UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

Q

For the quarterly
period ended: September 30, 2008

 ̈

For the transition
period from ____________ to _____________

Commission File Number:
000-25901

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC.

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

13/F, Shenzhen Special Zone Press Tower, Shennan Road Futian District, Shenzhen, China 518034 (Address of principal executive offices,
Zip Code)

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

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

Yes

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

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

The number of shares outstanding of each of the issuers classes of common
equity, as of October 27, 2008 is as follows:

Class of Securities
      
      Shares OutstandingCommon Stock, $0.0001 par value
      
      45,843,285


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

Yes

1

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TABLE OF CONTENTS

|         | PART I Financial Information                                                              | Page
|-------- | ----------------------------------------------------------------------------------------- | ----
|         |                                                                                           |     
|Item 1.  | Financial Statements                                                                      | 1   
|Item 2.  | Management's Discussion and Analysis of
    Financial Condition and Results of Operations | 32  
|Item 3.  | Quantitative and Qualitative Disclosures About
    Market Risk                            | 48  
|Item 4.  | Controls and Procedures                                                                   | 49  
|         |                                                                                           |     
|         | PART II Other Information                                                                 |     
|         |                                                                                           |     
|Item 1.  | Legal Proceedings                                                                         | 50  
|Item 1A. | Risk Factors                                                                              | 50  
|Item 2.  | Unregistered Sales of Equity Securities and Use
    of Proceeds                           | 50  
|Item 3.  | Defaults Upon Senior Securities                                                           | 50  
|Item 4.  | Submission of Matters to a Vote of Securities
    Holders                                 | 50  
|Item 5.  | Other Information                                                                         | 50  
|Item 6.  | Exhibits                                                                                  | 50  



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PART I
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 Expressed in thousands of U.S. dollars
 (Except for share and per share amounts)

|                                                                               |  |   | September
    30, |   | December 31,
|------------------------------------------------------------------------------ |  | - | ----------------- | - | ------------
|                                                                               |  |   | 2008              |   | 2007        
|                                                                               |  |   | (Unaudited)       |   |             
|                                                                               |  |   |                   |   |             
|ASSETS                                                                        
|CURRENT ASSETS                                                                 |  |   |                   |   |             
|Cash and cash equivalents                                                      |  | $ | 65,926            | $ | 89,071      
|Accounts receivable, net                                                       |  |   | 131,928           |   | 63,206      
|Related party receivables                                                      |  |   | 215               |   | 549         
|Inventories, net                                                               |  |   | 85,719            |   | 40,606      
|Prepayments and deposits                                                       |  |   | 7,175             |   | 3,225       
|Advances to suppliers                                                          |  |   | 22,989            |   | 2,877       
|Other receivables                                                              |  |   | 13,739            |   | 13,171      
|Tax refundable                                                                 |  |   | --                |   | 92          
|Deferred tax assets - current portion                                          |  |   | 72                |   | 137         
|Total current assets                                                           |  |   | 327,763           |   | 212,934     
|                                                                               |  |   |                   |   |             
|Deposits for acquisition of subsidiaries,
    properties and intangible assets |  |   | 24,909            |   | 46,443      
|Property, plant and equipment, net                                             |  |   | 55,586            |   | 24,066      
|Land use rights, net                                                           |  |   | 7,728             |   | 1,379       
|Intangible assets, net                                                         |  |   | 56,923            |   | 39,800      
|Goodwill                                                                       |  |   | 86,435            |   | 52,369      
|Deferred financing cost                                                        |  |   | 1,188             |   | 150         
|Deferred tax assets - non-current portion                                      |  |   | 252               |   | 262         
|TOTAL ASSETS                                                                   |  | $ | 560,784           | $ | 377,403     

See the accompanying notes to condensed
consolidated financial statements

1

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CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 Expressed in thousands of U.S. dollars
(Except for share and per share amounts)(Continued)

|                                                                          |   |         | September 30, |         | December 31,
|------------------------------------------------------------------------- | - | ------- | ------------- | ------- | ------------
|                                                                          |   |         | 2008          |         | 2007        
|                                                                          |   |         | (Unaudited)   |         |             
|                                                                          |   |         |               |         |             
|LIABILITIES AND SHAREHOLDERS' EQUITY                                     
|CURRENT LIABILITIES                                                       |   |         |               |         |             
|Notes payable - short term                                                |   | $       | 8,213         | $       | 12,814      
|Obligation under product financing arrangements 
    short term          |   | 2,413   |               | --     
|Accounts payable                                                          |   |         | 51,469        |         | 21,864      
|Accrued expenses                                                          |   |         | 6,411         |         | 5,108       
|Advances from customers                                                   |   |         | 23,992        |         | 8,352       
|Taxes payable                                                             |   |         | 2,801         |         | 4,153       
|Payable for acquisition of businesses, properties
    and land use rights |   | 24,312  |               | --     
|Deferred income                                                           |   |         | 1,062         |         | 915         
|Total current liabilities                                                 |   |         | 120,673       |         | 53,206      
|                                                                          |   |         |               |         |             
|LONG-TERM LIABILITIES                                                     |   |         |               |         |             
|Notes payable - long term                                                 |   |         | 4,327         |         | 698         
|Obligation under product financing arrangements 
    long term           |   | 4,867   |               | --     
|Convertible notes payable                                                 |   |         | 137,791       |         | 123,701     
|Total liabilities                                                         |   |         | 267,658       |         | 177,605     
|                                                                          |   |         |               |         |             
|MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES                            |   | 34      |               | 61     
|                                                                          |   |         |               |         |             
|SHAREHOLDERS'
    EQUITY                                                  |   |         |               |         |             
|Preferred stock, $0.0001 par value; 10,000,000
    shares authorized, 0   |   |         |               |        
|share issued and outstanding                                              |   |         |               |        
|Common stock, $0.0001 par value; 290,000,000
    shares authorized        |   | 5       |               | 4      
|45,843,285 (September 30, 2008) and 42,506,150
    (December              |   |         |               |        
|31, 2007) shares issued and outstanding                                   |   |         |               |        
|Additional paid-in capital                                                |   |         | 162,396       |         | 110,254     
|Retained earnings                                                         |   |         | 98,182        |         | 76,802      
|Statutory reserves                                                        |   |         | 804           |         | 804         
|Accumulated other comprehensive income                                    |   | 31,705  |               | 11,873 
|Total shareholders' equity                                                |   |         | 293,092       |         | 199,737     
|TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                | $ | 560,784 | $             | 377,403

See the accompanying notes to condensed
consolidated financial statements

2

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

|                                                                                                                                                                   |   | Three Months Ended |   | Nine
    Months Ended
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ | - | ------------------ | - | ---------------------
|                                                                                                                                                                   |   | September 30,      |   | September 30,        
|                                                                                                                                                                   |   | 2008               |   | 2007                 
|                                                                                                                                                                   |   | (Unaudited)        |   | (Unaudited)          
|                                                                                                                                                                   |   |                    |   |                      
|Revenues                                                                                                                                                           | $ | 119,289            | $ | 65,438               
|Cost
    of goods sold                                                                                                                                             |   |                    |   |                      
|(including depreciation and amortization for the
    three and nine months ended September 30, 2008 and 2007 of $230, $516, $0
    and $0, respectively)           |   | 87,280             |   | 45,700               
|Gross profit                                                                                                                                                       |   | 32,009             |   | 19,738               
|                                                                                                                                                                   |   |                    |   |                      
|Selling and marketing                                                                                                                                              |   | 3,376              |   | 1,455                
|General and administrative                                                                                                                                         |   |                    |   |                      
|(including non-cash employee compensation for the
    three and nine months ended September 30, 2008 and 2007 of $3,596, $9,662,
    989 and $2,055, respectively) |   | 11,023             |   | 3,836                
|Depreciation and amortization                                                                                                                                      |   | 2,283              |   | 1,436                
|Income from operations                                                                                                                                             |   | 15,327             |   | 13,011               
|Rental
    income received from related party                                                                                                                      |   | --                 |   | 124                  
|Interest income                                                                                                                                                    |   | 65                 |   | 89                   
|Interest expense                                                                                                                                                   |   | (5,949)            |   | (4,768)              
|Gain on disposal of land use right and
    property                                                                                                                |   | --                 |   | 5,517                
|Other
    income, net                                                                                                                                              |   | 480                |   | 329                  
|Income before income taxes and
    minority interest                                                                                                               |   | 9,923              |   | 14,302               
|Minority interest in (income)
    loss of consolidated subsidiaries                                                                                                |   | --                 |   | (19)                 
|Income taxes                                                                                                                                                       |   | (775)              |   | (2,587)              
|Net
    income                                                                                                                                                     |   | 9,148              |   | 11,696               
|Foreign currency translation gain                                                                                                                                  |   | 4,402              |   | 2,185                
|Comprehensive income                                                                                                                                               | $ | 13,550             | $ | 13,881               
|                                                                                                                                                                   |   |                    |   |                      
|Net income per share                                                                                                                                               |   |                    |   |                      
|Basic                                                                                                                                                              | $ | 0.20               | $ | 0.30                 
|Diluted                                                                                                                                                            | $ | 0.20               | $ | 0.29                 
|Weighted average number of shares                                                                                                                                  |   |                    |   |                      
|Basic                                                                                                                                                              |   | 45,655,617         |   | 38,547,263           
|Diluted                                                                                                                                                            |   | 46,151,827         |   | 40,512,247           

See the accompanying notes to condensed
consolidated financial statements

3

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CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
SUBSIDIARIES 
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY 
NINE MONTHS ENDED SEPTEMBER 30, 2008 (UNAUDITED) 
Expressed in thousands of U.S. dollars 
(Except for share and per share amounts)

|                                                                                                                                |              |            |         |          | Accumulated   | Statutory |        
|------------------------------------------------------------------------------------------------------------------------------- | ------------ | ---------- | ------- | -------- | ------------- | --------- | -------
|                                                                                                                                | Common Stock | Additional |         | Other    | Surplus       |          
|                                                                                                                                |              | Par        | Paid-in | Retained | Comprehensive | Reserve   |        
|                                                                                                                                | Shares       | Value      | Capital | Earnings | Income        | Fund      | Total  
|                                                                                                                                |              |            |         |          |               |           |        
|BALANCE AT JANUARY 1, 2008                                                                                                      | 42,506,150   |            | $       | 4        |               | $         | 110,254
|Warrants exercised for cash per
    Securities Purchase Agreement                                                               | 57,776       |            |         | -        |               |           | 277    
|Common stock issued under Equity
    Incentive Plan                                                                             | 499,001      |            |         | -        |               |           | 9,662  
|Forfeiture of restricted stock 
    under Equity Incentive Plan                                                                 | (29,645)     |            |         | -        |               |           | -      
|Common stock issued for private
    placement                                                                                   | 722,544      |            |         | -        |               |           | 9,700  
|Common stock issued in 
    connection with Exclusive Cooperation Agreement with Beijing DM Security &
    Technology Co., Ltd. | 136,378      |            |         | -        |               |           | 2,041  
|Common stock issued for acquisition of
    Guangdong  Stonesonic Digital Technique Co., Ltd.                                    | 953,918      |            |         | 1        |               |           | 14,489 
|Common stock issued for acquisition of
    Shenzhen Longhorn Security Technology Co., Ltd.                                      | 790,502      |            |         | -        |               |           | 12,030 
|Common stock issued for acquisition of
    Beijing Aurine Divine Land Technology Co., Ltd.                                      | 206,661      |            |         | -        |               |           | 3,943  
|Foreign currency translation                                                                                                    | -            |            |         | -        |               |           | -      
|Net income for the period                                                                                                       | -            |            |         | -        |               |           | -      
|                                                                                                                                |              |            |         |          |               |           |        
|BALANCE AT SEPTEMBER 30, 2008                                                                                                   | 45,843,285   |            | $       | 5        |               | $         | 162,396

