      use rights                                                                                                                          |  
|Deferred income                                                                                                                                                                                      |  
|Total current liabilities                                                                                                                                                                            |  
|                                                                                                                                                                                                     |  
|LONG TERM LIABILITIES                                                                                                                                                                                |  
|Obligation under product financing arrangements
       long term                                                                                                                                    |  
|Guaranteed senior unsecured notes payable  long term                                                                                                                                                |  
|Net deferred tax liabilities                                                                                                                                                                         |  
|Total liabilities                                                                                                                                                                                    |  
|                                                                                                                                                                                                     |  
|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       86,297,168
      (June 30, 2010) and       67,866,730 (December
      31, 2009)       shares issued and outstanding |  
|Additional paid-in capital                                                                                                                                                                           |  
|Retained earnings                                                                                                                                                                                    |  
|Statutory surplus reserve fund                                                                                                                                                                       |  
|Accumulated other comprehensive income                                                                                                                                                               |  
|                                                                                                                                                                                                     |  
|                                                                                                                                                                                                     |  
|Total equity of the Company                                                                                                                                                                          |  
|Noncontrolling interest                                                                                                                                                                              |  
|Total equity                                                                                                                                                                                         |  
|TOTAL LIABILITIES AND EQUITY                                                                                                                                                                         | $

See the accompanying notes to condensed consolidated financial
statements

2

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CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOMEFOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010
AND 2009Expressed in thousands of U.S. dollars(Except for share and per share amounts)

|                                                                                                                                                                                                                             |   | Three Months Ended June 30, |   |   | Six Months Ended June 30, |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | --------------------------- | - | - | ------------------------- | -
|                                                                                                                                                                                                                             |   | 2010                        |   |   | 2009                      |  
|                                                                                                                                                                                                                             |   | (Unaudited)                 |   |   | (Unaudited)               |  
|Revenues                                                                                                                                                                                                                     | $ | 168,354                     |   | $ | 141,915                   |  
|Cost of goods sold (including depreciation and      amortization for
      the three and six months       ended June 30,
      2010 and 2009 of $248,       $502, $238
      and $479, respectively)                         |   | 124,994                     |   |   | 110,899                   |  
|                                                                                                                                                                                                                             |   |                             |   |   |                           |  
|Gross profit                                                                                                                                                                                                                 |   | 43,360                      |   |   | 31,016                    |  
|Selling and marketing                                                                                                                                                                                                        |   | 3,131                       |   |   | 3,034                     |  
|General and administrative (including non-cash      employee compensation
      for the three and       six months ended June 30,
      2010 and 2009       of $5,055, $13,381, $4,358
      and $8,576,       respectively) |   | 12,670                      |   |   | 12,500                    |  
|Depreciation and amortization                                                                                                                                                                                                |   | 3,005                       |   |   | 2,910                     |  
|                                                                                                                                                                                                                             |   |                             |   |   |                           |  
|Income from operations                                                                                                                                                                                                       |   | 24,554                      |   |   | 12,572                    |  
|Interest income                                                                                                                                                                                                              |   | 53                          |   |   | 57                        |  
|Interest expense                                                                                                                                                                                                             |   | (3,064                      | ) |   | (6,580                    | )
|Other income, net                                                                                                                                                                                                            |   | 394                         |   |   | 1,000                     |  
|                                                                                                                                                                                                                             |   |                             |   |   |                           |  
|Income before income taxes                                                                                                                                                                                                   |   | 21,937                      |   |   | 7,049                     |  
|Income taxes                                                                                                                                                                                                                 |   | (4,130                      | ) |   | (551                      | )
|                                                                                                                                                                                                                             |   |                             |   |   |                           |  
|Net income                                                                                                                                                                                                                   |   | 17,807                      |   |   | 6,498                     |  
|Add: Net (income) loss attributable to the      
      noncontrolling interest                                                                                                                                               |   | (4                          | ) |   | 3                         |  
|                                                                                                                                                                                                                             |   |                             |   |   |                           |  
|Net income attributable to the Company                                                                                                                                                                                       |   | 17,803                      |   |   | 6,501                     |  
|Foreign currency translation gain (loss)                                                                                                                                                                                     |   | 3,198                       |   |   | (162                      | )
|                                                                                                                                                                                                                             |   |                             |   |   |                           |  
|Comprehensive income attributable to the
      Company                                                                                                                                                                       |   | 21,001                      |   |   | 6,339                     |  
|Comprehensive income (loss) attributable to the      
      noncontrolling interest                                                                                                                                          |   | 4                           |   |   | (3                        | )
|                                                                                                                                                                                                                             |   |                             |   |   |                           |  
|COMPREHENSIVE INCOME                                                                                                                                                                                                         | $ | 21,005                      |   | $ | 6,336                     |  
|                                                                                                                                                                                                                             |   |                             |   |   |                           |  
|**NET INCOME PER SHARE ATTRIBUTABLE**     **TO** **THE COMPANYS
      COMMON**     **SHAREHOLDERS**                                                                                                                         |   |                             |   |   |                           |  
|BASIC                                                                                                                                                                                                                        | $ | 0.25                        |   | $ | 0.14                      |  
|DILUTED                                                                                                                                                                                                                      | $ | 0.23                        |   | $ | 0.13                      |  
|WEIGHTED AVERAGE NUMBER OF SHARES 
           OUTSTANDING                                                                                                                                                                    |   |                             |   |   |                           |  
|BASIC                                                                                                                                                                                                                        |   | 71,480,000                  |   |   | 45,455,000                |  
|DILUTED                                                                                                                                                                                                                      |   | 76,006,000                  |   |   | 50,022,000                |  

See the accompanying notes to condensed consolidated financial
statements

3

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CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE SIX MONTHS ENDED JUNE 30, 2010 (UNAUDITED)Expressed in thousands of U.S. dollars(Except for share and per share amounts)

Common
        Stock
      
      
      The
        Companys ShareholdersAccumulated
      
      
      StatutoryAdditional
      
      
      
      
      
      Other
      
      
      SurplusPar
      
      
      Paid-in
      
      
      Retained
      
      
      Comprehensive
      
      
      Reserve
      
      
      Noncontrolling
      
      
      TotalShares
      
      
      Value
      
      
      Capital
      
      
      Earnings
      
      
      Income
      
      
      Fund
      
      
      Interest
      
      
      EquityBALANCE AT      
        JANUARY 1, 2010
      
      67,866,730
      
      $
      7
      
      $
      285,025
      
      $
      165,982
      
      $
      27,565
      
      $
      804
      
      $
      (18
      )
      $
      479,365Common stock issued in public      
        offering, net of offering costs
      
      17,250,000
      
      
      2
      
      
      64,571
      
      
      --
      
      
      --
      
      
      --
      
      
      --
      
      
      64,573Issuance of restricted stock under 
             Equity Incentive Plan and      
        recognition of stock-based       compensation
      
      1,180,438
      
      
      --
      
      
      13,381
      
      
      --
      
      
      --
      
      
      --
      
      
      --
      
      
      13,381Foreign currency translation gain
      
      --
      
      
      --
      
      
      --
      
      
      --
      
      
      3,322
      
      
      --
      
      
      --
      
      
      3,322Net income for the period
      
      --
      
      
      --
      
      
      --
      
      
      21,080
      
      
      --
      
      
      --
      
      
      2
      
      
      21,082BALANCE AT       JUNE
        30, 2010
      
      86,297,168
      
      $
      9
      
      $
      362,977
      
      $
      187,062
      
      $
      30,887
      
      $
      804
      
      $
      (16
      )
      $
      581,723


See the accompanying notes to condensed consolidated financial
statements

4

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CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009 (UNAUDITED)Expressed in thousands of U.S. dollars(Except for share and per share amounts)

|                                                                                                                              |   | Six Months Ended June 30, |  
|----------------------------------------------------------------------------------------------------------------------------- | - | ------------------------- | -
|                                                                                                                              |   | 2010                      |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                         |   |                           |  
|Net income                                                                                                                    | $ | 21,082                    |  
|Adjustments
      to reconcile net income to net cash (used in) provided by 
                  operating
      activities:    |   |                           |  
|Provision for doubtful
      accounts                                                                                         |   | --                        |  
|Depreciation
      and amortization                                                                                           |   | 6,487                     |  
|Amortization of consultancy
      services                                                                                    |   | --                        |  
|Amortization
      of deferred financing cost                                                                                 |   | 563                       |  
|Non-cash employee
      compensation                                                                                          |   | 13,381                    |  
|Redemption
      accretion on convertible notes                                                                               |   | --                        |  
|Debt discount amortization                                                                                                    |   | 1,681                     |  
|Deferred
      taxes                                                                                                          |   | (361                      | )
|Changes in operating
      assets and liabilities:                                                                            |   |                           |  
|(Increase)
      decrease in:                                                                                                 |   |                           |  
|Accounts receivable                                                                                                           |   | (65,925                   | )
|Inventories                                                                                                                   |   | (9,866                    | )
|Prepayments and deposits                                                                                                      |   | (159                      | )
|Advances
      to suppliers                                                                                                   |   | (31,947                   | )
|Other receivables                                                                                                             |   | (4,070                    | )
|(Decrease)
      increase in:                                                                                                 |   |                           |  
|Accounts and bills
      payable, and accrued expenses                                                                        |   | (392                      | )
|Advances
      from customers                                                                                                 |   | 3,953                     |  
|Taxes payable                                                                                                                 |   | 8,582                     |  
|Deferred
      income                                                                                                         |   | 529                       |  
|Net cash (used in)
      provided by operating activities                                                                     |   | (56,462                   | )
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                         |   |                           |  
|Additions to plant
      and equipment                                                                                        |   | (846                      | )
|Additions
      to intangible assets                                                                                          |   | (807                      | )
|Deposits paid for
      acquisition of subsidiaries                                                                           |   | (30,229                   | )
|Payments
      for business acquisitions                                                                                      |   | (422                      | )
|Net cash inflow from
      acquisition of subsidiaries                                                                        |   | --                        |  
|Net
      cash used in investing activities                                                                                   |   | (32,304                   | )
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                         |   |                           |  
|Issue
      of common stock, net of issuing expenses                                                                          |   | 64,573                    |  
|Proceeds from borrowings,
      net of issuance costs                                                                         |   | 141,533                   |  
|Repayment
      of borrowings                                                                                                 |   | (49,899                   | )
|Repayment of guaranteed
      senior unsecured notes payable                                                                  |   | (19,320                   | )
|Proceeds
      from borrowings from obligations under product financing             arrangements,
      net of issuance costs |   | 6,293                     |  
|Repayment of obligation
      under product financing arrangements                                                            |   | (2,671                    | )
|Net
      cash provided by financing activities                                                                               |   | 140,509                   |  
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                                                                     |   | 51,743                    |  
|Effect
      of exchange rate changes on cash and cash equivalents                                                            |   | 1,841                     |  
|Cash and cash equivalents,
      beginning of period                                                                          |   | 154,483                   |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                                                                      | $ | 208,067                   |  

Continued

5

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CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009Expressed in thousands of U.S. dollars(Except for share and per share amounts)

|SUPPLEMENTARY CASH FLOW INFORMATION: |   | Six Months Ended June 30, | 
|------------------------------------ | - | ------------------------- | 
|                                     |   | 2010                      | 
|                                     |   | (Unaudited)               | 
|Interest paid                        | $ | 3,157                     | 
|Income taxes paid                    | $ | 735                       | 

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:

139,573 shares of common stock were issued in satisfaction of a
payable of approximately $906 related to the acquisition of DIT Industry (H.K.)
Limited (DIT) in February 2009.

341,228 shares of common stock were issued in satisfaction of
the purchase price of approximately $1,669 in the acquisition of Shenzhen Coson
Electronic Co. Ltd. (Coson) in February 2009. Additionally, the Company
recorded a liability in the amount of $1,170 representing the estimated fair
value of contingent consideration, to be payable in cash, issued in the
acquisition.

See the accompanying notes to condensed consolidated financial
statements

6

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CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
SUBSIDIARIESNOTES 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, 2010 and
for the three and six months ended June 30, 2010 and 2009, have been prepared by
CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. (the Company) without an
audit. Pursuant to the rules and regulations of the Securities and Exchange
Commission (the SEC), certain information and footnote disclosures normally
included in the financial statements prepared in accordance with accounting
principles generally accepted in the United States of America (US GAAP) have
been condensed or omitted pursuant to such rules and regulations. These
financial statements should be read in conjunction with the financial statements
and the notes thereto included in the Companys audited annual financial
statements for the year ended December 31, 2009, which are included in the
Companys Annual Report on Form 10-K for the year ended December 31, 2009, filed
with the SEC on March 2, 2010, as amended on March 10, 2010. Amounts as of
December 31, 2009 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 financial
position as of June 30, 2010, results of operations for the three and six months
ended June 30, 2010 and 2009, and cash flows for the six months ended June 30,
2010 and 2009, have been made. The results of operations for the three and six
months ended June 30, 2010 are not necessarily indicative of the operating
results for the full year.

2. SUMMARY OF SELECTED SIGNIFICANT ACCOUNTING POLICIES

(a) 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.

(b) Fair Value Measurement

Accounting Standards Codification (ASC) 820 Fair Value
Measurements and Disclosures, which defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. The statement clarifies that the exchange price is the price in an
orderly transaction between market participants to sell the asset or transfer
the liability in the market in which the reporting entity would transact for the
asset or liability, that is, the principal or most advantageous market for the
asset or liability. It also emphasizes that fair value is a market-based
measurement, not an entity-specific measurement, and that market participant
assumptions include assumptions about risk and effect of a restriction on the
sale or use of an asset.

This ASC establishes a fair value hierarchy that prioritizes
the inputs to valuation techniques used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1 measurements) and the lowest priority
to unobservable inputs (Level 3 measurements). The three levels of the fair
value hierarchy are described below:

Level 1: Unadjusted quoted prices in active markets that
are accessible at the measurement date for identical, unrestricted assets or
liabilities;

Level 2: Quoted prices in markets that are not active,
or inputs that are observable, either directly or indirectly, for substantially
the full term of the asset or liability; and

Level 3: Prices or valuation techniques that require
inputs that are both significant to the fair value measurement and unobservable
(supported by little or no market activity).

At June 30, 2010, the Company has no financial assets or
liabilities subject to recurring fair value measurements.

7

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CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
SUBSIDIARIESNOTES 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)

(b) Fair Value Measurement - continued

The Companys financial instruments include cash and cash
equivalents, accounts receivable, deposits, other receivables, accounts and
bills payable, notes payable, obligations under product financing arrangements,
and guaranteed senior unsecured notes payable. Management estimates that the
carrying amounts of the non related party financial instruments approximate
their fair values due to their short-term nature.

(c) Accounts Receivable

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

No trade receivable due from any single individual customer
exceeds 10% of total accounts receivable at June 30, 2010 and December 31, 2009.