See the accompanying notes to condensed
consolidated financial statements

4

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

|                                                                          |   | Nine Months Ended
|------------------------------------------------------------------------- | - | -----------------
|                                                                          |   | September 30,    
|                                                                          |   | 2008             
|                                                                          |   | (Unaudited)      
|                                                                          |   |                  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                     |   |                  
|Net income                                                                | $ | 21,380           
|Adjustments to reconcile net
    income to net cash (used in) provided by |   |                  
|operating activities:                                                     |   |                  
|Depreciation and amortization                                             |   | 6,746            
|Provision for bad debt                                                    |   | 345              
|Amortization of consultancy services                                      |   | 101              
|Amortization of deferred financing cost                                   |   | 102              
|Non cash employee compensation                                            |   | 9,662            
|Gain on disposal of land use right and
    property                       |   | --               
|Redemption accretion on convertible notes                                 |   | 14,090           
|Deferred taxes                                                            |   | 104              
|Minority interest                                                         |   | (31)             
|                                                                          |   |                  
|Changes in operating assets and liabilities:                              |   |                  
|(Increase) decrease in:                                                   |   |                  
|Accounts receivable                                                       |   | (60,155)         
|Related party receivables                                                 |   | 373              
|Inventories                                                               |   | (31,933)         
|Prepayments and deposits                                                  |   | (2,233)          
|Advances to suppliers                                                     |   | (18,779)         
|Other receivables                                                         |   | (2,723)          
|                                                                          |   |                  
|Increase (decrease) in:                                                   |   |                  
|Accounts payable and accrued expenses                                     |   | 21,153           
|Advances from customers                                                   |   | 12,543           
|Tax payable                                                               |   | (1,375)          
|Deferred income                                                           |   | 82               
|Net cash (used in) provided by operating
    activities                   |   | (30,548)         

See the accompanying notes to condensed
consolidated financial statements

5

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CHINA SECURITY & SURVEILLANCE
TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
 Expressed in thousands of U.S. dollars
(Except for share and per share amounts)
(Continued)

|                                                                                              | Nine Months Ended
|--------------------------------------------------------------------------------------------- | -----------------
|                                                                                              | September 30,    
|                                                                                              |                  
|                                                                                              |                  
|                                                                                              |                  
|CASH FLOWS FROM INVESTING
    ACTIVITIES:                                                     |                  
|Additions to property, plant and
    equipment                                                |                  
|Additions to intangible assets                                                                |                  
|Additions to land use rights                                                                  |                  
|Deposits paid for acquisition of
    subsidiaries                                             |                  
|Deposits refunded for acquisition of
    subsidiaries                                         |                  
|Deposits paid for acquisition of
    properties and intangible assets                         |                  
|Net cash outflow for acquisition of
    subsidiaries (net of cash acquired from subsidiaries) |                  
|Proceeds from disposal of land use
    right and property                                     |                  
|Net cash used in investing activities                                                         |                  
|                                                                                              |                  
|CASH FLOWS FROM FINANCING
    ACTIVITIES:                                                     |                  
|Due to a director                                                                             |                  
|Issue of common stock by cash warrants                                                        |                  
|Issuance of common stock, net of
    issuing expenses                                         |                  
|New borrowings, net of issuing cost                                                           |                  
|Repayment of borrowings                                                                       |                  
|New borrowings from obligation under
    product financing arrangements                       |                  
|Repayment of obligation under product
    financing arrangements                              |                  
|Net cash provided by financing
    activities                                                 |                  
|                                                                                              |                  
|EFFECT OF EXCHANGE RATE CHANGES ON
    CASH AND CASH EQUIVALENTS                              |                  
|                                                                                              |                  
|NET (DECREASE) INCREASE IN CASH AND
    CASH EQUIVALENTS                                      |                  
|                                                                                              |                  
|Cash and cash equivalents, beginning
    of period                                            |                  
|CASH AND CASH EQUIVALENTS, END OF
    PERIOD                                                  |                  

See the accompanying notes to condensed
consolidated financial statements

6

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CHINA SECURITY & SURVEILLANCE
TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
 Expressed in thousands of U.S. dollars
(Except for share and per share amounts)
(Continued)

|SUPPLEMENTARY CASH FLOW
    INFORMATION: |  |   |       |  |   |      
|---------------------------------------- |  | - | ----- |  | - | -----
|                                         |  |   |       |  |   |      
|                                         |  |   |       |  |   |      
|Interest paid                            |  | $ | 1,347 |  | $ | 640  
|Income taxes paid                        |  | $ | 9,054 |  | $ | 4,449

SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:

136,378 shares of common stock were
issued in satisfaction of the equity portion of the purchase price of
approximately $2,041 in the establishment of the exclusive cooperation agreement
with Beijing DM Security & Technology Co., Ltd. ("DM") on January 18, 2008.
(Note 11)

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

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

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

1,361,748 shares of common stock
were issued in satisfaction of the equity portion of the purchase price of
approximately $7,500 for the acquisition of Shanghai Cheng Feng Digital
Technology Co., Ltd. ("Cheng Feng") in the first quarter of 2007.

2,800,711 shares of common stock
were issued in satisfaction of the equity portion of the purchase price of
approximately $16,204 for the acquisition of Shenzhen Hongtianzhi Electronics
Co., Ltd. ("Hongtianzhi") in the second quarter of 2007.

811,804 shares of common stock were
issued in satisfaction of the equity portion of the purchase price of
approximately $5,198 for the acquisition of HiEasy Electronic Technology
Development Co, Ltd. ("HiEasy") in the second quarter of 2007.

459,000 shares of common stock were
issued in satisfaction of the equity portion of the purchase price of
approximately $6,533 for the acquisition of Hangzhou Tsingvision Intelligence
System Co., Ltd. ("Tsingvision") in the third quarter of 2007.

See the accompanying notes to condensed consolidated financial statements

7

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

1.

BASIS OF PRESENTATION

The accompanying financial statements, as of
September 30, 2008 and for the three and nine months ended September 30, 2008
and 2007, have been prepared by CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC.
(the "Company") without audit. Pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"), certain information and footnote
disclosures normally included in the financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
("US GAAP") have been condensed or omitted pursuant to such rules and
regulations. These financial statements should be read in conjunction with the
financial statements and the notes thereto included in the Company's audited
annual financial statements for the year ended December 31, 2007, which are
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2007, filed with the SEC on March 10, 2008. Amounts as of December 31, 2007
are derived from these audited consolidated financial statements.

The preparation of financial statements in
conformity with US GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses
and the disclosure of contingent assets and liabilities. Actual results could
differ from these estimates.

In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to present fairly
the Company's financial position as of September 30, 2008, results of operations
for the three and nine months ended September 30, 2008 and 2007, and cash flows
for the nine months ended September 30, 2008 and 2007, have been made. The
results of operations for the three and nine months ended September 30, 2008 are
not necessarily indicative of the operating results for the full year.

2.

SUMMARY OF SELECTED SIGNIFICANT ACCOUNTING POLICIES

(a)

Accounts Receivable

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

No trade receivables due from any single customer
exceeds 10% of total accounts receivable at September 30, 2008 and December 31,
2007.

(b)

Inventories

Inventories are stated at the lower of cost,
determined on a weighted average basis, or net realizable value. Net realizable
value is the estimated selling price in the ordinary course of business less the
estimated cost of completion and the estimated costs necessary to make the sale.

When inventories are sold, their carrying amount is
charged to expense in the year in which the revenue is recognized. Write-downs
for declines in net realizable value or for losses of inventories are recognized
as an expense in the year the impairment or loss occurs. There were no declines
in net realizable value of inventory for the three and nine months ended
September 30, 2008 and 2007.

As of September 30, 2008 and December 31, 2007,
inventories held under the product financing arrangements were $6,705 and $0,
respectively.

During the three and nine months ended September
30, 2008 and 2007, approximately 47%, 23%, 54% and 66%, of total inventory
purchases were from our top five suppliers, respectively.

8

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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)

(c)

Accounting for Computer Software to Be Sold, Leased
or Otherwise Marketed

The Company accounts for software development costs
in accordance with Statement of Financial Accounting Standards (SFAS) No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed. Costs related to establishing the technological
feasibility of a software product are expensed as incurred as a part of research
and development in general and administrative expenses. Costs that are incurred
to produce the finished product after technological feasibility is established
are capitalized and amortized over an estimated economic life of 5 years. The
Company performs periodic reviews to ensure that unamortized program costs
remain recoverable from future revenue.

As of September 30, 2008 and December 31, 2007,
unamortized computer software costs were $2,281 and $2,383, respectively. During
the three and nine months ended September 30, 2008 and 2007, $126, $501, $311
and $374 of amortization expense was charged to income, respectively.

(d)

Revenue Recognition

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

Revenue from sales of security and surveillance
video cameras, surveillance equipment and related products is recognized in
accordance with Staff Accounting Bulletin (SAB) No. 104, Revenue
Recognition (SAB No. 104). 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 titles to the products are shipped to or accepted by
the customer;

(iii)

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

(iv)

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

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

The sales contracts generally provide a one to
three-year product warranty to customers from the date of purchase. We estimate
the costs of satisfying warranty claims based on an analysis of past experience
and provide for the future claims in the period the revenue is recognized. As of
September 30, 2008 and December 31, 2007, no material product warranty reserve
was accrued. Warranty costs incurred by the Company have not been material.

9

---

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

2.

SUMMARY OF SELECTED SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)

(d)

Revenue Recognition  continued

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

(i)

The PCS fee is included with the initial licensing
fee;

(ii)

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

(iii)

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

(iv)

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

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

(e)

Research and Development Costs

Research and development costs are expensed as
incurred. Research and development costs included in general and administrative
expenses for the three and nine months ended September 30, 2008 and 2007 were
$594, $940, $99 and $207, respectively.

(f)

Advertising Costs

The Company expenses advertising costs as incurred
or the first time advertising takes place. During the three and nine months
ended September 30, 2008 and 2007, the Company incurred approximately $133,
$410, $160 and $363, respectively.

(g)

Retirement Benefits

Retirement benefits in the form of contributions
under defined contribution retirement plans to the relevant authorities are
charged to the consolidated statements of income as incurred. The retirement
benefit expenses (included in selling and marketing expenses and general and
administrative expenses) for the three and nine months ended September 30, 2008
and 2007 were $372, $838, $128 and $255, respectively.

10

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

2.

SUMMARY OF SELECTED SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)

(h)

Share-based Payments

On February 7, 2007, the Company adopted the 2007
Equity Incentive Plan (Plan), which has a five-year term and provides for
grants of stock options, stock appreciation rights, performance units,
restricted stock units and performance shares. The total number of shares which
may be issued under the plan is 8,000,000 shares of common stock. These
restricted stocks are share-based payments subject to the provisions of revised
SFAS No.123, Share-Based Payment (SFAS 123 (R)). The fair values of
these restricted stock awards are equal to the market value of the Company's
stock on the date of grant, after taking into account certain discounts. Such
restricted stock is subject to the risk of forfeiture upon the occurrence of
certain events. During the three and nine months ended September 30, 2008 and
2007, the Company has recognized $3,596, $9,662, $989 and $2,055 of compensation
expense under the Plan, respectively. As of September 30, 2008 and December 31,
2007, there was $37,553 and $39,539 of unrecognized compensation expense related
to the nonvested restricted stock, respectively. These expenses are expected to
be recognized over a four-year period.

(i)

Income taxes

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

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

(j)

Use of Estimates

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

11

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

2.

SUMMARY OF SELECTED SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)

(k)

Earnings Per Share

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

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

As of September 30, 2008 and 2007, warrants were
outstanding to acquire 174,515 and 450,016 shares of common stock, respectively.
With respect to outstanding warrants, the dilutive impact on the weighted
average number of shares was 20,251, 21,311, 344,121 and 326,965 for the three
and nine months ended September 30, 2008 and 2007, respectively.

722,606 shares of common stock in connection with
the acquisitions of Shenzhen Jin Lin Technology Co., Ltd (Jin Lin) and 100% of
beneficial interest of Huge Long Limited (note 9) were not yet issued before
September 30, 2008. The Company issued 1,951,081, shares of common stock in
connection with the acquisitions of Stonesonic, Longhorn and Guanling during the
nine months ended September 30, 2008 (note 3) and the exclusive cooperation
agreement with DM (note 11). The impact of these shares has been included in the
dilutive weighted average number of shares from the date of the closing of the
acquisitions or the date the shares were issued.

The Company issued 5,506,626 shares of common stock
in connection with the acquisition of Hongtianzhi, HiEasy, Changzhou Minking
Electronics Co., Ltd., Tsingvision and the exclusive cooperation agreement with
Shenzhen Chuang Guan Intelligence Network Technology Co., Ltd. The impact of
these shares has been included in the dilutive weighted average number of shares
from the date of the closing of the acquisitions, through the earlier of
September 30, 2007 or the date the shares were issued.

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

(l)

Recently Issued Accounting Pronouncements

In June 2008, the FASB issued EITF No. 07-5, Determining
Whether an Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock
effective for financial statements issued for fiscal years and interim periods
beginning after December 15, 2008. EITF No.07-5 provides guidance for
determining whether an equity-linked financial instrument (or embedded feature)
is indexed to an entitys own stock. The adoption of EITF No. 07-5 is not
expected to have a material effect on the Companys consolidated financial
statements.

In May 2008, the FASB issued Statement of Financial
Accounting Standards ("SFAS") No. 162, "The Hierarchy of Generally Accepted
Accounting Principles" (SFAS No. 162). SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements. SFAS No. 162 is effective 60 days following
the SEC's approval of the Public Company Accounting Oversight Board amendments
to AU Section 411, "The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles". The Company does not expect that this standard
will have a material impact on its results of operations, financial position or
cash flows.

In April 2008, the FASB issued FASB Staff
Position ("FSP") No. FAS 142-3, "Determination of Useful Life of Intangible
Assets" ("FSP 142-3"). FSP 142-3 amends the factors that should be considered in
developing the renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under SFAS 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"). The intent of this FSP is to improve the
consistency between the useful life of an intangible asset determined under SFAS
142 and the period of expected cash flows used to measure the fair value of the
asset under SFAS 141R. FSP 142-3 is effective for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. The Company is
currently evaluating the impact of adopting FSP 142-3 on the financial
statements.

12

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

2.

SUMMARY OF SELECTED SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)

(l)

Recently Issued Accounting Pronouncements
(continued)

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

In December 2007, the FASB issued
SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS 141R"),
effective for business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. SFAS 141R establishes principles and requirements for how an
acquirer recognizes and measures identifiable assets acquired, liabilities
assumed, any noncontrolling interest in the acquiree and goodwill. SFAS 141R
also expands disclosure requirements for business combinations. The Company is
currently evaluating the impact of adopting SFAS 141 on the financial
statements.

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

3.

BUSINESS ACQUISITIONS

In the second and third quarters of
2008, the Company acquired four companies that are engaged in the security and
surveillance business in China: Stonesonic, Longhorn, Guanling and Jin Lin.





13

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

3.

BUSINESS ACQUISITIONS (CONTINUED)

On April 2, 2008, the Company entered into an
equity transfer agreement with the shareholder of Kit Grant Limited under which
the Company agreed to pay a total consideration of RMB227,038 (approximately
$32,299) in exchange for 100% ownership of Kit Grant Limited, consisting of
RMB125,000 (approximately $17,809) in cash and 953,918 shares of the Companys
common stock valued at RMB102,038 (approximately $14,490). $11,205 of the cash
portion of the purchase price was paid as a deposit in the first quarter of
2008. The balance of the cash portion of the purchase price is expected to be
paid before December 2008.  The Company issued 953,918 shares of the Companys
common stock to the shareholder of Kit Grant Limited and her designees in June
2008. Kit Grant Limited is a holding company with no assets other than 100% of
the equity interest of Stonesonic.  The acquisition was financed with proceeds
from the Company's February Notes and April Notes (as defined in note 15).

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

On April 2, 2008, the Company entered into an
equity transfer agreement with the shareholder of Sincere On Limited under which
the Company agreed to pay a total consideration of RMB120,558 (approximately
$17,151) in exchange for 100% ownership of Sincere On Limited, consisting of
RMB36,000 (approximately $5,121) in cash and 790,502 shares of the Companys
common stock valued at RMB84,558 (approximately $12,030). RMB36,000
(approximately $5,121) of the cash portion of the purchase price was paid before
the execution of the equity transfer agreement.  The Company issued 790,502
shares of the Companys common stock to the shareholder of Sincere On Limited
and her designees in June 2008. Sincere On Limited is a holding company with no
assets other than 100% of the equity interest of Longhorn.  The acquisition was
financed with proceeds from the Companys February Notes and April Notes (as
defined in note 15).

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

On April 21, 2008, the Company entered into an
equity transfer agreement with the shareholder of Sharp Eagle (HK) Limited under
which the Company agreed to pay a total consideration of RMB39,110
(approximately $5,587) in exchange for 100% ownership of Sharp Eagle (HK)
Limited, consisting of RMB12,500 (approximately $1,644) in cash and 206,661
shares of the Companys common stock valued at RMB26,610 (approximately $3,943).
RMB12,500 (approximately $1,644) of the purchase price was paid as a deposit in
January 2008.  The Company issued 206,661 shares of its common stock to the
shareholder of Sharp Eagle (HK) Limited and her designees in June 2008. Sharp
Eagle (HK) Limited is a holding company with no assets other than 100% of the
equity interest of Guanling.  The acquisition was financed with proceeds from
the Companys February Notes and April Notes (as defined in note 15).

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

On July 7, 2008, the Company entered into an equity
transfer agreement with the shareholder of Long Top Limited under which the
Company agreed to pay total consideration of RMB68,582 (approximately $10,000)
in exchange for 100% ownership of Long Top Limited, consisting of RMB40,000
(approximately $5,832) in cash and shares of the Companys common stock valued
at RMB28,582 (approximately $4,168). RMB13,000 (approximately $1,896) of the
purchase price was paid as a deposit in April 2008. The balance of the cash
portion of the purchase price, RMB 27,000 (approximately $3,936), will be paid
upon Long Top Limited and Jin Lins achievement of certain financial thresholds.
 The Company will issue 268,870 shares of its common stock to the shareholders
of Long Top Limited in the fourth quarter of 2008. Long Top Limited is a holding
company with no assets other than 100% of the equity interest of Jin Lin. The
acquisition was financed with proceeds from the Companys February Notes and
April Notes (as defined in Note 15).

The operational control of Jin Lin passed to the
Company effective July 7, 2008. The results of Jin Lins operations from July 7,
2008 through September 30, 2008 are included in the Companys Consolidated
Statements of Income and Comprehensive Income.

14

---

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

3.

BUSINESS ACQUISITIONS (CONTINUED)

The following represents the purchase price
allocation at the dates of the acquisitions of Stonesonic, Longhorn, Guanling
and Jin Lin based on the valuation reports which were prepared by a third party
appraisal firm:

Stonesonic
      
      Longhorn
      
      Guanling
      
      Jin Lin
      
      TotalCash and cash equivalents
      $
      1,623
      $
      1,660
      $
      638
      $
      328
      $
      4,249Other current assets
      
      6,994
      
      2,545
      
      3,652
      
      3,064
      
      16,255Property, plant and equipment
      
      3,540
      
      978
      
      79
      
      236
      
      4,833Other assets
      
      1,132
      
      --
      
      --
      
      --
      
      1,132Intangible assets
      
      5,947
      
      4,990
      
      690
      
      3,891
      
      15,518Goodwill
      
      17,432
      
      8,415
      
      4,123
      
      4,085
      
      34,055Current liabilities
      
      (3,678)
      
      (1,437)
      
      (3,595)
      
      (1,604)
      
      (10,314)Long-term liabilities
      
      (691)
      
      --
      
      --
      
      --
      
      (691)Total purchase price
      $
      32,299
      $
      17,151
      $
      5,587
      $
      10,000
      $
      65,037


The following tables show supplemental information
of the results of operations on a pro forma basis for the three and nine months
ended September 30, 2008 and 2007 as if the acquisitions of Stonesonic,
Longhorn, Guanling and Jin Lin had been completed at the beginning of the
respective periods of 2008 and 2007:

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

HistoricalStonesonic,Longhorn,Guanling
      
      
      Pro FormaCSST
      
      
      and Jin Lin
      
      
      Adjustments
      
      
      Pro FormaRevenues
      $
      119,289
      
      $
      --
      
      
      --
      
      $
      119,289Income from operations
      $
      15,327
      
      $
      (24)
      
      $
      --
      
      $
      15,303Net income
      $
      9,148
      
      $
      (24)
      
      $
      --
      
      $
      9,124Net income per shareBasic
      $
      0.20
      
      
      
      
      
      
      
      $
      0.20Diluted
      $
      0.20
      
      
      
      
      
      
      
      $
      0.20


15

---

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

3.

BUSINESS ACQUISITIONS (CONTINUED)

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

HistoricalStonesonic,Longhorn,Guanling,
      
      
      Pro FormaCSST
      
      
      and Jin Lin
      
      
      Adjustments
      
      
      Pro FormaRevenues
      $
      65,438
      
      $
      8,748
      
      
      
      
      $
      74,186Income from operations
      $
      13,011
      
      $
      1,343
      
      $
      (366)
      
      $
      13,988Net income
      $
      11,696
      
      $
      1,395
      
      $
      (366)
      
      $
      12,725Net income per shareBasic
      $
      0.30
      
      
      
      
      
      
      
      $
      0.31Diluted
      $
      0.29
      
      
      
      
      
      
      
      $
      0.30


For the nine months ended September 30, 2008
(Unaudited)

HistoricalStonesonic,Longhorn,Guanling,
      
      
      Pro FormaCSST
      
      
      and Jin Lin
      
      
      Adjustments
      
      
      Pro FormaRevenues
      $
      283,806
      
      $
      9,333
      
      
      
      
      $
      293,139Income from operations
      $
      40,713
      
      $
      821
      
      $
      (453)
      
      $
      41,081Net income
      $
      21,380
      
      $
      651
      
      $
      (453)
      
      $
      21,578Net income per shareBasic
      $
      0.49
      
      
      
      
      
      
      
      $
      0.48Diluted
      $
      0.48
      
      
      
      
      
      
      
      $
      0.47


16

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

3.

BUSINESS ACQUISITIONS (CONTINUED)

For the nine months ended September 30, 2007
(Unaudited)

HistoricalStonesonic,Longhorn,Guanling,
      
      
      Pro FormaCSST
      
      
      and Jin Lin
      
      
      Adjustments
      
      
      Pro FormaRevenues
      $
      156,014
      
      $
      17,991
      
      
      
      
      $
      174,005Income from operations
      $
      29,115
      
      $
      2,721
      
      $
      (1,098)
      
      $
      30,738Net income
      $
      20,494
      
      $
      2,501
      
      $
      (1,098)
      
      $
      21,897Net income per shareBasic
      $
      0.57
      
      
      
      
      
      
      
      $
      0.58Diluted
      $
      0.54
      
      
      
      
      
      
      
      $
      0.55


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

4.

ACCOUNTS RECEIVABLE

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

September 30,
      
      
      December 31,2008
      
      
      2007Accounts receivable
      $
      132,937
      
      $
      63,494Less: allowance for doubtful accounts
      
      (1,009)
      
      
      (288)Accounts receivable, net
      $
      131,928
      
      $
      63,206


5.