From time to time, the Company enters into receivable factoring
agreements. The Company accounts for those arrangements under ASC 860
Transfer and Servicing. These arrangements are without recourse, the
receivables are isolated from the Company, the transferee has the right to
pledge or exchange the receivables, and the Company does not maintain effective
control over the receivables. Therefore, these arrangements satisfy the
conditions to be accounted for as a sale and the Company recognizes any gain or
loss in earnings. The Company did not enter into any receivable factoring
agreements during the six months ended June 30, 2010.

(d) 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 period 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 period the impairment or loss occurs. There were no declines
in net realizable value of inventory for the three and six months ended June 30,
2010 and 2009.

As of June 30, 2010 and December 31, 2009, inventories held
under the product financing arrangements were $19,317 and $12,953, respectively.

During the three and six months ended June 30, 2010 and 2009,
inventory purchases from the top five suppliers constituted approximately 46%,
42%, 31% and 29% of the total inventory purchases, respectively.

(e) Accounting for Software to Be Sold, Leased or Marketed

The Company accounts for software development costs in
accordance with ASC 985-20, Costs of Software to be Sold, Leased, or
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, 2010 and December 31, 2009, unamortized computer
software costs were $5,250 and $4,693, respectively. During the three and six
months ended June 30, 2010 and 2009, $350, $663, $396 and $712 of amortization
expense was charged to income, respectively.

8

---

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
SUBSIDIARIESNOTES 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)

(f) Revenue Recognition

Revenues from sales of surveillance and safety products and
systems are recognized in accordance with Staff Accounting Bulletin (SAB) No.
104,Revenue Recognition, and related interpretations. Revenues
are recognized when the following criteria 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 title to the product is transferred, which
      generally take place when products are shipped to or accepted by the
      customer, depending on the terms of the contract;
| |       |                                                                                                                                                                                                                                                                   
| | (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.                                                              

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, 2010 and December 31, 2009, no material product warranty reserve was
accrued. Warranty costs incurred by the Company have not been material.

The Company derives the bulk of its revenue from the supply and
installation of surveillance and safety equipment, and the two deliverables do
not meet the separation criteria under ASC 605-25 Multiple-Element
Arrangements . Revenue from the supply and installation of surveillance and
safety equipment are recognized when the installation is completed and the
customer acceptance is received. Approximately 1% of contract installation
revenue is deferred for the repair work during the one-year warranty period. The
Company carefully monitors the warranty work requested by its customers, and has
determined that minimal warranty work has historically been requested to be
performed. Management believes that this 1% warranty reserve is adequate as of
June 30, 2010 and December 31, 2009.

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

The Company derives a portion of its revenue from one-year
software upgrades. These services are typical post-contract service (PCS)
arrangements according to ASC 985-605-25 Revenue Recognition . Under
this guidance, PCS revenue may be recognized together with the initial licensing
fee on delivery of the software if all of the following conditions are met:

| | (i)   | The PCS fee is included with the initial licensing
      fee;                                                                                                  
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                
| | (ii)  | The PCS included with the initial license is for one year
      or less;                                                                                       
| |       |                                                                                                                                                                
| | (iii) | The estimated cost of providing PCS during the
      arrangement is insignificant; and                                                                         
| |       |                                                                                                                                                                
| | (iv)  | Unspecified upgrades/enhancements offered during PCS
      arrangements historically have been and are expected to continue to be
      minimal and infrequent.

Revenue from surveillance and safety 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 the ASC guidance.

9

---

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
SUBSIDIARIESNOTES 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)

(g) 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, 2010 and 2009 amounted to $661,
$1,294, $726 and $1,396, respectively.

(h) 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,
2010 and 2009, the Company incurred advertising costs of approximately $915,
$1,564, $77 and $174, respectively.

(i) Retirement Benefits

Retirement benefits in the form of contributions under defined
contribution retirement plans to the relevant authorities are charged to the
consolidated statements of income as incurred. The retirement benefit expenses
for the three and six months ended June 30, 2010 and 2009 were $294, $584, $256
and $526, respectively and are included in the selling and marketing expenses
and general and administrative expenses.

(j) Income taxes

The Company accounts for income taxes using the asset and
liability method prescribed by ASC 740 Income Taxes. Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial reporting and tax bases of assets and liabilities using
enacted tax rates that will be in effect in the year in which the differences
are expected to reverse. The Company records a valuation allowance to offset
deferred tax assets if based on the weight of available evidence, it is
more-likely-than-not that some portion, or all the deferred tax assets will not
be realized. The effect on deferred taxes of a change in tax rates is recognized
as income or loss in the period that includes the enactment date.

The Company does not have any material unrecognized tax
benefits.

The Company files income tax returns with the relevant
government authorities in the U.S. and the PRC. The Company was not subject to
U.S. federal tax examinations for years before 2006. The Company does not
believe there will be any material changes in its unrecognized tax positions
over the next 12 months.

The Companys policy is to recognize interest and penalties
accrued on any unrecognized tax benefits as a component of income tax expense.
The Companys effective tax rate differs from the federal statutory rate
primarily due to non-deductible expenses, temporary differences, and
preferential tax treatment.

(k) Earnings Per Share

ASC 260 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 contingent
issuances, stock options and warrants outstanding during each respective period,
using the if-converted or treasury-stock methods.

For purposes of the computation of net income per share, shares
issued in connection with acquisitions that are returnable are considered
contingently returnable shares. These contingently returnable shares, although
classified as issued and outstanding, are not included in basic weighted average
number of shares until all necessary conditions are met that no longer cause the
shares to be contingently returnable. These contingently returnable shares are
included in diluted weighted average number of shares as of the beginning of the
period in which the conditions were satisfied (or as of the date of the
agreement, if later).

10

---

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

2. SUMMARY OF SELECTED SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

(k) Earnings Per Share  continued

Unvested restricted shares issued (share-based compensation)
under the Equity Incentive Plan are not included in basic weighted average
number of shares but are considered to be outstanding as of the grant date for
purposes of computing diluted earnings per share even though the shares are
subject to vesting requirements.

The calculation of diluted earnings per share also considers
the outstanding warrants for the three and six months ended June 30, 2010 and
2009. As of June 30, 2010, warrants were outstanding to acquire 3,528,302 shares
of common stock. Warrants which were outstanding to acquire 3,498,296 and
3,498,296 shares of common stock, respectively, were not included in the
dilutive calculation for the three and six months ended June 30, 2010, as the
effect would be anti-dilutive.

Basic and diluted earnings per share for the three months ended
June 30, 2010 and 2009 were calculated as follows:

|                                               |   | 2010       |  |   | 2009       | 
|---------------------------------------------- | - | ---------- |  | - | ---------- | 
|Net income attributable to the Company         | $ | 17,803     |  | $ | 6,501      | 
|Weighted average number of common shares:      |   |            |  |   |            | 
|Basic                                          |   | 71,480,000 |  |   | 45,455,000 | 
|Effect of diluted securities:                  |   |            |  |   |            | 
|Warrants                                       |   | 5,000      |  |   | 4,000      | 
|Employee
      share-based compensation        |   | 4,521,000  |  |   | 4,563,000  | 
|Diluted                                        |   | 76,006,000 |  |   | 50,022,000 | 
|Earnings per share attributable to the Company |   |            |  |   |            | 
|Basic                                          | $ | 0.25       |  | $ | 0.14       | 
|Diluted                                        | $ | 0.23       |  | $ | 0.13       | 

Basic and diluted earnings per share for the six months ended
June 30, 2010 and 2009 were calculated as follows:

|                                               |   | 2010       |  |   | 2009       | 
|---------------------------------------------- | - | ---------- |  | - | ---------- | 
|Net income attributable to the Company         | $ | 21,080     |  | $ | 8,514      | 
|Weighted average number of common shares:      |   |            |  |   |            | 
|Basic                                          |   | 67,993,000 |  |   | 45,411,000 | 
|Effect of diluted securities:                  |   |            |  |   |            | 
|Warrants                                       |   | 8,000      |  |   | 8,000      | 
|Employee
      share-based compensation        |   | 4,208,000  |  |   | 4,275,000  | 
|Diluted                                        |   | 72,209,000 |  |   | 49,694,000 | 
|Earnings per share attributable to the Company |   |            |  |   |            | 
|Basic                                          | $ | 0.31       |  | $ | 0.19       | 
|Diluted                                        | $ | 0.29       |  | $ | 0.17       | 

(l) New Accounting Standards

Accounting for Transfers of Financial Assets(Included in ASC 860 Transfers and Serving)

This ASC guidance addresses information a reporting entity
provides in its financial statements about the transfer of financial assets; the
effects of a transfer on its financial position, financial performance, and cash
flows; and a transferors continuing involvement in transferred financial
assets. Also, this ASC guidance removes the concept of a qualifying special
purpose entity, limits the circumstances in which a transferor derecognizes a
portion or component of a financial asset, defines participating interest and
enhances the information provided to financial statement users to provide
greater transparency. This guidance was effective for the Company as of January
1, 2010. The adoption of this guidance had no impact on the Companys
consolidated financial statements.

11

---

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
SUBSIDIARIESNOTES 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)

(l) New Accounting Standards - continued

Consolidation of Variable Interest Entities  Amended

(Included in ASC 810 Consolidation)

Revisions under ASC 810 require an enterprise to perform ongoing reassessments of whether an enterprise is the primary
beneficiary of a variable interest entity and  eliminates the quantitative
approach previously required for determining the primary beneficiary of a
variable interest entity. This ASC guidance also requires enhanced disclosures
that provide users of financial statements with more transparent information
about an enterprises involvement in a variable interest entity. ASC 810 was
effective for the Company as of January 1, 2010. The adoption of this guidance
had no impact on the Companys consolidated financial statements.

Multiple Deliverable Revenue Arrangements

(Accounting Standards Updates 2009-13 and 2009-14)

In October 2009, the FASB issued a new accounting standard
which provides guidance for arrangements with multiple deliverables.
Specifically, the new standard requires an entity to allocate consideration at
the inception of an arrangement to all of its deliverables based on their
relative selling prices. In the absence of the vendor-specific objective
evidence or third-party evidence of the selling prices, consideration must be
allocated to the deliverables based on managements best estimate of the selling
prices. In addition, the new standard eliminates the use of the residual method
of allocation. In October 2009, the FASB also issued a new accounting standard
which changes revenue recognition for tangible products containing software and
hardware elements. Specifically, tangible products containing software and
hardware that function together to deliver the tangible products essential
functionality are scoped out of the existing software revenue recognition
guidance and will be accounted for under the multiple-element arrangements
revenue recognition guidance discussed above. Both standards will be effective
for the Company in the first quarter of 2011. Early adoption is permitted. The
Company is currently evaluating the impact that the adoption of this standard
may have on its consolidated financial statements.

3. ACCOUNTS RECEIVABLE

The Company provides an allowance for doubtful accounts related
to its receivables. The receivables and allowance balances at June 30, 2010 and
December 31, 2009 are as follows:

|                                      |   | June 30, |   |   | December 31, |  
|------------------------------------- | - | -------- | - | - | ------------ | -
|                                      |   | 2010     |   |   | 2009         |  
|Accounts receivable                   | $ | 320,716  |   | $ | 253,610      |  
|Less: allowance for doubtful accounts |   | (1,804   | ) |   | (2,006       | )
|Accounts receivable, net              | $ | 318,912  |   | $ | 251,604      |  

12

---

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

4. INVENTORIES

Inventories consist of the following as of June 30, 2010 and
December 31, 2009:

|                                         |   | June 30, 2010 |   |   | December 31, 2009 |  
|---------------------------------------- | - | ------------- | - | - | ----------------- | -
|                                         |   |               |   |   |                   |  
|Raw materials                            | $ | 15,499        |   | $ | 14,292            |  
|Work in progress                         |   | 2,778         |   |   | 2,212             |  
|Finished goods                           |   | 28,855        |   |   | 18,790            |  
|Installations in process                 |   | 34,792        |   |   | 36,371            |  
|Total                                    |   | 81,924        |   |   | 71,665            |  
|Less: allowance for obsolete inventories |   | (1,532        | ) |   | (1,524            | )
|Inventories, net                         | $ | 80,392        |   | $ | 70,141            |  

5. PREPAYMENTS AND DEPOSITS

Prepayments and deposits consist of the following as of June
30, 2010 and December 31, 2009:

|                                                                          |   | June 30, |  |   | December 31, | 
|------------------------------------------------------------------------- | - | -------- |  | - | ------------ | 
|                                                                          |   | 2010     |  |   | 2009         | 
|                                                                          |   |          |  |   |              | 
|Current portion                                                           | $ | 4,891    |  | $ | 4,706        | 
|Non-current portion                                                       |   |          |  |   |              | 
|-
      Deposits paid for acquisition of subsidiaries                     |   | 35,338   |  |   | 5,081        | 
|-
      Deposits paid for acquisition of properties and intangible assets |   | 2,129    |  |   | 2,118        | 
|                                                                          | $ | 37,467   |  | $ | 7,199        | 

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

6. 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
$71,562 and $39,399 as of June 30, 2010 and December 31, 2009, respectively.

7. PLANT AND EQUIPMENT

At June 30, 2010 and December 31, 2009, plant and equipment, at
cost, consist of:

June 30,
    
    
    December 31,2010
    
    
    2009Buildings
    $
    62,443
    
    $
    62,102Leasehold improvements
    
    3,011
    
    
    2,763Plant and equipment
    
    8,200
    
    
    7,971Electronic equipment
    
    9,638
    
    
    9,305Motor vehicles
    
    5,353
    
    
    5,34388,645
    
    
    87,484Less: accumulated depreciation
    
    (14,325
    )
    
    (12,037
    )Plant and equipment, net
    $
    74,320
    
    $
    75,447


Depreciation expense for the three and six months ended June
30, 2010 and 2009 was $1,179, $2,388, $1,021 and $2,044, respectively.

13

---

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

8. LAND USE RIGHTS

Land use rights consist of the following as of June 30, 2010
and December 31, 2009:

June 30, 2010
    
    
    December 31, 2009Cost of land use rights
    $
    8,573
    
    $
    8,526Less: accumulated amortization
    
    (835
    )
    
    (793
    )Land use rights, net
    $
    7,738
    
    $
    7,733


Amortization expense for the three and six months ended June
30, 2010 and 2009 was $58, $100, $43 and $86, respectively.