RELATED PARTY RECEIVABLES

The Company had receivables from several companies
whose directors and shareholders are common with the Company. All receivables
arise from the rental of real estate properties. The receivables are classified
as related party receivables on the balance sheets. The balances as of September
30, 2008 and December 31, 2007 are as follows:

September 30,
      
      
      December 31,2008
      
      
      2007Related party receivables
      $
      215
      
      $
      549Less: allowance for doubtful accounts
      
      -
      
      
      -Related party receivables, net
      $
      215
      
      $
      549


The Company has leased offices to three related
parties since January 1, 2004. The leases expired on December 31, 2007. The
rental income was $124 and $380 for the three and nine months ended September
30, 2007, respectively.

17

---

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

6.

INVENTORIES

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

September 30,
      
      
      December 31,2008
      
      
      2007Raw materials
      $
      16,206
      
      $
      9,386Work in progress
      
      5,052
      
      
      2,182Finished goods
      
      49,406
      
      
      9,761Installations in process
      
      16,038
      
      
      19,830Total
      
      86,702
      
      
      41,159Less: allowance for obsolete inventories
      
      (983)
      
      
      (553)Inventories, net
      $
      85,719
      
      $
      40,606


7.

PREPAYMENTS AND DEPOSITS

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

September 30,
      
      
      December 31,2008
      
      
      2007Current portion
      $
      7,175
      
      $
      3,225Non current portion- Deposits paid for acquisition of
      subsidiaries
      
      5,085
      
      
      22,545- Deposits paid for acquisition of properties
      and intangible assets
      
      19,824
      
      
      23,898$
      24,909
      
      $
      46,443


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

8.

ADVANCE PAYMENTS

The Company has made payments to unrelated
suppliers in advance of receiving merchandise. The advance payments are meant to
ensure preferential pricing and delivery. The amounts advanced under such
arrangements totaled $22,989 and $2,877 as of September 30, 2008 and December
31, 2007, respectively.

18

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

9.

PROPERTY, PLANT AND EQUIPMENT

As of September 30, 2008 and December 31, 2007,
property, plant and equipment, at cost, consist of

September 30,
      
      
      December 31,2008
      
      
      2007Buildings
      $
      41,509
      
      $
      17,564Leasehold improvements
      
      1,876
      
      
      1,029Plant and equipment
      
      6,074
      
      
      3,158Electronic equipment
      
      8,455
      
      
      2,444Motor vehicles
      
      4,310
      
      
      3,11362,224
      
      
      27,308Less: accumulated depreciation
      
      (6,638)
      
      
      (3,242)Property, plant and equipment, net
      $
      55,586
      
      $
      24,066


On August 6, 2008, the Company entered into an
equity transfer agreement with the shareholder of Huge Long Limited under which
the Company will acquire all issued and outstanding shares of capital stock of
Huge Long Limited through a series of transactions. The Company acquired 100%
beneficial interest (but not record ownership) of all issued and outstanding
capital stock of Huge Long Limited on August 6, 2008 (the First Closing) and
will acquire the legal title and record ownership of all issued and outstanding
shares of capital stock of Huge Long Limited on or before December 31, 2009 (the
Second Closing).  Huge Long Limited has entered into an equity transfer
agreement to acquire Shenzhen Wangdaiheng Industry Limited (WDH) which will
close on or before December 31, 2009. The Second Closing is conditioned upon the
acquisition by Huge Long Limited of the legal title of WDH. WDH owns a parcel of
land (No. A524-0013) located at the south of Ban Gong Chang Road, Guangming
Street, Baoan District, Shenzhen (the Industry Park). The Company was granted
an exclusive right to use the Industry Park at the First Closing.

The Company agreed to pay a total consideration of
RMB145,812 (approximately $21,279) in exchange for the 100% beneficial interest
of Huge Long Limited, consisting of RMB102,000 (approximately $14,885) in cash
and 453,736 shares of the Companys common stock valued at RMB43,812
(approximately $6,394). The Companys total costs for acquiring the land use
rights and properties were $4,382 and  $16,897 respectively. RMB80,000
(approximately $11,675) of the purchase price was paid as a deposit in 2007 and
January 2008. The balance of the cash portion of the purchase price, RMB 22,000
(approximately $3,210), will be paid at the Second Closing.  The equity portion
of the purchase price 453,736 shares will be issued in the fourth quarter of
2008. The acquisition was and will be financed with proceeds from the Companys
February Notes and April Notes (as defined in Note 15).

Depreciation expense for the three and nine months
ended September 30, 2008 and 2007 was $745, $2,265, $315 and $720, respectively.

19

---

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

10.

LAND USE RIGHTS

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

September 30,
      
      
      December 31,2008
      
      
      2007Cost of land use rights
      $
      8,390
      
      $
      1,428Less: Accumulated amortization
      
      (662)
      
      
      (49)Land use rights, net
      $
      7,728
      
      $
      1,379


Amortization expense for the three and nine months
ended September 30, 2008 and 2007 was $22, $43, $12 and $32, respectively.

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

2008 (for the remaining 3 months)
      $
      432009
      
      1712010
      
      1712011
      
      1712012
      
      1712013
      
      171Thereafter
      
      6,830Total
      $
      7,728


The Company disposed of certain land use rights and
properties for a total consideration of RMB119,000 (approximately $16,119) in
December 2007. The remaining proceeds of RMB24,000 (approximately $3,379) were
received in January 2008.

20

---

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

11.

INTANGIBLE ASSETS

As of September 30, 2008 and December 31, 2007,
intangible assets, at cost, consist of

September 30,
      
      
      December 31,2008
      
      
      2007Trademarks (life of 11 to 25 years)
      $
      16,508
      
      $
      12,081Exclusive cooperation agreement (life of 20
      years)
      
      13,632
      
      
      8,834Customer base (life of 5 to 10 years)
      
      8,587
      
      
      7,225Patents (life of 10 years)
      
      4,540
      
      
      4,532Technical know-how (life of 9 to 10 years)
      
      15,173
      
      
      5,347Non-compete agreements (life of 5 years)
      
      1,303
      
      
      1,303Contracts in progress (life of 2 to 9 months)
      
      410
      
      
      410Surveillance software (life of 5 years)
      
      6,010
      
      
      4,468Surveillance recording system (life of 5
      years)
      
      500
      
      
      50066,663
      
      
      44,700Less: accumulated amortization
      
      (9,740)
      
      
      (4,900)Intangible assets, net
      $
      56,923
      
      $
      39,800


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

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

The amortization expense for the three and nine
months ended September 30, 2008 and 2007 was $1,746, $4,438, $1,109 and $2,574,
respectively.

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

2008 (for the remaining 3 months)
      $
      1,7192009
      
      7,6732010
      
      6,7712011
      
      5,2192012
      
      4,4302013
      
      3,984Thereafter
      
      27,127Total
      $
      56,923


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)

12.

NOTES PAYABLE

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

September 30,
      
      
      December 31,2008
      
      
      2007Bank loans
      $
      12,540
      
      $
      13,512Less: current portion
      
      (8,213)
      
      
      (12,814)Long-term portion
      $
      4,327
      
      $
      698


On August 28, 2008, the Company entered into a long
term loan agreement with China Construction Bank. As of September 30, 2008, the
liability relating to this loan was RMB49,500 (approximately $7,260), consisting
of a 2-year loan payable to the bank. This loan matures on August 27, 2010 with
an annual interest rate equal to 105% of the one to three years benchmark lending
rate (7.37% as of September 30, 2008) of The Peoples Bank of China. The
interest rate is changed based on the change of one to three years benchmark
lending rate quarterly, and the interest is payable at the 20th of
each month. The loan agreement requires the Company to use the loan proceeds
only for the Companys operations.

On November 15, 2007, the Company entered into a
loan agreement with China Citic Bank. The Company borrowed RMB30,000
(approximately $4,400) with an annual interest rate of 7.29%. The loan is due in
November 2008, and the interest is payable at the end of each month. The loan
agreement requires the Company to use the loan proceeds only for the Company's
operations. The loan is guaranteed by the CEO of the Company and subsidiaries of
the Company.

The long term note payable is from Shenzhen Ping An
Bank. As of September 30, 2008 and December 31, 2007, the liability relating to
this loan was RMB 6,000 (approximately $880) and RMB8,700 (approximately
$1,290), respectively, consisting of a 3-year loan payable to the bank. This
loan was entered into on January 17, 2006 and matures on March 3, 2009, with an
annual interest rate of 6.435%. The loan agreement requires the Company to use
the loan proceeds only for the construction of the Companys factory. The loan
is collateralized by the personal assets of the CEO of one of the Company's
subsidiaries.

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

On October 15, 2007, the Company entered into a
loan agreement with Shanghai Pudong Development Bank. The Company borrowed
RMB20,000 (approximately $2,916) with an annual interest rate of 6.561%. The
loan was due in October 2008, and the interest was payable at the end of each
month. The loan was repaid in the second quarter of 2008.

On February 16, 2007, the Company entered into a
loan agreement with Shanghai Pudong Development Bank. The Company borrowed RMB
10,000 (approximately $1,425) with an annual interest rate of 6.39%. The loan
was due in March 2008 and was repaid when due.

On February 2, 2007, the Company entered into a
loan agreement with Shanghai Pudong Development Bank. The Company borrowed RMB
30,000 (approximately $4,275) with an annual interest rate of 6.12%. The loan
was due in February 2008 and was repaid when due.

22

---

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

13.

OBLIGATIONS UNDER PRODUCT FINANCING ARRANGEMENTS

The following is a summary of the Companys
obligations under product financing arrangements as of September 30, 2008 and
December 31, 2007:

September 30,
      
      
      December 31,2008
      
      
      2007Obligation under finance leases
      $
      7,280
      
      $
      --Less: current portion
      
      (2,413)
      
      
      --Long-term portion
      $
      4,867
      
      $
      --


Estimated repayments for the next five years and
thereafter are as follows:

2008 (for the remaining 3 months)
      $
      7682009
      
      3,0732010
      
      3,0732011
      
      1,536Total
      
      8,450Less: amount representing interest
      
      (1,170)Net
      $
      7,280


In July 2008, the Company entered into finance
lease 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 $202 during the three and nine
months ended September 30, 2008, which is included in interest expense.

Approximately RMB7,772 (approximately $1,140) of
other costs directly associated with the finance lease agreements is recorded as
deferred financing costs in the balance sheet at September 30, 2008. The Company
is amortizing these financing costs over the life of the obligation. The
amortization is recorded as interest expense, which was $75 for the three and
nine months ended September 30, 2008.

14.

DEFERRED INCOME

Deferred income balances as of September 30, 2008
and December 31, 2007 were $1,062 and $915, respectively, and represented
amounts invoiced but deferred as revenues as an estimated warranty reserve.

15.

CONVERTIBLE NOTES PAYABLE

On February 20, 2007, pursuant to a notes purchase
agreement and indenture with Citadel Equity Fund Ltd. ("Citadel"), the Company
issued to Citadel $60,000 aggregate principal amount of guaranteed senior
unsecured convertible notes due 2012 (the "February Notes"). The terms of the
February Notes indenture was subsequently amended on each of March 29, 2007 and
April 24, 2007. The February Notes financing replaced the existing bridge
financing that was closed on February 8, 2007 in which the Company had issued to
Citadel $60,000 aggregate principal amount of senior notes. The February Notes
bear annual interest of 1%. All the net proceeds from the sale of the February
Notes are and will be used for the Companys working capital and acquisition
plan.

23

---

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

15.

CONVERTIBLE NOTES PAYABLE (CONTINUED)

Under the February Notes indenture, the February
Notes are convertible, by the holders thereof, at any time on or prior to
maturity, into common stock of the Company initially at the conversion price of
$18 per share (subject to adjustment in certain circumstances, including
semi-annual reset of the conversion price and upon occurrence of certain
dilutive events, in each case subject to certain conditions). If the February
Notes are not converted before maturity, the February Notes will be redeemed by
the Company on the maturity date at a redemption price equal to 100% of the
principal amount of the February Notes then outstanding plus an additional
amount of 15% per annum, calculated on a quarterly compounded basis, plus any
accrued and unpaid interest. In addition, if the 45-day variable weighted
average price ("VWAP") during the one year period from February 16, 2009 to
February 15, 2010 equals or is greater than $30 per share of common stock, the
Company shall, within one trading day, force holders of the February Notes to
convert 50% of the then-outstanding principal amount of the February Notes at
the then applicable conversion rate on a pro rata basis (the "February Notes
2010 Mandatory Conversion"). If the 45-day VWAP during the one year period from
February 16, 2010 to February 15, 2011 equals or is greater than $35 per share
of common stock (the "February Notes 2011 Mandatory Conversion Trigger") and the
February Notes 2010 Mandatory Conversion had occurred, the Company shall, within
one trading day, force holders of the February Notes to convert all of the
then-outstanding principal amount of the February Notes at the then applicable
conversion price. If the February Notes 2011 Mandatory Conversion Trigger occurs
and the February Notes 2010 Mandatory Conversion had not occurred, the Company
shall, within one trading day, force holders of the February Notes to convert
50% of the then-outstanding principal amount of the February Notes at the then
applicable conversion rate on a pro rata basis.

On April 24, 2007, pursuant to another notes
purchase agreement with Citadel, the Company issued to Citadel $50,000 aggregate
principal amount of guaranteed senior unsecured convertible notes due 2012 (the
"April Notes"). The April Notes bear annual interest of 1%. All the net proceeds
from the sales of the April Notes are and will be used for the Companys working
capital and acquisition plan.

Under the April Notes indenture, the April Notes
are convertible, by the holders thereof, at any time on or prior to maturity,
into common stock of the Company initially at the conversion price of $23.60 per
share (subject to adjustment in certain circumstances, including semi-annual
reset of the conversion price and upon occurrence of certain dilutive events, in
each case subject to certain conditions). If the April Notes are not converted
before maturity, the April Notes will be redeemed by the Company on the maturity
date at a redemption price equal to 100% of the principal amount of the April
Notes then outstanding plus an additional amount of 15% per annum, calculated
on a quarterly compounded basis, plus any accrued and unpaid interest. In
addition, if the 45-day VWAP during the one year period from February 16, 2009
to February 15, 2010 equals or is greater than $40 per share of common stock,
the Company shall, within one trading day, force holders of the April Notes to
convert 50% of the then-outstanding principal amount of the April Notes at the
then applicable conversion rate on a pro rata basis (the "April Notes 2010
Mandatory Conversion"). If the 45-day VWAP during the one year period from
February 16, 2010 to February 15, 2011 equals or is greater than $45 per
share of common stock (the "April Notes 2011 Mandatory Conversion Trigger") and
the April Notes 2010 Mandatory Conversion had occurred, the Company shall,
within one trading day, force holders of the April Notes to convert all of the
then-outstanding principal amount of the April Notes at the then applicable
conversion price. If the April Notes 2011 Mandatory Conversion Trigger occurs
and the April Notes 2010 Mandatory Conversion had not occurred, the Company
shall, within one trading day, force holders of the April Notes to convert 50%
of the then-outstanding principal amount of the April Notes at the then
applicable conversion rate on a pro rata basis.

The February Notes and April Notes indentures, the
notes purchase agreements and certain investor rights agreements between the
Company and Citadel entered into in connection with the February Notes and April
Notes financings contain various covenants that may limit the Companys
discretion in operating its business. In particular, the Company is limited in
its ability to merge, consolidate or transfer substantially all of its assets,
issue stock of subsidiaries, incur additional debt and create liens on assets to
secure debt. In addition, if there is a default, or if the Company does not
maintain certain financial covenants or does not maintain borrowing availability
in excess of certain pre-determined levels, the February Notes and the April
Notes may be accelerated with the balance becoming due and payable immediately
and the Company may be unable to incur additional indebtedness, make restricted
payments (including paying cash dividends on capital stock) or redeem or
repurchase capital stock. As of September 30, 2008 and December 31, 2007, the
Company has complied with all the required covenants.

24

---

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

15.

CONVERTIBLE NOTES PAYABLE (CONTINUED)

The Company has accreted $5,364, $14,090, $4,363
and $9,338 for the three and nine months ended September 2008 and 2007 of the
additional redemption amount related to the February Notes and April Notes,
which is included in interest expense.

Approximately $176 of legal fees and other costs
directly associated with the issuance of the February Notes and April Notes is
recorded as deferred financing costs in the balance sheet at September 30, 2008
and December 31, 2007. The Company has amortized these financing costs over the
life of the February Notes and April Notes. The interest expense for the three
and nine months ended September 30, 2008 and 2007 was $9, $27, $9 and $18,
respectively.

16.

ISSUANCE OF COMMON STOCK AND WARRANTS

On April 4, 2006, the Company entered into a
securities purchase agreement with certain investors for the sale of 2,666,667
shares of the Companys common stock at a price of $3.00 per share. Net proceeds
to the Company from the sale of the common stock were approximately $7,400.

Pursuant to this securities purchase agreement, the
Company also issued warrants to a private placement agent to purchase 416,667
shares of its common stock as commission for its services in connection with the
private placement. A total of 150,000 of the warrants are exercisable at a price
of $3.80 per share, which is the closing bid price for the Companys common
stock as of the date of closing under such agreement, and a total of 266,667 of
the warrants are exercisable at a price of $3.00 per share. All of the warrants
have a term of 5 years and include a cashless exercise feature. 90,000 and
90,000 warrants were exercised during the three and nine months ended September
30, 2007, respectively.

On July 6, 2006, the Company entered into another
securities purchase agreement with certain accredited investors relating to the
private placement of units, consisting of one share of the Companys common
stock and a warrant to purchase one-fifth of one share of common stock.

Such securities purchase agreement was amended on
each of July 30, 2006 and July 31, 2006. Closing thereunder occurred July 31,
2006. The purchase price of each unit was $3.50 and the exercise price for each
whole warrant was set at $4.80. The warrants have a term of five years and
include a cashless exercise feature which does not apply when there is an
effective registration statement covering the shares underlying the warrants. In
addition, the Company had granted a put right to all of the investors which
would have allowed the investors to require the Company to repurchase all, but
not less than all, of the securities issued pursuant to such securities purchase
agreement if the Company had failed to obtain the necessary governmental
approvals to consummate the acquisition of  Cheng Feng on or before December 31, 2006. As such
governmental approvals were obtained before December 31, 2006, the put right has
terminated.

Pursuant to this securities purchase agreement, the
Company sold 4,634,592 units to certain accredited investors at $3.50 per unit
for gross proceeds of $16,200.

Net proceeds to the Company from the sale of all of
the units pursuant to such securities purchase agreement were approximately
$14,900. 0, 57,776, 69,999 and 552,855 warrants were exercised at $4.80 per
share during the three and nine months ended September 30, 2008 and 2007,
respectively.

In conjunction with execution of this securities
purchase agreement, the Company also executed a registration rights agreement
under which it was obligated to file registration statements on Form S-4 and
Form S-1, or other available form, to register the shares and the shares
underlying the warrants for resale, within 45 days and 55 days after the closing
date, respectively. The Company was obligated to use its best efforts to cause
the registration statement to be declared effective within 150 days of the
closing date, and was liable for payment of penalties to the purchasers in the
event the registration statement has not declared effective within the 150-day
period. The Company filed the registration statements on Form S-4 and Form S-1
on October 3, 2006 and October 23, 2006 and they were declared effective on
November 13, 2006 and November 15, 2006, respectively.

25

---

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.

ISSUANCE OF COMMON STOCK AND WARRANTS (CONTINUED)

The Company also issued warrants to purchase
324,421 shares of its common stock with an exercise price of $4.20 to two
private placement agents as commission for their services in connection with the
private placement. 0 and 324,421 of such warrants were exercised using the
cashless exercise feature during the three and nine months ended September 30,
2007.

On July 23, 2008, the Company consummated a private
placement transaction in which it issued 722,544 units to certain non-U.S.
investors for an aggregate gross cash purchase price of $10,000 at a per unit
price of $13.84. Net proceeds to the Company from this private placement were
approximately $9,700. Each Unit consists of one share of the Companys common
stock and a warrant to purchase one-fifth of one share of common stock. The
Company issued warrants to purchase 144,509 shares of its common stock with an
exercise price of $19.23. The warrants have a term of 3 years and include a
cashless exercise feature. No warrants were exercised using the cashless
exercise feature during the three and nine months ended September 30, 2008.

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

2008
      
      2007Weighted
      
      
      
      
      WeightedAverage
      
      
      
      
      AverageExercise
      
      
      
      
      ExerciseShares
      
      
      Prices
      
      Shares
      
      
      PricesOutstanding at July 1
      30,006
      
      $
      4.80
      
      610,015
      
      $
      4.23Granted
      144,509
      
      
      19.23
      
      --
      
      
      --Exercised
      --
      
      
      --
      
      (159,999)
      
      
      (3.79)Outstanding at September 30
      174,515
      
      
      16.75
      
      450,016
      
      
      4.39Warrants exercisable at September 30
      174,515
      
      $
      16.75
      
      450,016
      
      $
      4.39


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

2008
      
      2007Weighted
      
      
      
      
      WeightedAverage
      
      
      
      
      AverageExercise
      
      
      
      
      ExerciseShares
      
      
      Prices
      
      Shares
      
      
      PricesOutstanding at January 1
      87,782
      
      $
      4.80
      
      1,417,292
      
      $
      4.40Granted
      144,509
      
      
      19.23
      
      -
      
      
      -Exercised
      (57,776)
      
      
      (4.80)
      
      (967,276)
      
      
      (4.38)Outstanding at September 30
      174,515
      
      
      16.75
      
      450,016
      
      
      4.39Warrants exercisable at September 30
      174,515
      
      $
      16.75
      
      450,016
      
      $
      4.39


26

---

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

17.

EQUITY INCENTIVE PLAN

On February 7, 2007, the Company adopted the 2007
Equity Incentive Plan, which has a five-year term and provides for grants of
stock options, stock appreciation rights, performance units, restricted stock
units and performance shares. The total number of shares which may be issued
under the plan is 8,000,000 shares of common stock. As of September 30, 2008 and
December 31, 2007, the shares issued vest over a four-year period, and at issue
resulted in total deferred compensation of $51,374 and $43,971, respectively.
The fair values of these restricted stock awards are equal to the fair value of
the Company's stock on the date of grant. Such restricted stock is subject to
the risk of forfeiture upon the occurrence of certain events. During the three
and nine months ended September 30, 2008 and 2007, the Company has recognized
$3,596, $9,662, $989 and $2,055 of compensation expense under the plan,
respectively. As of September 30, 2008 and December 31, 2007, there was $37,553
and $39,539 of unrecognized compensation expense related to the nonvested
restricted stock, respectively. This cost is expected to be recognized over a
four-year period.