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

2010 (for the remaining six months)
    $
    862011
    
    1722012
    
    1722013
    
    1722014
    
    1722015
    
    172Thereafter
    
    6,792Total
    $
    7,738


9. INTANGIBLE ASSETS

|                                                      |   | June 30, 2010 |   |   | December 31, 2009 |  
|----------------------------------------------------- | - | ------------- | - | - | ----------------- | -
|Trademarks (life of 11 to 25 years)                   | $ | 17,222        |   | $ | 17,222            |  
|Exclusive cooperation agreements (life of 20 years)   |   | 13,632        |   |   | 13,632            |  
|Customer base (life of 5 to 10 years)                 |   | 10,448        |   |   | 10,448            |  
|Patents (life of 10 years)                            |   | 4,542         |   |   | 4,542             |  
|Technical know-how (life of 9 to 10 years)            |   | 17,038        |   |   | 17,030            |  
|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)               |   | 10,382        |   |   | 9,268             |  
|Surveillance recording system (life of 5
      years) |   | 500           |   |   | 500               |  
|                                                      |   | 75,477        |   |   | 74,355            |  
|Less: accumulated amortization                        |   | (23,691       | ) |   | (19,678           | )
|Intangible assets, net                                | $ | 51,786        |   | $ | 54,677            |  

The amortization expense for the three and six months ended
June 30, 2010 and 2009 was $2,016, $3,999, $2,084 and $4,081, respectively.

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

2010 (for the remaining six months)
    $
    3,9602011
    
    6,7082012
    
    5,9182013
    
    5,4062014
    
    4,9462015
    
    3,882Thereafter
    
    20,966Total
    $
    51,786


14

---

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

10. NOTES PAYABLE

The Companys notes payable to banks (all current) as of June
30, 2010 and December 31, 2009, totaled $149,464 and $57,116, respectively.

Repayments under the terms of the notes are as follows:

2010 (for the remaining six months)
    $
    39,0232011
    
    110,441Total
    $
    149,464


On May 21, 2010, the Company entered into a loan agreement with
China Zheshang Bank. The Company borrowed RMB20,000 (approximately $2,945) with
an annual interest rate equal to 110% of benchmark lending rate (5.346% as of
June 30, 2010) with interest payable on the 20th of each month. The loan is due
in November 2010. The loan is guaranteed by the CEO of the Company, and two
subsidiaries of the Company.

On May 18, 2010, the Company entered into a loan agreement with
China Everbright Bank Co., Ltd. The Company borrowed RMB40,000 (approximately
$5,890) with an annual interest rate equal to 4.86%, with interest payable on
the 20th of each month. The loan is due in November 2010. The loan is guaranteed
by the CEO of the Company, a subsidiary of the Company and Chuang Guan.

On April 16, 2010, the Company entered into a loan agreement
with Shanghai Pudong Development Bank. The Company borrowed RMB80,000
(approximately $11,780) with an annual interest rate equal to 5.31%, with
interest payable on the 20th of each month. The loan is due in April 2011. The
loan is guaranteed by the CEO of the Company and a subsidiary of the Company,
and is collateralized by the properties and land use rights of a subsidiary.

On April 15, 2010, the Company entered into a loan agreement
with Shanghai Pudong Development Bank. The Company borrowed RMB80,000
(approximately $11,780) with an annual interest rate equal to 5.31%, with
interest payable on the 20th of each month. The loan is due in April 2011. The
loan is guaranteed by the CEO of the Company, and is collateralized by the
properties and land use rights of a subsidiary.

On March 31, 2010, the Company entered into a loan agreement
with China Merchants Bank. The Company borrowed RMB50,000 (approximately $7,363)
with an annual interest rate equal to 5.31%, with interest payable on the 20th
of each month. The loan is due in March 2011. The loan is guaranteed by the CEO
of the Company, his wife and a subsidiary of the Company, and is collateralized
by the property and land use rights of a subsidiary.

On March 25, 2010, the Company entered into a loan agreement
with China Citic Bank. The Company borrowed RMB90,000 (approximately $13,253)
with an annual interest rate equal to 5.31%, with interest payable on the 20th
of each month. The loan is due in March 2011. The loan is guaranteed by the CEO
of the Company, his wife and a subsidiary of the Company, and is collateralized
by the properties of two subsidiaries of the Company.

On March 24, 2010, the Company entered into a loan agreement
with China Citic Bank. The Company borrowed RMB60,000 (approximately $8,835)
with an annual interest rate equal to 5.31%, with interest payable on the 20th
of each month. The loan is due in March 2011. The loan is guaranteed by the CEO
of the Company, his wife and a subsidiary of the Company, and is collateralized
by the properties of two subsidiaries of the Company.

On March 4, 2010, the Company entered into a loan agreement
with the Industrial and Commercial Bank of China. The Company borrowed RMB31,000
(approximately $4,565) with an annual interest rate equal to 4.78%, with
interest payable on the 20th of each month. The loan is due in March 2011. The
loan is guaranteed by three subsidiaries of the Company, and is collateralized
by property of a subsidiary.

On March 4, 2010, the Company entered into a loan agreement
with the Industrial and Commercial Bank of China. The Company borrowed RMB39,000
(approximately $5,743) with an annual interest rate equal to 4.78%, with
interest payable on the 20th of each month. The loan is due in March 2011. The
loan is guaranteed by three subsidiaries of the Company, and is collateralized
by property of a subsidiary.

15

---

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

10. NOTES PAYABLE (CONTINUED)

On March 3, 2010, the Company entered into a loan agreement
with China Construction Bank. The Company borrowed RMB50,000 (approximately
$7,363) with an annual interest rate equal to 5.58%, with interest payable on
the 20th of each month. The loan is due in March 2011. The loan is guaranteed by
the CEO of the Company and a subsidiary of the Company, and is collateralized by
property of a subsidiary.

On March 2, 2010, the Company entered into a loan agreement
with China Merchants Bank. The Company borrowed RMB41,000 (approximately $6,037)
with an annual interest rate equal to 5.31%, with interest payable on the 20th
of each month. The loan is due in March 2011. The loan is guaranteed by the CEO
of the Company, his wife and a subsidiary of the Company, and is collateralized
by the property and land use rights of a subsidiary.

On February 26, 2010, the Company entered into a loan agreement
with Bank of China. The Company borrowed RMB48,000 (approximately $7,068) with
an annual interest rate equal to 5.04%, with interest payable on the 20th of
each month. The loan is due in November 2010. The loan is guaranteed by the CEO
of the Company and two subsidiaries of the Company, and is collateralized by the
property and land use rights of a subsidiary.

On February 11, 2010, the Company entered into a loan agreement
with Bank of China. The Company borrowed RMB75,000 (approximately $11,044) with
an annual interest rate equal to 5.84%, with interest payable on the 20th of
each month. The loan is due in February 2011. The loan is guaranteed by the CEO
of the Company and two subsidiaries of the Company, and is collateralized by the
property and land use rights of a subsidiary.

On February 8, 2010, the Company entered into a loan agreement
with Societe Generale. The Company borrowed RMB27,000 (approximately $3,976)
with an annual interest rate equal to 4.86%, with interest payable on the due
date of the loan. The loan is due in August 2010. The loan is guaranteed by a
subsidiary of the Company.

On February 3, 2010, the Company entered into a loan agreement
with China Merchants Bank. The Company borrowed RMB59,000 (approximately $8,689)
with an annual interest rate equal to 5.31%, with interest payable on the 20th
of each month. The loan is due in February 2011. The loan is guaranteed by the
CEO of the Company, his wife and a subsidiary of the Company, and is
collateralized by the property and land use rights of a subsidiary.

On January 26, 2010, the Company entered into a loan agreement
with the Industrial and Commercial Bank of China. The Company borrowed
RMB100,000 (approximately $14,726) with an annual interest rate equal to 4.78%,
with interest payable on the 20th of each month. The loan is due in January
2011. The Company repaid RMB 80,000 (approximately $11,781) in June 2010. The
loan is guaranteed by the CEO of the Company.

On January 7, 2010, the Company entered into a loan agreement
with Bank of China. The Company borrowed RMB75,000 (approximately $11,044) with
an annual interest rate equal to 5.31%, with interest payable on the 20th of
each month. The loan is due in January 2011. The loan is guaranteed by the CEO
of the Company and two subsidiaries of the Company, and is collateralized by the
property and land use rights of a subsidiary.

On December 25, 2009, the Company entered into a loan agreement
with Bank of Ningbo. The Company borrowed RMB30,000 (approximately $4,418) with
an annual interest rate equal to 5.31%, with interest payable on the 20th of
each month. The loan is due in December 2010. The loan is guaranteed by the CEO
of the Company and a subsidiary of the Company.

On December 11, 2009, the Company entered into a loan agreement
with Agricultural Bank of China. The Company borrowed RMB20,000 (approximately
$2,945) with an annual interest rate equal to 5.31%, with interest payable on
the 20th of each month. The loan was due in September 2010. The loan was
guaranteed by the CEO and COO of the Company and a subsidiary of the Company,
and was collateralized by the land use right and properties of a subsidiary. The
loan was repaid in January 2010.

16

---

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

10. NOTES PAYABLE (CONTINUED)

On December 11, 2009, the Company entered into a loan agreement
with Agricultural Bank of China. The Company borrowed RMB20,000 (approximately
$2,945) with an annual interest rate equal to 5.31%, with interest payable on
the 20th of each month. The loan was due in October 2010. The loan was
guaranteed by the CEO and COO of the Company and a subsidiary of the Company,
and was collateralized by the land use right and properties of a subsidiary. The
loan was repaid in January 2010.

On November 6, 2009, the Company entered into a loan agreement
with the Industrial and Commercial Bank of China. The Company borrowed RMB50,000
(approximately $7,363) with an annual interest rate equal to 5.31%, with
interest payable on the 20th of each month. The loan is due in November 2010.
The loan is guaranteed by three subsidiaries of the Company, and is
collateralized by the land use rights and property of a subsidiary.

On September 30, 2009, the Company entered into a loan
agreement with Shenzhen Development Bank. The Company borrowed RMB20,000
(approximately $2,945) with an annual interest rate equal to 105% of benchmark
lending rate (5.5755% as of June 30, 2010), with interest payable on the 20th of
each month. The loan is due in September 2010. The loan is guaranteed by the CEO
of the Company and two subsidiaries of the Company, and is collateralized by the
property of a subsidiary.

On August 13, 2009, the Company entered into a loan agreement
with China Construction Bank. The Company borrowed RMB30,000 (approximately
$4,418) with an annual interest rate equal to 5.5755%, with interest payable on
the 20th of each month. The loan was due in August 2010 and collateralized by
the property of a subsidiary. The loan was repaid in July 2010.

On May 20, 2009, the Company entered into a loan agreement with
China Everbright Bank Co., Ltd. The Company borrowed RMB40,000 (approximately
$5,890) with an annual interest rate equal to 5.31%, with interest payable on
the 20th of each month. The loan was due and repaid in May 2010. The loan was guaranteed by the
CEO of the Company, a subsidiary of the Company and Chuang Guan.

On April 15, 2009, the Company entered into a loan agreement
with Shanghai Pudong Development Bank. The Company borrowed RMB80,000
(approximately $11,716) with an annual interest rate equal to 5.31%, with
interest payable on the 20th of each month. The loan was due in April 2010 and
repaid in March 2010. The loan was collateralized by the properties of two
subsidiaries.

On April 1, 2009, the Company entered into a loan agreement
with China Merchants Bank. The Company borrowed RMB50,000 (approximately $7,325)
with an annual interest rate equal to 92% of benchmark lending rate, with
interest payable on the 20th of each month. The loan was due in April 2010 and
repaid in March 2010. The loan was guaranteed by the CEO of the Company, his
wife and subsidiaries of the Company, and was collateralized by the land use
rights of a subsidiary.

On February 25, 2009, the Company entered into a loan agreement
with China Merchants Bank. The Company borrowed RMB60,000 (approximately $8,789)
with an annual interest rate equal to 92% of benchmark lending rate. The loan
was due in February 2010 and the interest was payable on the 20th of each month.
The loan was guaranteed by the CEO of the Company, his wife and subsidiaries of
the Company, and was collateralized by the land use rights of a subsidiary. The
Company repaid RMB 10,000 (approximately $1,464) and RMB50,000 (approximately
$7,325) in March 2009 and in the first quarter of 2010, respectively.

11. OBLIGATIONS UNDER PRODUCT FINANCING ARRANGEMENTS

In June 2010, the Company entered into product financing
agreements with a financial institution. Under the terms of the agreements, the
Company agreed to pay an annual interest rate of 8.23% on inventory financings.
The Company borrowed RMB50,000 (approximately $7,363). The loans expire in June
2013, and the payments are due at the end of each quarter.

In September 2009, the Company entered into product financing
agreements with a financial institution. Under the terms of the agreements, the
Company agreed to pay an annual interest rate of 8.46% on inventory financings.
The Company borrowed RMB50,000 (approximately $7,322). The loans expire in
September 2012, and payments are due at the end of each quarter.

In February 2009, the Company entered into product financing
agreements with a financial institution. Under the terms of the agreements, the
Company agreed to pay an annual interest rate of 10.5% on inventory financings.
The Company borrowed RMB 7,114 (approximately $1,041). The loans expire in
February 2013, and payments are due at the end of each quarter.

17

---

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

11. OBLIGATIONS UNDER PRODUCT FINANCING ARRANGEMENTS
(CONTINUED)

In July 2008, the Company entered into product financing
agreements with a financial institution. Under the terms of the agreements, the
Company agreed to pay an annual interest rate of 10% on inventory financings.
The Company borrowed RMB53,492 (approximately $7,845). The loans expire in July
2011, and payments are due at the end of each quarter.

The Company paid $192, $463, $176, and $364 during the three
and six months ended June 30, 2010 and 2009 of interest expense on the product
financing arrangements, respectively.

The following is a summary of the Companys obligations under
product financing arrangements as of June 30, 2010 and December 31, 2009:

June 30,
    
    
    December 31,2010
    
    
    2009Obligation under product
      financing arrangements
    $
    16,607
    
    $
    11,725Less: current portion
    
    (7,723
    )
    
    (5,184
    )Long-term portion
    $
    8,884
    
    $
    6,541Estimated repayments are as
      follows:2010 (for the remaining six months)
    $
    4,4582011
    
    7,3732012
    
    5,1302013
    
    1,572Total
    
    18,533Less: amount representing
      interest
    
    (1,926
    )Net
    $
    16,607


Approximately RMB16,163 (approximately $2,380) and RMB11,373
(approximately $1,665) of other costs directly associated with the product
financing agreements were recorded as deferred financing costs in the balance
sheet at June 30, 2010 and December 31, 2009, respectively. The Company is
amortizing these financing costs over the term of the obligation. The
amortization is recorded as interest expense, which was $242, $434, $103 and
$203, respectively for the three and six months ended June 30, 2010 and 2009.

12. DEFERRED INCOME

Deferred income balances as of June 30, 2010 and December 31,
2009, were $2,407 and $1,868, respectively, and represent amounts invoiced but
deferred as revenue as an estimated warranty reserve.

13. GUARANTEED SENIOR UNSECURED NOTES PAYABLE

As of June 30, 2010, the Company has outstanding Tranche B Zero
Coupon Guaranteed Senior Unsecured Notes (the Tranche B Notes). The Tranche B
Notes have a principal amount of $84,000, zero coupon interest and a fair value
of $78,440, resulting in a debt discount of $5,560 and an effective interest
rate of approximately 5%. The Tranche B Notes mature on September 2, 2012. The
Company is to repay the principal amount in six consecutive semi-annual
installments, starting March 2, 2010, with 46%, 46% and 8% of the principal
amount to be repaid in the first, second and third year, respectively. The
Tranche B Notes are not convertible. The Company is entitled to redeem the
Tranche B Notes at any time with no premium or penalty at a redemption price
equal to 100% of the principal amount of the Tranche B Notes to be redeemed,
plus default interest, if any. The Tranche B Notes are guaranteed by the
Company's significant subsidiaries to the extent permitted under the applicable
laws. The Company repaid $19,320 of the principal on the Tranche B Notes in
March 2010.

The Company has recorded $731 and $1,681 of debt discount
amortization for the three and six months ended June 30, 2010 related to the
Tranche B Notes, respectively. This amount is included in interest expense.

Approximately $300 of legal fees and other costs directly
associated with the issuance of the Tranche B Notes is recorded as deferred
financing costs in the balance sheet at June 30, 2010. The Company is amortizing
these financing costs over the term of the Tranche B Notes. The amortization for
the three and six months ended June 30, 2010 was $25 and $50, respectively.

18

---

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

13. GUARANTEED SENIOR UNSECURED NOTES PAYABLE (CONTINUED)

The following is a summary of the guaranteed senior unsecured
notes payable as of June 30, 2010 and December 31, 2009:

June 30,
    
    
    December 31,2010
    
    
    2009Total
    $
    62,050
    
    $
    79,689Less: current portion
    
    (36,557
    )
    
    (35,701
    )Long-term portion
    $
    25,493
    
    $
    43,988


Repayments under the terms of the notes are as follows:2010 (remaining six months)
    $
    19,3202011
    
    38,6402012
    
    6,720Total
    
    64,680Less: amount representing unamortized
      discount
    
    (2,630
    )Net
    $
    62,050


14. ISSUANCE OF COMMON STOCK AND WARRANTS

On May 25, 2010, the Company  completed a public offering,
in which the Company sold a total of 17,250,000 shares of common stock for an
aggregate purchase price of $69,000 at $4.00 per share. Net proceeds to the
Company from this transaction were approximately $64,573.

A summary of the status of the Companys warrants and the
changes during the three months ended June 30, 2010 and 2009, is presented
below:

|                                |  | 2010      |  |   | 2009            | 
|------------------------------- |  | --------- |  | - | --------------- | 
|                                |  |           |  |   | Weighted        | 
|                                |  |           |  |   | Average         | 
|                                |  | Shares    |  |   | Exercise Prices | 
|Outstanding at April 1          |  | 3,528,302 |  | $ | 8.72            | 
|Granted                         |  | --        |  |   | --              | 
|Exercised                       |  | --        |  |   | --              | 
|Outstanding at June 30          |  | 3,528,302 |  | $ | 8.72            | 
|Warrants exercisable at June 30 |  | 3,528,302 |  | $ | 8.72            | 

A summary of the status of the Companys warrants and the
changes during the six months ended June 30, 2010 and 2009, is presented below:

|                                |  | 2010      |  |   | 2009            | 
|------------------------------- |  | --------- |  | - | --------------- | 
|                                |  |           |  |   | Weighted        | 
|                                |  |           |  |   | Average         | 
|                                |  | Shares    |  |   | Exercise Prices | 
|Outstanding at January 1        |  | 3,528,302 |  | $ | 8.72            | 
|Granted                         |  | --        |  |   | --              | 
|Exercised                       |  | --        |  |   | --              | 
|Outstanding at June 30          |  | 3,528,302 |  | $ | 8.72            | 
|Warrants exercisable at June 30 |  | 3,528,302 |  | $ | 8.72            | 

19

---

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

15. EQUITY INCENTIVE PLAN

On February 7, 2007, the Company adopted the 2007 Equity
Incentive Plan (the Plan), which was amended in February 2010. The Plan, as
amended, has a ten-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
12,000,000.

During the three and six months ended June 30, 2010 and 2009,
568,987, 1,255,692, 505,000 and 924,818 shares of restricted stock were granted.
During the three and six months ended June 30, 2010 and 2009, 16,089, 75,254,
30,888 and 30,888 shares of restricted stock were forfeited and retired,
respectively. The shares that have been issued under the Plan vest over a four
to five-year period, and at issuance, resulted in total deferred compensation of
$88,128 and $80,101 as of June 30, 2010 and December 31, 2009, respectively. The
fair values of these restricted stock awards are equal to the fair value of the
Companys common 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,
2010 and 2009, the Company recognized $5,055, $13,381, $4,358 and $8,576,
respectively, of compensation expense under the Plan. As of June 30, 2010 and
December 31, 2009, there was $39,232 and $44,632 of unrecognized compensation
expense related to the nonvested restricted stock. This cost is expected to be
recognized over a four to five-year period. During the three and six months
ended June 30, 2010 and 2009, the Company has not recognized any tax benefits
for the compensation expense under the Plan.

The following table summarizes the status of the Companys
nonvested restricted stock awards during the three months ended June 30, 2010
and 2009:

|                       |  | Nonvested Restricted Stock |   |   | Nonvested Restricted Stock |  
|---------------------- |  | -------------------------- | - | - | -------------------------- | -
|                       |  | 2010                       |   |   | 2009                       |  
|                       |  |                            |   |   | Weighted                   |  
|                       |  |                            |   |   | Average                    |  
|                       |  |                            |   |   | Grant                      |  
|                       |  | Number of                  |   |   | Date Fair                  |  
|                       |  | Shares                     |   |   | Values                     |  
|Outstanding at April 1 |  | 4,484,468                  |   | $ | 9.11                       |  
|Granted                |  | 568,987                    |   |   | 6.42                       |  
|Vested                 |  | (463,323                   | ) |   | (10.91                     | )
|Forfeited              |  | (16,089                    | ) |   | (8.97                      | )
|Outstanding at June 30 |  | 4,574,043                  |   | $ | 8.60                       |  

The following table summarizes the status of the Companys
nonvested restricted stock awards during the six months ended June 30, 2010 and
2009:

|                         |  | Nonvested Restricted Stock |   |   | Nonvested Restricted Stock |  
|------------------------ |  | -------------------------- | - | - | -------------------------- | -
|                         |  | 2010                       |   |   | 2009                       |  
|                         |  |                            |   |   | Weighted                   |  
|                         |  |                            |   |   | Average                    |  
|                         |  |                            |   |   | Grant                      |  
|                         |  | Number of                  |   |   | Date Fair                  |  
|                         |  | Shares                     |   |   | Values                     |  
|Outstanding at January 1 |  | 4,713,983                  |   | $ | 9.47                       |  
|Granted                  |  | 1,255,692                  |   |   | 7.16                       |  
|Vested                   |  | (1,320,378                 | ) |   | (10.13                     | )
|Forfeited                |  | (75,254                    | ) |   | (12.76                     | )
|Outstanding at June 30   |  | 4,574,043                  |   | $ | 8.60                       |  

20

---

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

16. CONSOLIDATED SEGMENT DATA

Segment information is consistent with how management reviews
the businesses, makes investing and resource allocation decisions and assesses
operating performance. The segment data presented reflects this segment
structure. The Company reports financial and operating information in the
following four segments:

|(a) | System installation: designs, sells, installs, services
      and monitors electronics surveillance and safety systems to residential,
      commercial, industrial and governmental customers (the Installation
      segment);                                                                                                                                                                                                                                              
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(b) | Manufacturing of surveillance and safety products:
      designs, manufactures and sells surveillance and safety products,
      including intrusion security, access control and video management systems
      (the Manufacturing segment);                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(c) | Distribution of surveillance and safety products: sells
      surveillance and safety products, including intrusion security, access
      control and video management systems (the Distribution segment);
    and                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(d) | Providing of surveillance and safety services: provides a
      full range of surveillance and safety services, including network alarm
      response services, surveillance and safety products and solutions
      post-sale, maintenance services, software upgrading services, project
      integration services, security guard services, surveillance and safety
      consulting services, and surveillance and safety trustee services (the
      Service segment).

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

This quarter, the Company  broke out its service
business as a separate segment. The Service segment comprised only 2.0% and 1.0% of
revenue and 1.0% and 1.0% of operating income for the three and six months ended
June 30, 2010, respectively. However, because management believes the Service
segment will
expand substantially in the future, it has made the decision to begin reporting it as a separate
segment. Prior to 2010, the Service business was negligible.

Selected information in the segment structure is presented in
the following tables for the three and six months ended June 30, 2010 and 2009:

Revenues by segment for the three months ended June 30, 2010
and 2009 are as follows:

Revenues(1)
    
    2010
    
    
    2009Installation segment
    $
    129,349
    
    $
    108,133Manufacturing segment
    
    21,979
    
    
    20,492Distribution segment
    
    13,673
    
    
    13,290Service segment
    
    3,353
    
    
    --$
    168,354
    
    $
    141,915


Revenues by segment for the six months ended June 30, 2010 and
2009 are as follows:

Revenues(1)
    
    2010
    
    
    2009Installation segment
    $
    222,098
    
    $
    183,053Manufacturing segment
    
    37,988
    
    
    35,802Distribution segment
    
    25,105
    
    
    19,476Service segment
    
    3,353
    
    
    --$
    288,544
    
    $
    238,331


(1) Revenues by operating segments exclude intercompany
transactions.

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)                              

16. CONSOLIDATED SEGMENT DATA (CONTINUED)

Income (loss) from operations by segment for the three months
ended June 30, 2010 and 2009 is as follows:

Income (loss) from operations:
    
    2010
    
    
    2009Installation segment
    $
    32,797
    
    $
    19,123Manufacturing segment
    
    189
    
    
    (173
    )Distribution segment
    
    (1,008
    )
    
    (172
    )Service segment
    
    206
    
    
    --Corporate and
      others(1)
    
    (7,630
    )
    
    (6,206
    )Income from operations
    
    24,554
    
    
    12,572Corporate interest income
    
    53
    
    
    57Corporate interest expense
    
    (3,064
    )
    
    (6,580
    )Corporate other income
    
    394
    
    
    1,000Income before income taxes
    
    21,937
    
    
    7,049Income taxes
    
    (4,130
    )
    
    (551
    )Net income
    $
    17,807
    
    $
    6,498


Income (loss) from operations by segment for the six months
ended June 30, 2010 and 2009 is as follows:

Income (loss) from operations:
    
    2010
    
    
    2009Installation segment
    $
    52,539
    
    $
    33,121Manufacturing segment
    
    (862
    )
    
    (631
    )Distribution segment
    
    (1,669
    )
    
    (548
    )Service segment
    
    206
    
    
    --Corporate and
      others(1)
    
    (18,697
    )
    
    (11,387
    )Income from operations
    
    31,517
    
    
    20,555Corporate interest income
    
    131
    
    
    86Corporate interest expense
    
    (5,359
    )
    
    (12,617
    )Corporate other income
    
    640
    
    
    1,229Income before income taxes
    
    26,929
    
    
    9,253Income taxes
    
    (5,847
    )
    
    (753
    )Net income
    $
    21,082
    
    $
    8,500


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

Non-cash employee compensation by segment for the three months
ended June 30, 2010 and 2009 is as follows:

Non-cash employee compensation:
    
    2010
    
    
    2009Installation segment
    $
    587
    
    $
    506Manufacturing segment
    
    968
    
    
    730Distribution segment
    
    386
    
    
    351Service segment
    
    12
    
    
    --Corporate and others
    
    3,102
    
    
    2,771$
    5,055
    
    $
    4,358


Non-cash employee compensation by segment for the six months
ended June 30, 2010 and 2009 is as follows:

Non-cash employee compensation:
    
    2010
    
    
    2009Installation segment
    $
    1,153
    
    $
    1,014Manufacturing segment
    
    1,904
    
    
    1,465Distribution segment
    
    748
    
    
    703Service segment
    
    12
    
    
    --Corporate and others
    
    9,564
    
    
    5,394$
    13,381
    
    $
    8,576


22

---

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

16. CONSOLIDATED SEGMENT DATA (CONTINUED)

Depreciation and amortization by segment for the three months
ended June 30, 2010 and 2009 are as follows:

Depreciation and amortization:
    
    2010
    
    
    2009Installation segment
    $
    1,089
    
    $
    1,179Manufacturing segment
    
    1,590
    
    
    1,477Distribution segment
    
    354
    
    
    350Service segment
    
    13
    
    
    --Corporate and others
    
    207
    
    
    142$
    3,253
    
    $
    3,148


Depreciation and amortization by segment for the six months
ended June 30, 2010 and 2009 are as follows:

Depreciation and amortization:
    
    2010
    
    
    2009Installation segment
    $
    2,180
    
    $
    2,316Manufacturing segment
    
    3,176
    
    
    2,930Distribution segment
    
    706
    
    
    707Service segment
    
    13
    
    
    --Corporate and others
    
    412
    
    
    258$
    6,487
    
    $
    6,211


Total assets by segment as of June 30, 2010 and December 31,
2009 are as follows:

Total assets
    
      June 30,
    
    
      December 31,2010
    
    
      2009Installation segment
    $
      559,960
    
    $
      476,743Manufacturing segment
    
      210,082
    
    
      188,978Distribution segment
    
      40,603
    
    
      47,458Service segment
    
      8,461
    
    
      --Corporate and others
      (1)
    
      149,050
    
    
      60,379$
      968,156
    
    $
      773,558


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

Goodwill by segment as of June 30, 2010 and December 31, 2009,
is as follows:

Goodwill
    
      June 30,
    
    
      December 31,2010
    
    
      2009Installation segment
    $
      11,079
    
    $
      11,079Manufacturing segment
    
      56,456
    
    
      56,456Distribution segment
    
      11,976
    
    
      11,976$
      79,511
    
    $
      79,511


23

---

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

Special Note Regarding Forward-Looking Statements

In addition to historical information, this report contains
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. We use words such as believe,
expect, anticipate, project, target, plan, optimistic, intend,
aim, will or similar expressions which are intended to identify
forward-looking statements. Such statements include, among others, those
concerning market and industry segment growth and demand and acceptance of new
and existing products; any projections of sales, earnings, revenue, margins or
other financial items; any statements of the plans, strategies and objectives of
management for future operations; any statements regarding future economic
conditions or performance; uncertainties related to conducting business in
China, as well as all assumptions, expectations, predictions, intentions or
beliefs about future events. You are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties, as well as assumptions, that, if they were to ever materialize or
prove incorrect, could cause the results of the Company to differ materially
from those expressed or implied by such forward-looking statements. Such risks
and uncertainties, among others, include:

- Our ability to attract new customers;
- Our ability to employ and retain qualified employees;
- Our ability to successfully integrate companies that we have acquired and
  to avoid or mitigate potential damages arising from risks associated with
  acquired companies and the legal structures utilized to effectuate
  acquisitions of these companies;
- Our ability to keep pace with technological developments in the
  surveillance and safety industry, and to develop and commercialize new
  products;
- Competition and competitive factors in the markets in which we compete;
- General economic and business conditions in China and in the local
  economies in which we regularly conduct business, which can affect demand for
  the Companys products and services;
- Changes in laws, rules and regulations governing the business community in
  China in general and the surveillance and safety industry in particular; and
- The risks identified in the Risk Factors section included in the
  Companys annual report on Form 10-K for the year ended December 31, 2009 and
  the subsequent SEC filings.