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

Nonvested Restricted Stock and
      
      Nonvested Restricted Stock andStock Unit Awards
      
      Stock Unit Awards2008
      
      2007Weighted
      
      
      WeightedAverage Grant
      
      
      Average GrantNumber of Shares
      Date Fair Values
      Number of Shares
      Date Fair ValuesOutstanding at July 1
      2,353,140
      $
      17.65
      
      975,879
      $
      10.67Granted
      --
      
      --
      
      720,176
      
      21.56Vested
      (215,590)
      
      (17.04)
      
      (76,613)
      
      (13.29)Forfeited
      (1,800)
      
      (15.14)
      
      (22,900)
      
      (12.50)Outstanding at September 30
      2,135,750
      $
      17.60
      
      1,596,542
      $
      15.43


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

Nonvested Restricted Stock and
      
      Nonvested Restricted Stock andStock Unit Awards
      
      Stock Unit Awards2008
      
      2007Weighted
      
      
      WeightedAverage Grant
      
      
      Average GrantNumber of Shares
      Date Fair Values
      Number of Shares
      Date Fair ValuesOutstanding at January 1
      2,241,471
      $
      17.39
      
      --
      $
      --Granted
      499,001
      
      15.56
      
      1,812,576
      
      15.20Vested
      (575,077)
      
      (16.73)
      
      (164,234)
      
      (13.79)Forfeited
      (29,645)
      
      (12.17)
      
      (51,800)
      
      (12.50)Outstanding at September 30
      2,135,750
      $
      17.60
      
      1,596,542
      $
      15.43


27

---

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

18.

CONSOLIDATED SEGMENT DATA

Segment information is consistent with how
management reviews the businesses, makes investment and resource allocation
decisions and assesses operating performance. The Company has set up a new
segment for distribution of security and safety products and realigned its
management and segment reporting structure effective January 1, 2008. The
segment data presented reflects this new segment structure. The Company reports
financial and operating information in the following three segments:

(a)

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

(b)

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

(c)

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

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

Selected information in the new segment structure
is presented in the following tables for the three and nine months ended
September 30, 2008 and 2007:

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

Revenues(1)
      
      2008
      
      2007Installation segment
      $
      86,845
      $
      40,804Manufacturing segment
      
      21,429
      
      24,634Distribution segment
      
      11,015
      
      --$
      119,289
      $
      65,438


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

Revenues(1)
      
      2008
      
      2007Installation segment
      $
      208,536
      $
      114,197Manufacturing segment
      
      49,920
      
      41,817Distribution segment
      
      25,350
      
      --$
      283,806
      $
      156,014


(1) Revenues by operating segments exclude
intercompany transactions.

28

---

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

18.

CONSOLIDATED SEGMENT DATA
(CONTINUED)

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

Income from operations:
      
      2008
      
      2007Installation segment
      $
      18,689
      $
      9,987Manufacturing segment
      
      1,517
      
      4,359Distribution segment
      
      215
      
      --Corporate and others (1)
      
      (5,094)
      
      (1,335)Income from operations
      
      15,327
      
      13,011Corporate other income
      
      480
      
      5,970Corporate interest income
      
      65
      
      89Corporate interest expense
      
      (5,949)
      
      (4,768)Income before income taxes and minority
      interest
      
      9,923
      
      14,302Minority interest in loss of consolidated
      subsidiaries
      
      --
      
      (19)Income taxes
      
      (775)
      
      (2,587)Net income
      $
      9,148
      $
      11,696


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

Income from operations:
      
      2008
      
      2007Installation segment
      $
      51,208
      $
      27,416Manufacturing segment
      
      4,769
      
      6,324Distribution segment
      
      602
      
      --Corporate and others (1)
      
      (15,866)
      
      (4,625)Income from operations
      
      40,713
      
      29,115Corporate other income
      
      1,167
      
      6,944Corporate interest income
      
      171
      
      314Corporate interest expense
      
      (15,598)
      
      (10,192)Income before income taxes and minority
      interest
      
      26,453
      
      26,181Minority interest in income (loss) of
      consolidated subsidiaries
      
      31
      
      (17)Income taxes
      
      (5,104)
      
      (5,670)Net income
      $
      21,380
      $
      20,494


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

29

---

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

18.

CONSOLIDATED SEGMENT DATA
(CONTINUED)

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

Non cash employee compensation:
      
      2008
      
      2007Installation segment
      $
      490
      $
      378Manufacturing segment
      
      685
      
      300Distribution segment
      
      345
      
      --Corporate and others
      
      2,076
      
      311$
      3,596
      $
      989


Non cash employee compensation by segment for the
nine months ended September 30, 2008 and 2007 are as follows:

Non cash employee compensation:
      
      2008
      
      2007Installation segment
      $
      1,394
      $
      881Manufacturing segment
      
      1,863
      
      581Distribution segment
      
      1,037
      
      --Corporate and others
      
      5,368
      
      593$
      9,662
      $
      2,055


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

Total assets:
      
      September 30,
      
      December 31,2008
      
      2007Installation segment
      $
      272,676
      $
      152,495Manufacturing segment
      
      187,099
      
      146,683Distribution segment
      
      44,320
      
      --Corporate and others (1)
      
      56,689
      
      78,225$
      560,784
      $
      377,403


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

30

---

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

18.

CONSOLIDATED SEGMENT DATA  (CONTINUED)

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

Depreciation and amortization:
      
      2008
      
      2007Installation segment
      $
      955
      $
      530Manufacturing segment
      
      1,054
      
      894Distribution segment
      
      361
      
      --Corporate and others
      
      143
      
      12$
      2,513
      $
      1,436


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

Depreciation and amortization:
      
      2008
      
      2007Installation segment
      $
      2,633
      $
      1,469Manufacturing segment
      
      2,747
      
      1,825Distribution segment
      
      1,065
      
      --Corporate and others
      
      301
      
      32$
      6,746
      $
      3,326


19.

SUBSEQUENT EVENTS

Listing on the Dubai International Financial
Exchange (DIFX)

On October 13, 2008, the Companys common stock
commenced secondary trading on the Dubai International Financial Exchange (DIFX).
The Companys common stock is trading on the DIFX in U.S. dollars under the
ticker symbol CSR.  The Companys common stock is primarily listed on the New
York Stock Exchange.

31

---



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



Special Note Regarding Forward Looking Statements



This Quarterly Report on Form 10-Q, including the following Management's
Discussion and Analysis of Financial Condition and Results of Operations,
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Such statements include, among others, those concerning
our expected financial performance and strategic and operational plans, our
future operating results, our expectations regarding the market for security and
surveillance products, our expectations regarding the continued growth of the
security and surveillance market, as well as all assumptions, expectations,
predictions, intentions or beliefs about future events. You are cautioned that
any such forward-looking statements are not guarantees of future performance and
that a number of risks and uncertainties could cause our actual results to
differ materially from those anticipated, expressed or implied in the
forward-looking statements. These risks and uncertainties include, but are not
limited to, the factors mentioned in the Risk Factors section of our Annual
Report on Form 10-K for the year ended December 31, 2007, and other risks
mentioned in this Form 10-Q or in our other reports filed with the Securities
Exchange Commission (the SEC) since the filing date of our Annual Report on
Form 10-K for the year ended December 31, 2007. The words believe, expect,
anticipate, project, targets, optimistic, intend, aim, will or
similar expressions are intended to identify forward-looking statements. All
statements other than statements of historical fact are statements that could be
deemed forward-looking statements. The Company assumes no obligation and does
not intend to update any forward-looking statements, except as required by law.



Use of terms



Except as otherwise indicated by the context, references in this Form 10-Q to
CSR, we, us, our, our Company, or the Company are to China Security
& Surveillance Technology, Inc., a Delaware corporation and its consolidated
subsidiaries. Unless the context otherwise requires, all references to

- "Cheng Feng" are to Shanghai Cheng Feng Digital Technology Co. Ltd., a
  corporation incorporated in the Peoples Republic of China and an indirect,
  wholly owned subsidiary of the Company;
- "Chuang Guan" are to Shenzhen Chuang Guan Intelligence Network Technology Co.,
  Ltd., a corporation incorporated in the Peoples Republic of China;
- "CSST HK" are to China Security & Surveillance Technology (HK) Ltd., a Hong
  Kong corporation and an indirect, wholly owned subsidiary of the Company;
- "CSST PRC" are to China Security & Surveillance Technology (PRC) Inc., a
  corporation incorporated in the Peoples Republic of China and a direct,
  wholly owned subsidiary of the Company;
- "DM" are to Beijing DM Security & Technology Co., Ltd., a corporation
  incorporated in the Peoples Republic of China;
- "Golden" are to Golden Group Corporation (Shenzhen) Limited, a corporation
  incorporated in the Peoples Republic of China and an indirect, wholly owned
  subsidiary of the Company;
- "Guanling" are to Beijing Aurine Divine Land Technology Co., Ltd., a
  corporation incorporated in the Peoples Republic of China and an indirect,
  wholly owned subsidiary of the Company;
- "HiEasy" are to HiEasy Electronic Technology Development Co., Ltd., a
  corporation incorporated in the Peoples Republic of China and an indirect,
  wholly owned subsidiary of the Company;
- "Hongtianzhi" are to Shenzhen Hongtianzhi Electronics Co., Ltd., a corporation
  incorporated in the Peoples Republic of China and an indirect, wholly owned
  subsidiary of the Company;
- "Huge Long" are to Huge Long Limited, a Hong Kong corporation of which we have
  acquired the beneficial interest of all issued and outstanding capital stock;
- "Jin Lin" are to Shenzhen Jin Lin Technology Co., Ltd., a corporation
  incorporated in the Peoples Republic of China and an indirect, wholly owned
  subsidiary of the Company;
- "Kit Grant" are to Kit Grant Limited, a Hong Kong corporation and an indirect,
  wholly owned subsidiary of the Company;
- "Longhorn" are to Shenzhen Longhorn Security Technology Co., Ltd., a
  corporation incorporated in the Peoples Republic of China and an indirect,
  wholly owned subsidiary of the Company;
- "Long Top" are to Long Top Limited, a Hong Kong corporation and an indirect,
  wholly owned subsidiary of the Company;

32



---

- 

























Overview of Our Business



China Security & Surveillance Technology, Inc. is a Delaware holding company
whose China-based operating subsidiaries are primarily engaged in manufacturing,
distributing, installing and servicing security and surveillance products and
systems and developing security and surveillance related software in China. Our
customers are mainly comprised of (i) commercial entities (including airports,
hotels, real estate, banks, mines, railways, supermarkets and entertainment
venues); (ii) governmental entities (including customs agencies, courts, public
security bureaus and prisons), and (iii) non-profit organizations (including
schools, museums, sports arenas and libraries). These account for approximately
50%, 49% and 1% of our revenues for the three months ended September 30, 2008,
respectively.



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



In the third quarter of 2008, we acquired Jin Lin. Jin Lin is primarily engaged
in professional intelligent security monitoring systems and intelligent
transportation system product development in China. We also acquired 100%
beneficial interest of all issued and outstanding stock of Huge Long Limited and
obtained the exclusive rights to use land plot No. A524-0013 located to the
south of Ban Gong Chang Road, Guangming Street, Baoan District, Shenzhen (the
Industry Park) that is owned by WDH.



On July 7, 2008, we acquired 100% ownership of Long Top Limited which is the
holding company that owns all the outstanding equity of Jin Lin. Under the
equity transfer agreement, we agreed to pay RMB68.6 million (approximately $10.0
million) in exchange for 100% ownership of Long Top Limited, consisting of RMB
40 million (approximately $5.8 million) in cash and 268,870 shares of our
common stock valued at RMB28.6 million (approximately $4.2 million). The Company
has paid RMB13.0 million (approximately $1.9 million) of the cash portion of the
purchase price, the remaining RMB27.0 million (approximately $3.9 million) of
the cash consideration will be paid upon Long Top and Jin Lins achievement of
certain financial thresholds. 268,870 shares of our common stock will be issued
in the fourth quarter of 2008.



33



---



On August 6, 2008, we entered into an equity transfer agreement with the
shareholder of Huge Long Limited under which we will acquire all issued and
outstanding shares of capital stock of Huge Long Limited through a series of
transactions. We acquired 100% beneficial interest (but not record ownership) of
all issued and outstanding capital stock of Huge Long Limited and the exclusive
right to use the Industry Park on August 6, 2008 (the First Closing) and will
acquire the legal title and record ownership of all issued and outstanding
shares of capital stock of Huge Long Limited on or before December 31, 2009 (the
Second Closing).  Huge Long Limited has entered into an equity transfer
agreement to acquire WDH which will close on or before December 31, 2009. The
Second Closing is conditioned upon the acquisition by Huge Long Limited of the
legal title of WDH.  Under the equity transfer agreement, we agreed to pay a
total consideration of RMB146 million (approximately $21.3 million) in exchange
for the 100% beneficial interest of Huge Long Limited, consisting of RMB102
million (approximately $14.9 million) in cash and 453,736 shares of our common
stock valued at RMB43.8 million (approximately $6.4 million). We have paid RMB80
million (approximately $11.7 million) of the purchase price, the remaining RMB
22 million (approximately $3.2 million) of the cash consideration will be paid
at the Second Closing. 453,736 shares of our common stock will be issued in the
fourth quarter of 2008.



Reportable Operating Segments



Segment information is consistent with how management reviews the businesses,
makes investing and resource allocation decisions and assesses operating
performance. The Company has set up a new segment for distribution of security
and safety products and realigned its management and segment reporting structure
effective January 1, 2008. During 2008, we set up a new segment  Distribution
Segment. The Company reports financial and operating information in the
following three segments:



(a)

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



(b)

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



(c)

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



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



Third Quarter Financial Performance Highlights



We continued to experience strong demand for our products and services during
the third fiscal quarter of 2008 and growth in our revenues, but our net income
decreased primarily as a result of the increased non-cash expenses. The security
and surveillance product market in China continued to expand in the third
quarter of 2008 due, in part, to several programs and regulatory drivers
initiated by the Chinese government, such as State Ordinance 458 and the Safe
City program, which require many public places, including city-wide surveillance
systems, traffic intersections, critical government locations, cyber cafés, bars
and discotheques, to install security systems. In addition, the economic
development in China and the fact that the population in China in general is
becoming relatively wealthier also contributed to increased demand for security
and surveillance products within various industries and organizations, such as
residential estates, factories and shopping centers. Our third fiscal quarter
financial results also benefited from the consolidation of the four newly
acquired companies in 2008, which contributed approximately $12.26 million
revenues in aggregate, accounting for approximately 10.3% of the total
revenues for the third fiscal quarter of 2008.



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

- 











34



---

- Fully diluted net income per share:
  Fully diluted net income per share was $0.20 for the third quarter of 2008, as
  compared to $0.29 for the same period last year.
- Non-cash expenses: Non-cash
  expenses included (i) the redemption accretion on convertible notes was $5.36
  million for the third quarter of 2008, as compared to $4.36 million for the
  same period last year, (ii) depreciation and amortization was $2.51 million
  for the third quarter of 2008, as compared to $1.44 million for the same
  period last year, and (iii) non cash employee compensation expense was $3.60
  million for the third quarter of 2008, as compared to $0.99 million for the
  same period last year. Total non-cash expenses are $11.47 million for the
  third quarter of 2008, an increase of $4.68 million, or 68.9%, from $6.79
  million for the same period last year.

Our net income for the three months ended September 30, 2008 and 2007 was $9.15
million and $11.70 million, respectively. Our net income for the nine months
ended September 30, 2008 and 2007 was $21.38 million and $20.49 million,
respectively. Our net income was materially impacted by depreciation and
amortization of long-lived assets in the subsidiaries we acquired, non cash
employee compensation recognized pursuant to SFAS 123 (R) and redemption
accretion on convertible notes. In the table below, we have presented a non-GAAP
financial disclosure to provide a quantitative analysis of the impact of the
depreciation and amortization of long-lived assets in the subsidiaries we
acquired, non cash employee compensation and redemption accretion on convertible
notes on our net income and net income per share. Because these items do not
require the use of current assets, management does not include these items in
its analysis of our financial results or how we allocate our resources. Because
of this, we deemed it meaningful to provide this non-GAAP disclosure of the
impact of these significant items on our financial results.



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



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



|                                                                |  | Three Months Ended September 30, |            |     
|--------------------------------------------------------------- |  | -------------------------------- | ---------- | ----
|Non-cash expenses                                               |  | 2008                             |            | 2007
|Depreciation and amortization                                   |  | $                                | 2.28       |     
|Depreciation and amortization (including in cost of goods sold) |  |                                  | 0.23       |     
|Non cash employee compensation                                  |  |                                  | 3.60       |     
|Redemption accretion on convertible notes                       |  |                                  | 5.36       |     
|Total                                                           |  | $                                | 11.47      |     
|                                                                |  |                                  |            |     
|Non-cash expenses per share - basic                             |  |                                  |            |     
|Depreciation and amortization                                   |  | $                                | 0.05       |     
|Non cash employee compensation                                  |  |                                  | 0.08       |     
|Redemption accretion on convertible notes                       |  |                                  | 0.12       |     
|Total non-cash expenses per share - basic                       |  | $                                | 0.25       |     
|                                                                |  |                                  |            |     
|Non-cash expenses per share - diluted                           |  |                                  |            |     
|Depreciation and amortization                                   |  | $                                | 0.05       |     
|Non cash employee compensation                                  |  |                                  | 0.08       |     
|Redemption accretion on convertible notes                       |  |                                  | 0.12       |     
|Total non-cash expenses per share - diluted                     |  | $                                | 0.25       |     
|                                                                |  |                                  |            |     
|Net income per share - basic                                    |  | $                                | 0.20       |     
|Net income per share - diluted                                  |  | $                                | 0.20       |     
|                                                                |  |                                  |            |     
|Weighted average number of shares outstanding                   |  |                                  |            |     
|Basic                                                           |  |                                  | 45,655,617 |     
|Diluted                                                         |  |                                  | 46,151,827 |     



35



---



The following table summarizes the Companys non-cash expenses during the nine
months ended September 30, 2008 and 2007.



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



|                                                                |  | Nine Months Ended September 30, |            |     
|--------------------------------------------------------------- |  | ------------------------------- | ---------- | ----
|Non-cash expenses                                               |  | 2008                            |            | 2007
|Depreciation and amortization                                   |  | $                               | 6.23       |     
|Depreciation and amortization (including in cost of goods sold) |  |                                 | 0.52       |     
|Non cash employee compensation                                  |  |                                 | 9.66       |     
|Redemption accretion on convertible notes                       |  |                                 | 14.09      |     
|Total                                                           |  | $                               | 30.50      |     
|                                                                |  |                                 |            |     
|Non-cash expenses per share - basic                             |  |                                 |            |     
|Depreciation and amortization                                   |  | $                               | 0.15       |     
|Non cash employee compensation                                  |  |                                 | 0.22       |     
|Redemption accretion on convertible notes                       |  |                                 | 0.32       |     
|Total non-cash expenses per share - basic                       |  | $                               | 0.69       |     
|                                                                |  |                                 |            |     
|Non-cash expenses per share - diluted                           |  |                                 |            |     
|Depreciation and amortization                                   |  | $                               | 0.15       |     
|Non cash employee compensation                                  |  |                                 | 0.22       |     
|Redemption accretion on convertible notes                       |  |                                 | 0.32       |     
|Total non-cash expenses per share - diluted                     |  | $                               | 0.69       |     
|                                                                |  |                                 |            |     
|Net income per share - basic                                    |  | $                               | 0.49       |     
|Net income per share - diluted                                  |  | $                               | 0.48       |     
|                                                                |  |                                 |            |     
|Weighted average number of shares outstanding                   |  |                                 |            |     
|Basic                                                           |  |                                 | 44,003,994 |     
|Diluted                                                         |  |                                 | 44,615,552 |     



36



---



Results of Operations



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



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



|                                                                                                                  | Three months ended September 30, | Nine months ended September 30,
|----------------------------------------------------------------------------------------------------------------- | -------------------------------- | -------------------------------
|                                                                                                                  | 2008                             | 2007                           
|Revenues                                                                                                          | $                                | 119.29                         
|Cost of goods sold (including depreciation and amortization amounted $0.23
    million, $0.52 million, $0 and $0) |                                  | (87.28)                        
|Gross profit                                                                                                      |                                  | 32.01                          
|Selling and marketing                                                                                             |                                  | (3.38)                         
|General and administrative                                                                                        |                                  | (7.42)                         
|Non cash employee compensation                                                                                    |                                  | (3.60)                         
|Depreciation and amortization                                                                                     |                                  | (2.28)                         
|Income from operations                                                                                            |                                  | 15.33                          
|Other income                                                                                                      |                                  | 0.55                           
|Gain on disposal of land use right and properties                                                                 |                                  | -                              
|Interest expense, Cash                                                                                            |                                  | (0.59)                         
|Redemption accretion on convertible notes                                                                         |                                  | (5.36)                         
|Income before income taxes                                                                                        |                                  | 9.93                           
|Income taxes                                                                                                      |                                  | (0.78)                         
|Net income                                                                                                        | $                                | 9.15                           



Comparison of the Three Months Ended September 30, 2008 and 2007



Revenues



Our revenues are generated from system installations and manufacturing and
distribution of security and safety products. During the three months ended
September 30, 2008, we experienced solid growth in revenues. Revenues increased
$53.85 million, or 82.3%, to $119.29 million for the three months ended
September 30, 2008 from $65.44 million for the three months ended September 30,
2007. The increase in revenues was mainly attributable to growth in the security
and surveillance market in China, the increased market demand for our products,
our increased brand recognition and the acquisition of four companies in the
second and third quarters of 2008. Our strategic efforts to increase our
distribution channels during 2007 and 2008 and sufficient working capital from
our recent fundraising activities also allowed us to successfully take advantage
of the growth in market demand in the third quarter of 2008.



After Jin Lin became our wholly owned subsidiary in the third quarter of 2008,
we consolidated its financial result beginning in the third quarters of 2008,
which contributed $0.92 million to our revenues in the third quarter of 2008.
We consolidated the financial results of Stonesonic, Longhorn and Guanling from
April 2008.



37



---



Newly acquired subsidiaries including Tsingvision, Stonesonic, Longhorn,
Guanling and Jin Lin had revenues of $13.08 million in the third quarter of
2008. As the acquisitions of Hongtianzhi, HiEasy, and Minking had surpassed the
one year anniversary, we have included these revenues in our organic growth
since the third quarter of 2008. They had revenues of $12.28 million in the
third quarter of 2008. Cheng Feng, which we acquired in 2006, had revenues of
$6.73 million in the third quarter of 2008.



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



(In millions of U.S. dollars)

|Revenues from the Installation Segment recognized from installation
    contracts signed before the second quarter of 2008              | $ | 12.91 
|--------------------------------------------------------------------------------------------------------------------------------------- | - | ------
|Revenues from the Installation Segment recognized from installation
    contracts signed in the third quarter of 2008                   | $ | 73.94 
|Revenues from the Manufacturing Segment recognized from manufacturing
    contracts signed before the second quarter of 2008            | $ | 2.27  
|Revenues from the Manufacturing Segment recognized from manufacturing
    contracts signed in the third quarter of 2008                 | $ | 19.16 
|Revenues from the Distribution Segment recognized from sales contracts
    signed before the second quarter of 2008                     | $ | 1.14  
|Revenues from the Distribution Segment recognized from sales contracts
    signed in the third quarter of 2008                          | $ | 9.87  
|Total revenues recognized in the third quarter of 2008                                                                                  | $ | 119.29
|Revenues deferred                                                                                                                       | $ | 1.06  
|Backlog of contracts for system installation and manufacturing of security
    and safety products signed before September 30, 2008 (1) | $ | 65.20 



(1) We have not included letters of intent, framework agreements and various
other agreements in our backlog numbers as they are subject to final binding
agreements to be entered into at later dates.



Our revenues are generated from three business segments: Installation Segment,
Manufacturing Segment and Distribution Segment. The following table shows the
different segments comprising our total revenues for the three months ended
September 30, 2008 and 2007.