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 these forward-looking statements,
except as required by law.

Use of terms

Except as otherwise indicated by the context, references 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:

- Allied Rich are to Allied Rich Limited, a Hong Kong corporation and an
  indirect, wholly owned subsidiary of the Company;
- Chain Star are to Chain Star Investments Limited, a Hong Kong
  corporation and an indirect, wholly owned subsidiary of the Company;
- 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;
- Coson are to Shenzhen Coson Electronic Co., Ltd., a corporation
  incorporated in the Peoples Republic of China and an indirect, wholly owned
  subsidiary of the Company;
- CSSD are to China Security & Surveillance Distribution (PRC) Inc., a
  corporation incorporated in the Peoples Republic of China and a direct,
  wholly owned subsidiary of the Company;
- CSSM are to China Security & Surveillance Manufacturing (PRC) Inc.,
  a corporation incorporated in the Peoples Republic of China and a direct,
  wholly owned subsidiary of the Company;
- CSSS are to China Security & Surveillance Services (PRC) Inc., a
  corporation incorporated in the Peoples Republic of China and a direct,
  wholly owned subsidiary of the Company;
- 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;

24

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- DIT are to DIT Industry(H.K.) Limited, a Hong Kong corporation and an
  indirect, 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;
- Huge Long are to Huge Long Limited, a Hong Kong corporation 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;
- Link Billion are to Link Billion Investment Limited, a Hong Kong
  corporation 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;
- Longhorn are to Shenzhen Longhorn Security Technology Co., Ltd., a
  corporation incorporated in the Peoples Republic of China and an indirect,
  wholly owned subsidiary of the Company;
- Minking are to Changzhou Minking Electronics Co., Ltd., a corporation
  incorporated in the Peoples Republic of China and an indirect, wholly owned
  subsidiary of the Company;
- Multiwin are to Multiwin International Holdings Limited, a Hong Kong
  corporation and an indirect, wholly owned subsidiary of the Company;
- Ocean Pacific are to Ocean Pacific Technology Limited, a Hong Kong
  corporation and an indirect, wholly owned subsidiary of the Company;
- Safetech are to China Safetech Holdings Limited, a British Virgin
  Islands corporation and a direct, wholly owned subsidiary of the Company;
- Sharp Eagle are to Sharp Eagle (H.K.) 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;
- 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;
- WDH are to Shenzhen Wandaiheng Industry Limited, 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;
- RMB are to Yuan Renminbi of China;
- U.S. dollar, $ and US$ are to United States dollars;
- Exchange Act are to the Securities Exchange Act of 1934, as amended; and
- Securities Act are to the Securities Act of 1933, as amended.

Overview of Our Business

We are primarily engaged, through our indirect Chinese
subsidiaries, in the manufacturing, distributing, installing, and servicing of
surveillance and safety products and systems and developing surveillance and
safety related software in China. Our customers are primarily comprised of: (1)
governmental entities, such as customs agencies, courts, public security
bureaus, and prisons; (2) non-profit organizations, including schools, museums,
sports arenas, and libraries; and (3) commercial entities, such as airports,
hotels, real estate, banks, mines, railways, supermarkets, and entertainment
venues.

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

25

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Our sales network covers most of Chinas populated areas, and
we do not rely on any particular region for revenues. Our subsidiaries
collectively have more than 154 branch offices and distribution points.

Reportable Operating Segments

Segment information is consistent with how management reviews
the businesses, makes investing and resource allocation decisions and assesses
operating performance. We have set up a new service segment for provision of a
full range of surveillance and safety services and realigned our management and
segment reporting structure effective April 1, 2010. We now report financial and
operating information in the following four segments:

- The Installation Segment provides design, sales, installation, services
  and monitoring of electronics surveillance and safety systems to residential,
  commercial, industrial and governmental customers (the Installation
  Segment);
- The Manufacturing Segment provides design, manufacturing and sales of
  surveillance and safety products, including intrusion security, access control
  and video management systems (the Manufacturing Segment);
- The Distribution Segment provides distribution and sales of surveillance
  and safety products and services, including intrusion security, access control
  and video management systems (the Distribution Segment); and
- The Service Segment provides a full range of surveillance and safety
  services, including network alarm response services, surveillance and safety
  products and solutions post-sale, maintenance services, software upgrading
  services, project integration services, security guard services, surveillance
  and safety consulting services, and surveillance and safety trustee services
  (the Service Segment).

The Company also provides general corporate services to its
segments and these costs are reported as Corporate and Others.

The Service Segment comprised only 2.0% and 1.2% of revenue and
0.8% and 0.7% of operating income for the three and six months ended June 30,
2010, respectively. However, because we believe the Service Segment will expand
substantially in the future, we have made the decision to begin showing it as a
separate segment. Prior to 2010, the service business was negligible.

Second Quarter Financial Performance Highlights

We experienced strong demand for our products and services and
significant growth in our revenues, gross margin and net income in this quarter.
Effective on April 1, 2010, we also established a new service segment for the
provision of a full range of surveillance and safety services to further expand
our one-stop-shop service. The surveillance and safety product market in China
continued to expand in the second quarter of 2010 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
to install security systems, including city-wide surveillance systems, traffic
conjunctions, critical government locations, cyber cafés, bars and discotheques.
The ongoing installation of these security systems as required by applicable
Chinese law is being conducted by the affected constituents. In addition,
economic development in China and the general rise in affluence of the
population of China continue to contribute to increased demand for surveillance
and safety products within various industries and organizations, such as
residential real estate, factories and shopping centers. We believe that the
financing proceeds from our recent public offering closed in May 2010, combined
with our operating cash flows, will provide sufficient working capital and allow
us to take advantage of the growth in market demand in the future.

The following are some financial highlights for the second
quarter of 2010:

- Revenues: Revenues increased $26.43 million, or 18.6%, to $168.35
  million for the second quarter of 2010, from $141.92 million for the same
  quarter of last year.
- Gross margin: Gross margin increased to 25.8% for the second quarter
  of 2010 from 21.9% for the same period in 2009.
- Income from operations: Income from operations increased $11.99
  million, or 95.4%, to $24.56 million for the second quarter of 2010, from
  $12.57 million for the same period last year.
- Operating margin: Operating margin (the ratio of income from
  operations to revenues, expressed as a percentage) was 14.6% for the second
  quarter of 2010, compared to 8.9% during the same period in 2009.
- Net income: Net income increased $11.31 million, or 174.0%, to
  $17.81 million for the second quarter of 2010, from $6.50 million for the same
  period of last year.
- Net margin: Net margin (the ratio of net income attributable to the
  Company to revenues, expressed as a percentage) was 10.6% for the second
  quarter of 2010, compared to 4.6% for the same period in 2009.

26

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- Fully diluted net income per share: Fully diluted net income per
  share was $0.23 for the second quarter of 2010, as compared to $0.13 for the
  same period last year.
- Non-cash expenses: Non-cash expenses were $8.31 million for the
  three months ended June 30, 2010, representing a decrease of $4.78 million, or
  36.5% from $13.09 million during the same period last year. Non-cash expenses
  for the three months ended June 30, 2010 included (i) depreciation and
  amortization of $3.26 million, and (ii) non-cash employee compensation expense
  of $5.05 million.

Our net income for the three months ended June 30, 2010 and
2009 was approximately $17.81 million and $6.50 million, respectively. Our net
income for the six months ended June 30, 2010 and 2009 was approximately $21.08
million and $8.50 million, respectively. Our net income was materially impacted
by: (i) depreciation and amortization of long-lived assets in the subsidiaries
we acquired; (ii) non-cash employee compensation recognized pursuant to
Accounting Standard Codification (ASC) 718; and (iii) redemption accretion on
convertible notes we issued in February and April 2007. 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. 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.

The following table summarizes the Companys non-cash expenses
during the three and six months ended June 30, 2010 and 2009.

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

|                                                               |   | Three
      Months Ended June 30, |  |   |       | 
|-------------------------------------------------------------- | - | --------------------------------- |  | - | ----- | 
|Non-cash expenses                                              |   |                                   |  |   |       | 
|                                                               |   | 2010                              |  |   | 2009  | 
|Depreciation and amortization                                  | $ | 3.01                              |  | $ | 2.91  | 
|Depreciation and amortization (included in cost of goods sold) |   | 0.25                              |  |   | 0.24  | 
|Non-cash employee compensation                                 |   | 5.05                              |  |   | 4.36  | 
|Redemption accretion on convertible notes                      |   | --                                |  |   | 5.58  | 
|Total                                                          | $ | 8.31                              |  | $ | 13.09 | 

|                                                               |   | Six
      Months Ended June 30, |  |   |       | 
|-------------------------------------------------------------- | - | ------------------------------- |  | - | ----- | 
|Non-cash expenses                                              |   |                                 |  |   |       | 
|                                                               |   | 2010                            |  |   | 2009  | 
|Depreciation and amortization                                  | $ | 5.99                            |  | $ | 5.73  | 
|Depreciation and amortization (included in cost of goods sold) |   | 0.50                            |  |   | 0.48  | 
|Non-cash employee compensation                                 |   | 13.38                           |  |   | 8.58  | 
|Redemption accretion on convertible notes                      |   | --                              |  |   | 10.95 | 
|Total                                                          | $ | 19.87                           |  | $ | 25.74 | 

27

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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 |   |  | Six months ended | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------------ | - |  | ---------------- | 
|                                                                                                                                                                                  |   | June
      30,     |   |  | June
      30,   | 
|                                                                                                                                                                                  |   | 2010               |   |  | 2009             | 
|Revenues                                                                                                                                                                          | $ | 168.35             |   |  | 100.0%           | 
|Cost of goods sold (including depreciation and amortization
      for the three and six months ended June 30, 2010 and 2009 of $0.25, $0.50,
      $0.24 and $0.48, respectively) |   | (124.99            | ) |  | 74.2%            | 
|Gross profit                                                                                                                                                                      |   | 43.36              |   |  | 25.8%            | 
|Selling and marketing                                                                                                                                                             |   | (3.13              | ) |  | 1.8%             | 
|General and administrative                                                                                                                                                        |   | (7.61              | ) |  | 4.6%             | 
|Non-cash employee compensation                                                                                                                                                    |   | (5.05              | ) |  | 3.0%             | 
|Depreciation and amortization                                                                                                                                                     |   | (3.01              | ) |  | 1.8%             | 
|Income from operations                                                                                                                                                            |   | 24.56              |   |  | 14.6%            | 
|Other income                                                                                                                                                                      |   | 0.44               |   |  | 0.3%             | 
|Interest expense, Cash                                                                                                                                                            |   | (3.06              | ) |  | 1.8%             | 
|Redemption accretion on convertible notes                                                                                                                                         |   | --                 |   |  | --               | 
|Income before income taxes                                                                                                                                                        |   | 21.94              |   |  | 13.1%            | 
|Income taxes                                                                                                                                                                      |   | (4.13              | ) |  | 2.5%             | 
|                                                                                                                                                                                  |   |                    |   |  |                  | 
|Net income                                                                                                                                                                        | $ | 17.81              |   |  | 10.6%            | 

Revenues

Our revenues are primarily generated from system installations,
manufacturing and distribution of surveillance and safety products and providing
surveillance and safety services. We experienced solid growth in revenues during
the three and six months ended June 30, 2010. Revenues increased $26.43 million,
or 18.6%, to $168.35 million for the three months ended June 30, 2010 from
$141.92 million for the three months ended June 30, 2009. Revenues increased
$50.21 million, or 21.1%, to $288.54 million for the six months ended June 30,
2010 from $238.33 million for the six months ended June 30, 2009. This increase
was mainly attributable to growth in the surveillance and safety market in
China, the increased market demand for our products, our increased brand
recognition and the acquisition of several companies in 2008 and 2009 as
discussed in detail below. Our strategic efforts to increase our distribution
channels during 2008 and 2009 and adequate working capital from prior
fund raising activities with banks also allowed us to successfully take advantage
of the growth in market demand in this quarter. Historically, the first quarter
has generally been a slow quarter for us due to the Chinese New Year holiday and
the fourth quarter has generally been the strongest quarter. Management expects
the same trend in 2010 and that revenue growth will remain strong for the
remainder of 2010.

As the acquisition of Coson has surpassed the one-year
anniversary, we have included the revenues contributed by Coson in our organic
growth since the second quarter of 2010.

28

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The following table shows the revenues recognized in the second
quarter of 2010:

(In millions of U.S. dollars)

|Revenues from the Installation Segment
      recognized from installation contracts signed before March 31, 2010           | $ | 77.73  | 
|-------------------------------------------------------------------------------------------------------------------------- | - | ------ | 
|Revenues from the Installation Segment recognized from
      installation contracts signed in the second quarter of 2010   | $ | 51.62  | 
|Revenues from the Manufacturing Segment
      recognized from manufacturing contracts signed before March 31, 2010         | $ | 1.47   | 
|Revenues from the Manufacturing Segment recognized from
      manufacturing contracts signed in the second quarter of 2010 | $ | 20.51  | 
|Revenues from the Distribution Segment
      recognized from distribution contracts signed before March 31, 2010           | $ | 0.13   | 
|Revenues from the Distribution Segment recognized from
      distribution contracts signed in the second quarter of 2010   | $ | 13.54  | 
|Revenues from the Service Segment
      recognized from distribution contracts signed in the second quarter of
      2010  | $ | 3.35   | 
|Total revenues recognized in the second quarter of 2010                                                                    | $ | 168.35 | 
|Revenues deferred                                                                                                          | $ | 2.41   | 
|Backlog of sales contracts signed before June 30, 2010
      (1)                                                           | $ | 213.12 | 

| | (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 four business segments:
Installation Segment, Manufacturing Segment, Distribution Segment and Service
Segment.

The following table shows the different segments comprising our
total revenues for the three and six months ended June 30, 2010 and 2009.

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

Three months ended June 30,Revenues
      
      2010
      
      
      2009Installation Segment
      $
      129.35
      
      
      76.8%
      
      $
      108.14
      
      
      76.2%Manufacturing Segment
      
      21.98
      
      
      13.1%
      
      
      20.49
      
      
      14.4%Distribution Segment
      
      13.67
      
      
      8.1%
      
      
      13.29
      
      
      9.4%Service Segment
      
      3.35
      
      
      2.0%
      
      
      --
      
      
      --Total
      $
      168.35
      
      
      100.0%
      
      $
      141.92
      
      
      100.0%


Six months ended June 30,Revenues
      
      2010
      
      
      2009Installation Segment
      $
      222.10
      
      
      76.9%
      
      $
      183.05
      
      
      76.8%Manufacturing Segment
      
      37.99
      
      
      13.2%
      
      
      35.80
      
      
      15.0%Distribution Segment
      
      25.10
      
      
      8.7%
      
      
      19.48
      
      
      8.2%Service Segment
      
      3.35
      
      
      1.2%
      
      
      --
      
      
      --Total
      $
      288.54
      
      
      100.0%
      
      $
      238.33
      
      
      100.0%


For the three months ended June 30, 2010 and 2009, our
Installation Segment generated revenues of $129.35 million and $108.14 million
which represented 76.8% and 76.2% of our total revenues, respectively. For the
six months ended June 30, 2010 and 2009, our Installation Segment generated
revenues of $222.10 million and $183.05 million which represented 76.9% and
76.8% of our total revenues, respectively. The increase in revenues was mainly
due to the following factors: First, demand for surveillance and security
products has grown in China, which we attribute in part to the general rise in
affluence of population in China. The increased demand within various industries
and organizations, such as residential real estate, factories and shopping
centers, also contributed to increased demand for surveillance and safety
products. Second, the Chinese government initiated several programs and
regulatory drivers, 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 2008 and 2009 allowed us to
successfully take advantage of the growth in market demand in the first half of
2010. Fourth, in November 2008, the Chinese government announced an economic
stimulus package to invest RMB 4 trillion (approximately $586 billion) in
infrastructure and social welfare by the end of 2010. The economic stimulus
package increased the demand for surveillance and safety products in China.
Fifth, we have been successful in raising sufficient working capital to
facilitate expansion in the China market. Finally, our increased brand
recognition also contributed to the growth in revenues.

For the three months ended June 30, 2010 and 2009, our
Manufacturing Segment generated revenues of $21.98 million and $20.49 million, representing 13.1% and 14.4% of our total revenues,
respectively. For the six months ended June 30, 2010 and 2009, our Manufacturing
Segment generated revenues of $37.99 million and $35.80 million, representing
13.2% and 15.0% of our total revenues, respectively. Management believes that
revenues from the installation projects will continue to be the Companys major
revenue source in the next few years.

29

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For the three months ended June 30, 2010 and 2009, our
Distribution Segment generated revenues of $13.67 million and $13.29 million,
representing 8.1% and 9.4% of our total revenues. For the six months ended June
30, 2010 and 2009, our Distribution Segment generated revenues of $25.10
million, representing 8.7% of our total revenues for the six months ended June
30, 2010, as compared to $19.48 million and 8.2% for the same period last year. Such
increase was mainly due to a decrease of selling prices due to market
competition which, in turn, increased sales volume.

With the acquisitions of 2008 and 2009, management believes
that the percentage of revenues from the Manufacturing Segment and the
Distribution Segment will increase in the future.

During second quarter of 2010, we established a new segment 
our Service Segment which generated revenues of $3.35 million, representing 2.0%
of our total revenues.

Management expects growth in all four segments to remain strong
in the remainder of 2010 due to (i) continued growth in the surveillance and
safety market both within the corporate and government sectors, (ii) better
capitalization of the Company to fuel its growth, (iii) continued enhancement of
our brand and profile in China, and (iv) acquisition strategy intended to boost
our market share and competitiveness.

Cost of goods sold

Our cost of goods sold is primarily comprised of the costs of
our raw materials, labor and overhead. Cost of goods sold for the second quarter
of 2010 increased by $14.09 million, or 12.7%, to $124.99 million, as compared
to $110.90 million for the same period last year. Cost of goods sold for the six
months ended June 30, 2010 increased by $33.91 million, or 18.6%, to $216.20
million, as compared to $182.29 million for the same period last year. The
increase was mainly due to the increase of sales volume.

Gross profit and gross margin

Our gross profit is equal to the difference between our
revenues and our cost of goods sold. Our gross profit increased $12.34 million,
or 39.8%, to $43.36 million for the three months ended June 30, 2010, from
$31.02 million for the same period last year. Gross margin for the three months
ended June 30, 2010 was 25.8%, as compared to 21.9% for the same period of 2009.
Our gross profit increased $16.30 million, or 29.1%, to $72.34 million for the
six months ended June 30, 2009, from $56.04 million for the same period last
year. Gross margin for the six months ended June 30, 2010 was 25.1%, as compared
to 23.5% for the same period of 2009.

The following table shows the different segment components
comprising our gross profit margin over the three and six months ended June 30,
2010 and 2009.

Three
        months ended June 30,
      
      
      Six
        months ended June 30,Gross Margin
      
      2010
      
      
      2009
      
      
      2010
      
      
      2009Installation Segment
      
      27.8%
      
      
      21.5%
      
      
      26.6%
      
      
      23.3%Manufacturing Segment
      
      27.3%
      
      
      27.8%
      
      
      27.5%
      
      
      27.7%Distribution Segment
      
      6.3%
      
      
      15.4%
      
      
      9.4%
      
      
      18.0%Service Segment
      
      16.7%
      
      
      --
      
      
      16.7%
      
      
      --Total
      
      25.8%
      
      
      21.9%
      
      
      25.1%
      
      
      23.5%


For the three months ended June 30, 2010, gross margins of the
Installation Segment, Manufacturing Segment, and Distribution Segment were
approximately 27.8%, 27.3%, and 6.3%, respectively, compared to 21.5%, 27.8%,
and 15.4% for the same period last year. The gross margin of the newly
established Service Segment was 16.7% for the three months ended June 30, 2010.
For the six months ended June 30, 2010, gross margins for the Installation
Segment, Manufacturing Segment and Distribution Segment were approximately
26.6%, 27.5% and 9.4%, respectively, compared to 23.3%, 27.7% and 18.0% for the
same period last year. The increase in our gross margin for the Installment
Segment was primarily driven by the high margins from larger scale projects
resulting primarily from our marketing efforts. The decrease of gross margin for
the Distribution Segment for the three and six months ended June 30, 2010 was
mainly due to the decrease of products' selling prices.

30

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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 $0.10 million,
or 3.3%, to $3.13 million for the three months ended June 30, 2010 from $3.03
million for the same period in 2009. As a percentage of revenues, our selling
and marketing expenses decreased to 1.8% for the three months ended June 30,
2010 from 2.1% for the same period in 2009. In the first six months of fiscal
2010, our selling and marketing expenses increased $0.10 million, or 1.7% to
$5.85 million from $5.75 million. As a percentage of revenues, our selling and
marketing expenses decreased to 2.0% for the six months ended June 30, 2010 from
2.4% for the same period in 2009. The slight percentage decrease was due to cost
efficiency.

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
decreased $0.54 million, or 6.6%, to $7.61 million for the three months ended
June 30, 2010 from $8.15 million of the same period in 2009. In the first six
months of 2010, our general and administrative expenses increased $0.17 million,
or 1.1% to $15.60 million from $15.43 million. As a percentage of revenues,
general and administrative expenses decreased to 4.6% and 5.5% for the three and
six months ended June 30, 2010 from 5.7% and 6.5% for the same periods in 2009.
The percentage decrease was mainly due to economy of scale and managements cost
control efforts.

Non-cash employee compensation

Non-cash employee compensation by segment for the three and six
months ended June 30, 2010 and 2009 is as follows:

All amounts, except percentage of non-cash compensation, in
millions of U.S. dollars

|                               |   | Three
      months ended June 30, | 
|------------------------------ | - | --------------------------------- | 
|Non-cash employee compensation |   | 2010                              | 
|Installation Segment           | $ | 0.59                              | 
|Manufacturing Segment          |   | 0.97                              | 
|Distribution Segment           |   | 0.38                              | 
|Service Segment                |   | 0.01                              | 
|Corporate and others           |   | 3.10                              | 
|Total                          | $ | 5.05                              | 

|                               |   | Six
      months ended June 30, | 
|------------------------------ | - | ------------------------------- | 
|Non-cash employee compensation |   | 2010                            | 
|Installation Segment           | $ | 1.15                            | 
|Manufacturing Segment          |   | 1.91                            | 
|Distribution Segment           |   | 0.75                            | 
|Service Segment                |   | 0.01                            | 
|Corporate and others           |   | 9.56                            | 
|Total                          | $ | 13.38                           | 

Effective February 7, 2007, our board of directors adopted the
2007 Equity Incentive Plan (the Plan) which was subsequently amended in
February 2010. The Plan provides for grants of stock options, stock appreciation
rights, performance units, restricted stock, restricted stock units, and
performance shares. A total of 12,000,000 shares of our common stock may be
issued under our Plan. The Plan has a 10-year term. During the three and six
months ended June 30, 2010, we granted an aggregate of 568,987, and 1,255,692
shares of restricted stock pursuant to the Plan to our employees and
consultants, respectively. These shares will vest with respect to each of the
employees and consultants over a period of four to five years.

Non-cash employee compensation for the three months ended June
30, 2010 increased to $5.05 million from $4.36 million for the same period in
2009. In the first six months of fiscal 2010, non-cash employee compensation
increased to $13.38 million from $8.58 million, primarily because more shares
were granted to employees and consultants under the Plan during the respective
period.

31

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Depreciation and amortization

Our depreciation and amortization costs increased $0.11
million, or 3.5%, to $3.26 million (including $0.25 million depreciation and
amortization costs included under cost of goods sold) for the three months ended
June 30, 2010 from $3.15 million for the same period in 2009. As a percentage of
revenues, depreciation and amortization expenses decreased to 1.9% for the three
months ended June 30, 2010 from 2.2% for the same period in 2009. In the first
six months of fiscal 2010, our depreciation and amortization increased $0.28
million, or 4.5%, to $6.49 million (including $0.50 million depreciation and
amortization costs included under cost of goods sold) from $6.21 million for the
same period 2009. As a percentage of revenues, depreciation and amortization
expenses decreased to 2.2% for the six months ended June 30, 2010 from 2.6% for
the same period in 2009. This dollar increase was primarily due to the
amortization of intangible assets from the acquisition of Stonesonic, Longhorn,
Guanling, Jin Lin, DIT and Coson. Such percentage decrease was primarily due to
the increase in incremental revenue in 2010.

Income from operations

Our income from operations increased $11.99 million, or 95.4%,
to $24.56 million for the three months ended June 30, 2010 as compared to $12.57
million for the same period in 2009. As a percentage of revenues, income from
operations increased to 14.6% for the three months ended June 30, 2010 from 8.9%
for the same period in 2009. In the first six months of fiscal 2010, our income
from operations increased $10.97 million, or 53.4%, to $31.52 million as
compared to $20.55 million. As a percentage of revenues, income from operations
increased to 10.9% for the six months ended June 30, 2010 from 8.6% for the same
period in 2009.

The following table shows the different segments comprising our
income from operations for the three and six months ended June 30, 2010 and
2009.

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

Three months ended June 30,Income from operations
      
      2010
      
      
      2009Installation Segment
      $
      32.80
      
      
      133.6%
      
      $
      19.12
      
      
      152.1%Manufacturing Segment
      
      0.19
      
      
      0.8%
      
      
      (0.17
      )
      
      -1.3%Distribution Segment
      
      (1.01
      )
      
      -4.1%
      
      
      (0.17
      )
      
      -1.3%Service Segment
      
      0.21
      
      
      0.8%
      
      
      --
      
      
      --Corporate and others
      
      (7.63
      )
      
      -31.1%
      
      
      (6.21
      )
      
      -49.5%Total
      $
      24.56
      
      
      100.0%
      
      $
      12.57
      
      
      100.0%


Six months ended June 30,Income from operations
      
      2010
      
      
      2009Installation Segment
      $
      52.54
      
      
      166.7%
      
      $
      33.11
      
      
      161.1%Manufacturing Segment
      
      (0.86
      )
      
      -2.7%
      
      
      (0.62
      )
      
      -3.0%Distribution Segment
      
      (1.67
      )
      
      -5.3%
      
      
      (0.55
      )
      
      -2.7%Service Segment
      
      0.21
      
      
      0.7%
      
      
      --
      
      
      --Corporate and others
      
      (18.70
      )
      
      -59.4%
      
      
      (11.39
      )
      
      -55.4%Total
      $
      31.52
      
      
      100.0%
      
      $
      20.55
      
      
      100.0%


Income from operations related to the Installation Segment
increased 71.5%, or $13.68 million, to $32.80 million for the three months ended
June 30, 2010, compared to $19.12 million for the same period in 2009. In the
first six months of fiscal 2010, income from operations related to the
Installation Segment increased 58.7%, or $19.43 million, to $52.54 million,
compared to $33.11 million. Such increase was mainly due to higher demand of
total one-stop-shop installations from customers. We finished more projects with
higher margin in 2010 as compared to the same period in 2009.

Income from operations related to the Manufacturing Segment was
$0.19 million for the three months ended June 30, 2010, compared to operating
loss of $0.17 million for the same period in 2009. Loss from operations related
to the Manufacturing Segment was $0.86 million for the six months ended June 30,
2010, compared to loss from operations of $0.62 million for the same period in
2009. During the three months ended June 30, 2010, we hired additional staff to
meet the anticipated growth of the Manufacturing Segment which, together with
the increased non-cash expenses, more than offset the growth in revenues. We
expect that the Manufacturing Segments margin will increase as we integrate the
recently completed acquisitions which will allow us to further benefit from
economies of scale.

Loss from operations related to the Distribution Segment was
$1.01 million for the three months ended June 30, 2010, compared to the
operating loss of $0.17 million for the same period in 2009. Loss from
operations related to the Distribution Segment was $1.67 million for the six
months ended June 30, 2010, compared to loss from operations of $0.55 million
for the same period in 2009. This increase was mainly due to the decrease of
gross margin.

32

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Income from operations related to the newly established Service
Segment was $0.21 million for the three months ended June 30, 2010.

We also provide general corporate services to our segments.
Costs attributable to these services are reported as corporate and other
expenses. These costs include amortization, depreciation, and non-cash
compensation for employees. Loss from operations related to the Corporate and
others increased 22.9%, or $1.42 million, to $7.63 million for the three months
ended June 30, 2010, compared to $6.21 million for the same period in 2009. Loss
from operations related to Corporate and others increased 64.2%, or $7.31
million, to $18.70 million for the six months ended June 30, 2010, compared to
$11.39 million for the same period in 2009. This increase was mainly due to the
increase of non-cash compensation as discussed above and professional expenses
related to the costs of being a public reporting company.

Other income

Our other income decreased $0.62 million, or 58.5%, to $0.44
million for the three months ended June 30, 2010 from $1.06 million for the same
period in 2009. As a percentage of revenues, other income decreased to 0.3% for
the three months ended June 30, 2010 from 0.7% for the same period in 2009. Our
other income decreased $0.55 million, or 41.7%, to $0.77 million for the six
months ended June 30, 2010 from $1.32 million for the same period in 2009. As a
percentage of revenues, other income for the six months ended June 30, 2010 was
0.3%, as compared to 0.6% for the same period in 2009. The dollar and percentage
decrease was mainly due to a one-time subsidy received from the local government
in 2009. We did not receive any subsidy income in 2010.

Interest expense (excluding redemption accretion on
convertible notes)

During the first half year of 2010, we borrowed funds under 21
short-term loans from banks and the product financing arrangements from
financial institutions of which had incurred total interest expense of $3.06
million, as compared to $1.00 million for the same period in 2009. During the
first half year of 2010, we incurred total interest expense of $5.36 million, as
compared to $1.67 million for the same period in 2009. We incurred $0.73 million
and $1.68 million in interest during the three and six months ended June 30,
2010 in connection with our outstanding Tranche B Zero Coupon Guaranteed Senior
Unsecured Notes (the Tranche B Notes), respectively. We paid $0.28 million and
$0.55 million in interest in connection with the guaranteed senior unsecured
convertible notes due 2012 (the Convertible Notes) during the three and six
months ended June 30, 2009, respectively. The Convertible Notes have been
retired in 2009. This dollar increase in interest expenses was primarily due
to the increase in the outstanding balances of our bank loans.

Redemption accretion on convertible notes

Redemption accretion on the Convertible Notes for the three and
six months ended June 30, 2009 was $5.58 million and $10.95 million,
respectively. We raised $110 million from the issuance of Convertible Notes in
February and April 2007 which were retired and restructured into two new zero
coupon interest notes on September 2, 2009.

Income before taxes

Our income before taxes increased $14.89 million, or 211.2%, to
$21.94 million for the three months ended June 30, 2010 from $7.05 million for
the same period in 2009. As a percentage of revenues, income before taxes for
the three months ended June 30, 2010
increased to 13.1% from 5.0% for the same period in 2009. Our income before
taxes increased $17.68 million, or 191.1%, to $26.93 million for the six months
ended June 30, 2010 from $9.25 million for the same period in 2009. As a
percentage of revenues, income before taxes for the six months ended June 30,
2010 increased to 9.3% from 3.9% for the
same period in 2009. Such percentage increase was primarily due to increase of
gross margin and decreased redemption accretion on convertible notes as
discussed above.

Income Taxes

China Security & Surveillance Technology, Inc. is subject
to the United States federal income tax at a tax rate of 34%. No provision for
income taxes in the United States has been made as China Security &
Surveillance Technology, Inc. had no United States taxable income during the
three months ended June 30, 2010.

Our wholly owned subsidiary Safetech was incorporated in the
British Virgin Island and, under the current laws of the British Virgin Islands,
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%, which included a 30% state income tax
and a 3% local income tax. FIEs established in Shenzhen Special Economic Zone,
such as our Chinese subsidiary, Golden, and certain high-technology companies
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% on all domestic-invested
enterprises and FIEs, unless they qualify under certain limited exceptions.
Therefore, nearly all FIEs are subject to the new tax rate alongside other
domestic businesses rather than benefiting from the EIT, and its associated
preferential tax treatments, beginning January 1, 2008.

33

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Despite these changes, the EIT Law gives the Old FIEs a
five-year grandfathering period during which they can continue to enjoy their
existing preferential tax treatments. During this five-year grandfathering
period, the Old FIEs which enjoyed tax rates lower than 25% under the original
EIT Law shall gradually increase their EIT rate within 5 years until the tax
rate reaches 25%. In addition, the Old FIEs that are eligible for the two-year
exemption and three-year half reduction or five-year exemption and five-year
half-reduction under the original EIT Law, are allowed to remain to enjoy their
preference until these holidays expire. The discontinuation of any such special
or preferential tax treatment or other incentives would have an adverse affect
on any organization's business, fiscal condition and current operations in
China.

In addition to the changes to the current tax structure, under
the EIT Law, an enterprise established outside of China with de facto
management bodies within China is considered a resident enterprise and will
normally be subject to an EIT of 25% on its global income. The Implementing
Rules define the term de facto management bodies as an establishment that
exercises, in substance, overall management and control over the production,
business, personnel, accounting, etc., of a Chinese enterprise. If the PRC tax
authorities subsequently determine that the Company should be classified as a
resident enterprise, then the organizations global income will be subject to
PRC income tax of 25%.

Our subsidiary, Golden, is subject to an EIT rate of 22% for
2010. Hongtianzhi is located in Shenzhen and its 2010 EIT rate is 22% because it
receives a lower tax rate as a high-technology company. Cheng Feng, HiEasy,
Minking, and Stonesonic are each subject to an EIT rate of 15% in 2010 due to
their high-technology or software company status. CSST PRC and Longhorn are
located in Shenzhen and their 2010 EIT rate is 11% because they receive a lower
tax rate as a high-technology company. Coson and Zhuhai DIT Digital Technology
Limited are each subject to an EIT rate of 22% in 2010 due to their
high-technology company status. Tsingvision and Jin Lin are subject to an EIT
rate of 12.5% in 2010 due to their software company status. CSSM, CSSS, CSSD and
Guanling are subject to an EIT rate of 25% in 2010.

Our income taxes increased $3.58 million to $4.13 million for
the three months ended June 30, 2010 from $0.55 million for the same period of
2009. Our income taxes increased $5.10 million to $5.85 million for the six
months ended June 30, 2010 from $0.75 million for the same period of 2009. In
2009, we fully utilized the tax exemption for our subsidiaries, CSST PRC, which
was incorporated in 2006, and Jin Lin, which became our subsidiary in 2008. In
addition, the income tax exemption of some of our major subsidiaries expired as
of the beginning of 2010.

Net income

Net income increased $11.31 million, or 174.0%, to $17.81
million for the three months ended June 30, 2010 from $6.50 million for the same
period in 2009. As a percentage of revenues, net income increased to 10.6% for
the three months ended June 30, 2010 from 4.6% for the same period in 2009. Net
income increased $12.58 million, or 148.0%, to $21.08 million for the six months
ended June 30, 2010 from $8.50 million for the same period in 2009. As a
percentage of revenues, net income increased to 7.3% for the six months ended
June 30, 2010 from 3.6% for the same period in 2009. This percentage increase
was mainly due to increase of gross margin and profit and the decrease of
redemption accretion on our Convertible Notes and as discussed above.

Foreign Currency Translation Losses/Gains

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

We incurred a foreign currency translation gain of $3.20
million for the three months ended June 30, 2010 as compared with the foreign
currency translation loss of $0.16 million for the same period in 2009.

We incurred a foreign currency translation gain of $3.32
million for the six months ended June 30, 2010 as compared with the foreign
currency translation loss of $0.11 million for the same period in 2009.

As we have done since China revalued RMB by 2.1 percent and
allowed the RMB to appreciate as much as 0.3 percent per day against the U.S.
dollar, we implemented different exchange rates in translating RMB into U.S.
dollars in our financial statements for fiscal quarter ended June 30, 2010 and
2009.

34

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For the three months ended June 30, 2010, the exchange rates of
6.79, 6.82 and 8.04 were implemented in calculating the assets and liabilities,
revenue and expenses, and shareholders' equity, respectively, which results in a
$3.20 million foreign currency translation gain in the second quarter of 2010.
In the second quarter of 2009, the exchange rates of 6.83, 6.83 and 8.04 were
implemented in calculating the assets and liabilities, revenue and expenses, and
shareholders' equity, respectively, which results in $0.16 million foreign
currency translation loss in this period.

Liquidity and Capital Resources

General

As of June 30, 2010, we had cash and cash equivalents of
$208.07 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, |  
|--------------------------------------------------- | - | ------------------------------- | -
|                                                    |   | 2010                            |  
|Net cash (used in) provided by operating activities | $ | (56.46                          | )
|Net cash used in investing activities               | $ | (32.30                          | )
|Net cash provided by financing activities           | $ | 140.51                          |  
|Effect of exchange rate changes on cash             | $ | 1.84                            |  
|Net cash inflow                                     | $ | 53.59                           |  

Operating Activities

Net cash used in operating activities in the six months ended
June 30, 2010 totaled $56.46 million as compared to $17.76 million net cash
provided by operating activities for the same period of 2009. The increase in
net cash used in operating activities in the six months ended June 30, 2010 was
primarily due to increases in accounts receivables and inventories.

Investing Activities

Our main uses of cash for investing activities during the first
six months of 2010 were acquisitions of plant and equipment and deposits for the
acquisition of subsidiaries.

Net cash used in investing activities for the six months ended
June 30, 2010 was $32.30 million, which is an increase of $24.86 million from
net cash used in investing activities of $7.44 million in the same period of
2009. This increase was primarily due to deposits for acquisitions of
subsidiaries in the first half of 2010.

Financing Activities

Net cash provided by financing activities in the six months
ended June 30, 2010 totaled $140.51 million as compared to net cash provided by
financing activities of $31.65 million in the same period of 2009. The net cash
provided by financing activities was mainly attributable to proceeds from our
public offering, and additional bank loans obtained in the first six months of
2010. We completed a public offering of 17,250,000 shares of common stock in May
2010 and received net proceeds of approximately $64.57 million.

Loan Facilities

As of June 30, 2010, the amount, maturity date and term of each
of our bank loans are as follows:

All amounts in millions of U.S. dollars

|Lender                           |   | Amount |  |  | Maturity Date |  |  | Duration | 
|-------------------------------- | - | ------ |  |  | ------------- |  |  | -------- | 
|                                 |   |        |  |  |               |  |  |          | 
|China Zheshang Bank              | $ | 2.95   |  |  | November 2010 |  |  | 6 months | 
|China Everbright Bank            |   | 5.88   |  |  | November 2010 |  |  | 6 months | 
|Shanghai Pudong Development Bank |   | 11.78  |  |  | April 2011    |  |  | 1 year   | 
|Shanghai Pudong Development Bank |   | 11.78  |  |  | April 2011    |  |  | 1 year   | 
|China Merchants Bank             |   | 7.36   |  |  | March 2011    |  |  | 1 year   | 
|China Citic Bank                 |   | 13.25  |  |  | March 2011    |  |  | 1 year   | 

35

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|China Citic Bank                            |   | 8.84   |  |  | March 2011     |  |  | 1 year   | 
|------------------------------------------- | - | ------ |  |  | -------------- |  |  | -------- | 
|Industrial and Commercial Bank of China     |   | 4.56   |  |  | March 2011     |  |  | 1 year   | 
|Industrial and Commercial Bank of
    China |   | 5.74   |  |  | March 2011     |  |  | 1 year   | 
|China Construction Bank                     |   | 7.36   |  |  | March 2011     |  |  | 1 year   | 
|China Merchants Bank                        |   | 6.04   |  |  | March 2011     |  |  | 1 year   | 
|Bank of China                               |   | 7.07   |  |  | November 2010  |  |  | 9 months | 
|Bank of China                               |   | 11.04  |  |  | February 2011  |  |  | 1 year   | 
|Societe Generale                            |   | 3.98   |  |  | August 2010    |  |  | 6 months | 
|China Merchants Bank                        |   | 8.69   |  |  | February 2011  |  |  | 1 year   | 
|Industrial and Commercial Bank of China     |   | 2.95   |  |  | January 2011   |  |  | 1 year   | 
|Bank of China                               |   | 11.04  |  |  | January 2011   |  |  | 1 year   | 
|Bank of Ningbo                              |   | 4.42   |  |  | December 2010  |  |  | 1 year   | 
|Industrial and Commercial Bank of
    China |   | 7.36   |  |  | November 2010  |  |  | 1 year   | 
|Shenzhen Development Bank                   |   | 2.95   |  |  | September 2010 |  |  | 1 year   | 
|China Construction Bank                     |   | 4.42   |  |  | August 2010    |  |  | 1 year   | 
|A Financial Institution                     |   | 7.36   |  |  | June 2013      |  |  | 3 years  | 
|A Financial Institution                     |   | 0.65   |  |  | February 2013  |  |  | 4 years  | 
|A Financial Institution                     |   | 5.70   |  |  | September 2012 |  |  | 3 years  | 
|A Financial Institution                     |   | 2.90   |  |  | July 2011      |  |  | 3 years  | 
|                                            |   |        |  |  |                |  |  |          | 
|Total                                       | $ | 166.07 |  |  |                |  |  |          | 

a) Notes payable

On May 21, 2010, we entered into a loan agreement with China
Zheshang Bank. We borrowed RMB20 million (approximately $2.95 million) with an
annual interest rate equal to 110% benchmark lending rate (5.346% as of June 30,
2010) with interest payable on the 20th of each month. The loan is due in
November 2010. The loan is guaranteed by our CEO and our subsidiaries.

On May 18, 2010, we entered into a loan agreement with China
Everbright Bank Co., Ltd. We borrowed RMB40 million (approximately $5.88
million) with an annual interest rate equal to 4.86%, with interest payable on
the 20th of each month. The loan is due in November 2010. The loan is guaranteed
by our CEO, our subsidiary and Chuang Guan.
On April 16, 2010, we entered into a loan agreement with
Shanghai Pudong Development Bank. We borrowed RMB80 million (approximately
$11.78 million) with an annual interest rate equal to 5.31%, with interest
payable on the 20th of each month. The loan is due in April 2011. The loan is
guaranteed by our CEO and our subsidiary, and is collateralized by the
properties and land use rights of a subsidiary.

On April 15, 2010, we entered into a loan agreement with
Shanghai Pudong Development Bank. We borrowed RMB80 million (approximately
$11.78 million) with an annual interest rate equal to 5.31%, with interest
payable on the 20th of each month. The loan is due in April 2011. The loan is
guaranteed by our CEO, and is collateralized by the properties and land use
rights of a subsidiary.

On March 31, 2010, we entered into a loan agreement with China
Merchants Bank. We borrowed RMB50 million (approximately $7.36 million) with an
annual interest rate equal to 5.31%, with interest payable on the 20th of each
month. The loan is due in March 2011. The loan is guaranteed by our CEO, his
wife and our subsidiary, and is collateralized by the property and land use
rights of a subsidiary.

On March 25, 2010, we entered into a loan agreement with China
Citic Bank. We borrowed RMB90 million (approximately $13.25 million) with an
annual interest rate equal to 5.31%, with interest payable on the 20th of each
month. The loan is due in March 2011. The loan is guaranteed by our CEO, his
wife and our subsidiary, and is collateralized by the properties of two
subsidiaries.

On March 24, 2010, we entered into a loan agreement with China
Citic Bank. We borrowed RMB60 million (approximately $8.84 million) with an
annual interest rate equal to 5.31%, with interest payable on the 20th of each
month. The loan is due in March 2011. The loan is guaranteed by our CEO, his
wife and our subsidiary, and is collateralized by the properties of two
subsidiaries.

On March 4, 2010, we entered into a loan agreement with
Industrial and Commercial Bank of China. We borrowed RMB31 million
(approximately $4.56 million) with an annual interest rate equal to 4.78%, with
interest payable on the 20th of each month. The loan is due in March 2011. The
loan is guaranteed by three of our subsidiaries, and is collateralized by
property of a subsidiary.

On March 4, 2010, we entered into a loan agreement with
Industrial and Commercial Bank of China. We borrowed RMB39 million
(approximately $5.74 million) with an annual interest rate equal to 4.78%, with
interest payable on the 20th of each month. The loan is due in March 2011. The
loan is guaranteed by three of our subsidiaries, and is collateralized by
property of a subsidiary.

36

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On March 3, 2010, we entered into a loan agreement with China
Construction Bank. We borrowed RMB50 million (approximately $7.36 million) with
an annual interest rate equal to 5.58%, with interest payable on the 20th of
each month. The loan is due in March 2011. The loan is guaranteed by our CEO and
our subsidiary, and is collateralized by property of a subsidiary.

On March 2, 2010, we entered into a loan agreement with China
Merchants Bank. We borrowed RMB41 million (approximately $6.04 million) with an
annual interest rate equal to 5.31%, with interest payable on the 20th of each
month. The loan is due in March 2011. The loan is guaranteed by our CEO, his
wife and our subsidiary, and is collateralized by the property and land use
rights of a subsidiary.

On February 26, 2010, we entered into a loan agreement with
Bank of China. We borrowed RMB48 million (approximately $7.07 million) with an
annual interest rate equal to 5.04%, with interest payable on the 20th of each
month. The loan is due in November 2010. The loan is guaranteed by our CEO and
two of our subsidiaries, and is collateralized by the property and land use
rights of a subsidiary.

On February 11, 2010, we entered into a loan agreement with
Bank of China. We borrowed RMB75 million (approximately $11.04 million) with an
annual interest rate equal to 5.84%, with interest payable on the 20th of each
month. The loan is due in February 2011. The loan is guaranteed by our CEO and
two of our subsidiaries, and is collateralized by the property and land use
rights of a subsidiary.

On February 8, 2010, we entered into a loan agreement with
Societe Generale. We borrowed RMB27 million (approximately $3.98 million) with an annual
interest rate equal to 4.86%, with interest payable on the due date of the loan.
The loan is due in August 2010. The loan is guaranteed by our subsidiary.

On February 3, 2010, we entered into a loan agreement with
China Merchants Bank. We borrowed RMB59 million (approximately $8.69 million)
with an annual interest rate equal to 5.31%, with interest payable on the 20th
of each month. The loan is due in February 2011. The loan is guaranteed by our
CEO, his wife and our subsidiary, and is collateralized by the property and land
use rights of a subsidiary.

On January 26, 2010, we entered into a loan agreement with
Industrial and Commercial Bank of China. We borrowed RMB100 million
(approximately $14.73 million) with an annual interest rate equal to 4.78%, with
interest payable on the 20th of each month. The loan is due in January 2011. The
Company repaid RMB80 million (approximately $11.78 million) in June 2010. The
loan is guaranteed by our CEO.

On January 7, 2010, we entered into a loan agreement with Bank
of China. We borrowed RMB75 million (approximately $11.04 million) with an
annual interest rate equal to 5.31%, with interest payable on the 20th of each
month. The loan is due in January 2011. The loan is guaranteed by our CEO and
two of our subsidiaries, and is collateralized by the property and land use
rights of a subsidiary.

On December 25, 2009, we entered into a loan agreement with
Bank of Ningbo. We borrowed RMB30 million (approximately $4.42 million) with an
annual interest rate equal to 5.31%, with interest payable on the 20th of each
month. The loan is due in December 2010. The loan is guaranteed by our CEO and
our subsidiary.

On November 6, 2009, we entered into a loan agreement with
Industrial and Commercial Bank of China. We borrowed RMB50 million
(approximately $7.36 million) with an annual interest rate equal to 5.31%, with
interest payable on the 20th of each month. The loan is due in November 2010.
The loan is guaranteed by three of our subsidiaries, and is collateralized by
the land use rights and property of a subsidiary.

On September 30, 2009, we entered into a loan agreement with
Shenzhen Development Bank. We borrowed RMB20 million (approximately $2.95
million) with an annual interest rate equal to 105% of benchmark lending rate
(5.5755% as of June 30, 2010), with interest payable on the 20th of each month.
The loan is due in September 2010. The loan is guaranteed by our CEO and two of
our subsidiaries, and is collateralized by the property of a subsidiary.

On August 13, 2009, we entered into a loan agreement with China
Construction Bank. We borrowed RMB30 million (approximately $4.42 million) with
an annual interest rate equal to 5.5755%, with interest payable on the 20th of
each month. The loan is due in August 2010. The loan is collateralized by the
property of a subsidiary. The loan was repaid in July 2010.

On May 20, 2009, we entered into a loan agreement with China
Everbright Bank. We borrowed RMB40 million (approximately $5.88 million) with an
annual interest rate equal to 5.31%, with interest payable on the 20th of each
month. The loan was due and repaid in May 2010. The loan was guaranteed by our CEO, our
subsidiary, and Chuang Guan.

37

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b) Product financing arrangements

In June 2010, we entered into product financing arrangements
with a financial institution. Under the terms of the agreements, we agreed to
pay an annual interest rate of 8.23% on inventory financings. We borrowed RMB50
million (approximately $7.36 million). The loans expire in June 2013, and
payments are due at the end of each quarter. As of June 30, 2010, the
outstanding liability relating to this loan was RMB50.00 million (approximately
$7.36 million).

In September 2009, we entered into product financing
arrangements with a financial institution. Under the terms of the agreements, we
agreed to pay an annual interest rate of 8.46% on inventory financings. We
borrowed RMB50 million (approximately $7.32 million). The loans expire in
September 2012, and payments are due at the end of each quarter. As of June 30,
2010, the outstanding liability relating to this loan was RMB38.66 million
(approximately $5.70 million).

In February 2009, we entered into product financing
arrangements with a financial institution. Under the terms of the agreements, we
agreed to pay an annual interest rate of 10.5% on inventory financings. We
borrowed RMB7.11 million (approximately $1.04 million). The loans expire in
February 2013, and payments are due at the end of each quarter. As of June 30,
2010, the outstanding liability relating to this loan was RMB4.42 million
(approximately $0.65 million).

In July 2008, we entered into product financing arrangements
with a financial institution. Under the terms of the agreements, we agreed to
pay an annual interest rate of 10% on inventory financings. We borrowed RMB53.49
million (approximately $7.85 million). These loans mature in July 2011. The
interest is payable at the end of each quarter. As of June 30, 2010, the
outstanding liability relating to these arrangements was RMB19.70 million
(approximately $2.90 million).

c) Guaranteed senior unsecured notes payable

As of June 30, 2010, we have outstanding the Tranche B Notes.
The Tranche B Notes have a principal amount of $84.00 million, zero coupon
interest and a fair value of $78.44 million, resulting in a debt discount of
$5.56 million and an effective interest rate of approximately 5%. The Tranche B
Notes mature on September 2, 2012. We are to repay the principal amount in six
consecutive semi-annual installments, starting March 2, 2010, with 46%, 46%, and
8% of the principal amount to be repaid in the first, second and third year,
respectively. The Tranche B Notes are not convertible. We will be entitled to
redeem the Tranche B Notes at any time with no premium or penalty at a
redemption price equal to 100% of the principal amount of the Tranche B Notes to
be redeemed, plus default interest, if any. The Tranche B Notes are guaranteed
by our significant subsidiaries to the extent permitted under the applicable
laws. We repaid $19.32 million of the principal on the Tranche B Notes in March
2010.

d) Others

In March 2009, Industrial and Commercial Bank of China (ICBC)
confirmed that it would acquire all accounts receivable from our Kunming Safe
City project and cash payment would be made without delay once the project is
completed and passes inspection. The Kunming Municipal Government will then make
full payment to ICBC in installments over a five-year period. We completed the
Kunming Safe City project in March 2009.

On October 3, 2006, we signed a banking facility agreement with
China Construction Bank under which the bank 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 the bank to finance the project; (2) we sell the accounts receivable
to the bank, 85% of the total account receivables value will be paid by the bank
to the Company and the remaining 15% will be collected by the bank from the
government; from the 15% collected from the government, the bank will retain
certain finance charges and pay the remainder over to the Company; or (3) we
take a loan from the bank to finance the project. As part of this agreement, we
will make periodic deposits with the bank, which, depending upon the specific
project, will provide a maximum factoring capacity of five to ten times the
amount deposited. None of the facility has been drawn down as of the date of
this report.

We believe that our currently available working capital, after
receiving the aggregate proceeds of our capital raising activities and the
credit facilities referred to above, 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, 2010:

38

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All amounts in millions of U.S. dollars

Payments due by periodLess than
      
      
      
      
      
      
      
      
      More1
      
      
      
      
      
      
      
      
      than 5Total
      
      
      year
      
      
      1-3 years
      
      
      3-5 years
      
      
      yearsDebt Obligations
      $
      232.68
      
      $
      196.25
      
      $
      36.43
      
      $
      --
      
      $
      --Operating Lease Obligations
      
      1.98
      
      
      0.85
      
      
      1.13
      
      
      --
      
      
      --Total
      $
      234.66
      
      $
      197.10
      
      $
      37.56
      
      $
      --
      
      $
      --


Recent Accounting Pronouncements

Accounting for Transfers of Financial Assets
(Included in ASC 860 Transfers and Serving)

This ASC guidance addresses information a reporting entity
provides in its financial statements about: the transfer of financial assets;
the effects of a transfer on its financial position, financial performance, and
cash flows; and a transferors continuing involvement in transferred financial
assets. Also, ASC 860 removes the concept of a qualifying special purpose
entity, limits the circumstances in which a transferor derecognizes a portion or
component of a financial asset, defines participating interest and enhances the
information provided to financial statement users to provide greater
transparency. This guidance was effective for us as of January 1, 2010. The
adoption of this guidance had no impact on our consolidated financial
statements.

Consolidation of Variable Interest Entities  Amended
(Included in ASC 810 Consolidation)

Revisions under ASC 810, require an enterprise to perform ongoing reassessments of whether an enterprise is the primary
beneficiary of a variable interest entity; and eliminates the quantitative
approach previously required for determining the primary beneficiary of a
variable interest entity. This ASC guidance also requires enhanced disclosures
that will provide users of financial statements with more transparent
information about an enterprises involvement in a variable interest entity.
This guidance was effective for us as of January 1, 2010. The adoption of this
guidance had no impact on our consolidated financial statements.

Multiple Deliverable Revenue Arrangements
(Accounting Standards Updates 2009-13 and 2009-14)

In October 2009, the FASB issued a new accounting standard
which provides guidance for arrangements with multiple deliverables.
Specifically, the new standard requires an entity to allocate consideration at
the inception of an arrangement to all of its deliverables based on their
relative selling prices. In the absence of the vendor-specific objective
evidence or third-party evidence of the selling prices, consideration must be
allocated to the deliverables based on managements best estimate of the selling
prices. In addition, the new standard eliminates the use of the residual method
of allocation. In October 2009, the FASB also issued a new accounting standard
which changes revenue recognition for tangible products containing software and
hardware elements. Specifically, tangible products containing software and
hardware that function together to deliver the tangible products essential
functionality are scoped out of the existing software revenue recognition
guidance and will be accounted for under the multiple-element arrangements
revenue recognition guidance discussed above. Both standards will be effective
for us in the first quarter of 2011. Early adoption is permitted. We are
currently evaluating the impact that the adoption of this standard may have on
our 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, 2009, 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.

Inflation

We believe our operations have not been materially adversely
affected by inflation or changing prices.

39

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Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK

Interest Rate Risk

The Company deposits surplus funds with Chinese banks earning
daily interest. The Company does not invest in any instruments for trading
purposes. All of the Companys outstanding debt instruments carry fixed rates of
interest. The Companys operations generally are not directly sensitive to
fluctuations in interest rates. The amount of long-term debt outstanding as of
June 30, 2010 and December 31, 2009 was $34.38 million and $50.53 million,
respectively. A hypothetical 1.0% increase in the annual interest rates for all
of our credit facilities under which we had outstanding borrowings at June 30,
2010 would not have any material impact on our net income before provision for
income taxes for the quarter. Management monitors the banks prime 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

Our reporting currency is the U.S. dollar. Except for the U.S.
holding company, all of our consolidated revenues, consolidated costs and
expenses, and our assets are denominated in RMB. As a result, we are exposed to
foreign exchange risk as our revenues and results of operations may be affected
by fluctuations in the exchange rate between U.S. dollars and RMB. If the RMB
depreciates against the U.S. dollar, the value of our RMB revenues, earnings and
assets as expressed in our U.S. dollar financial statements will decline. Assets
and liabilities are translated at exchange rates at the balance sheet dates and
revenue and expenses are translated at the average exchange rates and
shareholders equity is translated at historical exchange rates. Any resulting
translation adjustments are not included in determining net income but are
included in determining other comprehensive income, a component of shareholders
equity. An average appreciation (depreciation) of the RMB against the U.S.
dollar of 5% would increase our comprehensive income by $3.32 million based on
our outstanding revenues, costs and expenses, assets and liabilities denominated
in RMB as of June 30, 2010. As of June 30, 2010, our accumulated other
comprehensive income was $30.89 million. We have not entered into any hedging
transactions in an effort to reduce our exposure to 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 not 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.

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.

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, 2010. Based upon their evaluation, these executive
officers have concluded that our disclosure controls and procedures are
effective as of June 30, 2010.

Changes in Internal Control over Financial Reporting.
There has been no change to our internal control over financial reporting during
the quarter ended June 30, 2010 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.

40

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PART IIOTHER 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, 2009, filed with the SEC on March 2, 2010, as
amended on March 10, 2010.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. (REMOVED AND RESERVED)

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

|Exhibit | Description                                                                                                                                                                             
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  |                                                                                                                                                                                         
|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.

41

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SIGNATURES

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

DATED: July 26, 2010 China Security & Surveillance
Technology, Inc.

By: /s/ Guoshen Tu Principal Executive Officer

By: /s/ Terence Yap Principal Financial Officer

42

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EXHIBIT INDEX



|Exhibit | Description                                                                                                                                                                             
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  |                                                                                                                                                                                         
|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.

43

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