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



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



For the three months ended September 30, 2008 and 2007, our Installation Segment
generated revenues of $86.85 million and $40.81 million which represented 72.8%
and 62.4% of our total revenues, respectively.  Such increase in revenues was
mainly due to the following factors: First, demand for security and surveillance
products has grown in China, which we attribute in part to the population in
China in general becoming relatively wealthier; as well as increased demand
within various industries and organizations, such as residential estates,
factories and shopping centers. Second, the Chinese government initiated several
programs and regulatory drivers during 2006, such as State Ordinance 458 and the
"3111" program, that require many public places, including city-wide
surveillance systems, traffic surveillance systems, critical government
locations, cyber cafés, bars and discotheques, to install security systems.
Third, our strategic efforts to increase our distribution channels during 2007
and 2008 allowed us to successfully take advantage of the growth in market
demand in the third quarter of 2008. Fourth, we have been successful in raising
sufficient working capital to facilitate expansion in the China market. Finally,
our increased brand recognition in 2008 also contributed to the growth in
revenue.



For the three months ended September 30, 2008 and 2007, our Manufacturing
Segment generated revenues of $21.43 million and $24.63 million, representing
18.0% and 37.6% of our total revenues, respectively. The revenue decreased due
to the sales slowdown after the Beijing Olympic Games and the development of the
Industry Park.



In the first quarter of 2008, we established a new segment  Distribution
Segment which generated revenues of $11.01 million, representing 9.2% of our
total revenues for the three months ended September 30, 2008.



38



---



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



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



Cost of goods sold



Our cost of goods sold is primarily comprised of the costs of our raw materials,
labor and overhead. Our cost of goods sold increased $41.58 million, or 91.0%,
to $87.28 million for the three months ended September 30, 2008 from $45.70
million during the same period in 2007. This dollar increase was primarily
attributable to the increase of our revenues in the third quarter of 2008 as
discussed above.



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 $12.27 million, or 62.2%, to $32.01
million for the three months ended September 30, 2008 from $19.74 million for
the same period last year. Gross margin for the three months ended September 30,
2008 was 26.8%, as compared to 30.2% for the same period of 2007.



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



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



For the three months ended September 30, 2008, gross margins of the Installation
Segment and Manufacturing Segment were approximately 25.7% and 32.2%,
respectively, compared to 31.8% and 27.3% for the same period last year. Gross
margin of our newly established segment Distribution Segment was 25.1% in the
third quarter of 2008.



The decreased gross margin in the Installation segment was primarily due to the
gradual increase in outsourcing of physical installation to the third party
contractors. The increase in our gross margin of the Manufacturing segment is
primarily driven by the increased economies of scale.



Selling and marketing expenses



Our selling and marketing expenses are composed primarily of sales commissions,
the cost of advertising and promotional materials, salaries and fringe benefits
of sales personnel, after-sale support services and other sales related costs.
Our selling and marketing expenses increased $1.92 million, or 131.5%, to $3.38
million for the three months ended September 30, 2008 from $1.46 million for the
same period in 2007. This dollar increase was primarily attributable to the
consolidation of the financial results of Stonesonic, Longhorn, Guanling and Jin
Lin, which incurred selling and marketing expenses associated with sales of
their products. As a percentage of revenues, our selling and marketing expenses
increased to 2.8% for the three months ended September 30, 2008 from 2.2% for
the same period in 2007. The percentage increase was mainly due to the hiring of
additional staff and the increased cost in promotion of our products to new
customers.



General and administrative expenses



Our general and administrative expenses consist of the costs associated with
staff and support personnel who manage our business activities and professional
fees paid to third parties. Our general and administrative expenses increased
$4.58 million, or 161.3%, to $7.42 million for the three months ended September
30, 2008 from $2.84 million for the same period in 2007. As a percentage of
revenues, general and administrative expenses increased to 6.2% for the three
months ended September 30, 2008 from 4.4% for the same period in 2007. The
dollar and percentage increase was mainly due to the consolidation of the
financial results of Stonesonic, Longhorn, Guanling, and Jin Lin, the hiring of
additional staff, the increased costs in connection with documenting and testing
our internal controls and professional expenses related to the costs of these
newly acquired subsidiaries becoming part of a public reporting company.



39



---



Non cash employee compensation



Non cash employee compensation for the three months ended September 30, 2008
increased to $3.60 million from $0.99 million for the same period in 2007. Such
increase was primarily because we granted shares of restricted stock to our
employees, directors and consultant with a vesting period of four years under
the 2007 Equity Incentive Plan in 2007 and 2008. Such costs are generally
recognized over a four-year period.



Depreciation and amortization



Our depreciation and amortization costs increased $1.07 million, or 74.3%, to
$2.51 million (amounted $0.23 million of depreciation and amortization included
in cost of goods sold) for the three months ended September 30, 2008 from $1.44
million for the same period in 2007. Such dollar increase was primarily due to
the recent corporate acquisitions. As a percentage of revenues, depreciation and
amortization expenses decreased to 2.1% for the three months ended September 30,
2008 from 2.2% for the same period in 2007. Such percentage decrease was
primarily due to the increase in incremental revenue in this quarter.



Income from operations



Our income from operations increased $2.32 million, or 17.8%, to $15.33 million
for the three months ended September 30, 2008 from $13.01 million for the same
period in 2007. As a percentage of revenues, income from operations decreased to
12.8% for the three months ended September 30, 2008 from 19.9% for the same
period in 2007. Such percentage decrease was primarily due to the increase in
our selling and marketing expenses as well as the general and administrative
expenses and non cash employee compensation as discussed above.



The following table shows the different segments comprising our income from
operations for the three months ended September 30, 2008 and 2007.



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



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



Income from operations related to the Installation Segment increased 87.1%, or
$8.70 million to $18.69 million for the three months ended September 30, 2008,
compared to $9.99 million for the same period in 2007. Such increase was mainly
due to higher demand for total one-stop-shop installations from customers. We
finished more projects than we planned in the third quarter of 2008.



Income from operations related to the Manufacturing Segment decreased 65.1%, or
$2.84 million to $1.52 million for the three months ended September 30, 2008,
compared to $4.36 million for the same period in 2007. The Manufacturing Segment
concentrated on developing the Industry Park in this quarter for future
development. The Company expects that the Manufacturing Segment margin will
increase as we integrate the recently completed acquisitions and realize more
economies of scale.



Income from operations related to our newly established Distribution Segment was
$0.21 million for the three months ended September 30, 2008.



Loss from operations related to Corporate and others increased 279.9% or $3.75
million to $5.09 million for the three months ended September 30, 2008, compared
to $1.34 million for the same period in 2007. Such increase was mainly due to
the increase of non cash employee compensation as discussed above and
professional expenses related to the costs of these newly acquired subsidiaries
becoming part of a public reporting company.



40



---



Other income



Our other income increased $0.02 million, or 3.8% to $0.55 million for the three
months ended September 30, 2008 from $0.53 million for the same period in 2007.
As a percentage of revenues, other income decreased to 0.5% for the three months
ended September 30, 2008 from 0.8% for the same period in 2007. Such percentage
decrease was primarily because we received rental income from related parties in
the three months ended September 30, 2007 and the land use rights and buildings
generating such rental income were disposed of in 2007.



Gain on disposal of land use rights and properties



We sold certain properties and land use rights. Net proceeds of $5.52 million
from such dispositions were recognized in the third quarter of 2007. Fully
diluted net proceeds per share were $0.14 for the third quarter of 2007, as
compared to $0 for the same period this year.



Interest expense (excluding redemption accretion on convertible notes)



Interest expense for the three months ended September 30, 2008 was $0.59
million, as compared to $0.41 million of the same period in 2007. Such increase was
primarily due to increased borrowing under bank loans and obligation under
product financing arrangements for our operations.



Redemption accretion on convertible notes



Redemption accretion on convertible notes for the three months ended September
30, 2008 was $5.36 million, as compared to $4.36 million for the same period in
2007. We raised $110 million from issuance of convertible notes in February and
April 2007 to finance our acquisitions. The redemption accretion on convertible
notes will not be paid if the convertible notes are converted into shares of our
common stock before their maturities.



Income before taxes



Our income before taxes decreased $4.36 million, or 30.5%, to $9.93 million for
the three months ended September 30, 2008 from $14.29 million for the same
period in 2007. As a percentage of revenues, income before taxes decreased to
8.3% for the three months ended September 30, 2008 from 21.8% for the same
period in 2007. Such percentage decrease was primarily due to increased non-cash
expenses including the redemption accretion on convertible notes, depreciation
and amortization and non cash employee compensation as discussed above.



Income taxes



China Security & Surveillance Technology, Inc. is subject to the United States
federal income tax at a tax rate of 34%. No provision for income taxes in the
United States has been made as China Security & Surveillance Technology, Inc.
had no United States taxable income during the three months ended September 30,
2008.



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



Before January 1, 2008, foreign invested enterprises (FIEs) established in the
PRC were generally subject to an enterprise income tax (EIT) rate of 33.0%,
which included a 30% state income tax and a 3.0% local income tax. FIEs
established in Shenzhen Special Economic Zone, such as our Chinese subsidiaries
Golden and certain high-technology company were subject to reduced tax rate. On
March 16, 2007, the National Peoples Congress of China passed the new
Enterprise Income Tax Law (EIT Law), and on November 28, 2007, the State
Council of China passed the Implementing Rules for the EIT Law ("Implementing
Rules") which took effect on January 1, 2008. The EIT Law and Implementing Rules
impose a unified EIT of 25.0% on all domestic-invested enterprises and FIEs,
unless they qualify under certain limited exceptions. Therefore, nearly all FIEs
are subject to the new tax rate alongside other domestic businesses rather than
benefiting from the FEIT, and its associated preferential tax treatments,
beginning January 1, 2008.



Despite these pending changes, the EIT Law gives the FIEs established before
March 16, 2007 (Old FIEs) a five-year grandfather period during which they can
continue to enjoy their existing preferential tax treatments. During this
five-year grandfather period, the Old FIEs which enjoyed tax rates lower than
25% under the original EIT Law shall gradually increase their EIT rate by 2% per
year until the tax rate reaches 25%. In addition, the Old FIEs that are eligible
for the two-year exemption and three-year half reduction or five-year
exemption and five-year half-reduction under the original EIT Law, are allowed
to remain to enjoy their preference until these holidays expire. The
discontinuation of any such special or preferential tax treatment or other
incentives would have an adverse effect on any organization's business, fiscal
condition and current operations in China.



41



---



In addition to the changes to the current tax structure, under the EIT Law, an
enterprise established outside of China with de facto management bodies within
China is considered a resident enterprise and will normally be subject to an EIT
of 25.0% on its global income. The Implementing Rules define the term de facto
management bodies as an establishment that exercises, in substance, overall
management and control over the production, business, personnel, accounting,
etc., of a Chinese enterprise. If the PRC tax authorities subsequently
determine that the Company should be classified as a resident enterprise, then
the organization's global income will be subject to PRC income tax of 25%.



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



Our income taxes decreased $1.81 million to $0.78 million for the three months
ended September 30, 2008 from $2.59 million for the same period of 2007. We paid
less taxes during the three months ended September 30, 2008 as a result of
decreased income before income taxes during that period. Also, we fully utilized
the tax exemption of our subsidiaries CSST PRC which was incorporated in 2006
and Longhorn that became our subsidiary in 2008.



Net income



Net income decreased $2.55 million, or 21.8%, to $9.15 million for the three
months ended September 30, 2008 from $11.70 million for the same period in 2007.
As a percentage of revenues, net income decreased to 7.7% for the three months
ended September 30, 2008 from 17.9% for the same period in 2007. This percentage
decrease was mainly due to the non-cash expenses such as redemption accretion on
convertible notes, depreciation and amortization and non cash employee
compensation.



Comparison of Nine Months Ended September 30, 2008 and September 30, 2007



Revenue



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



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



|                      | Nine months ended September 30,
|--------------------- | -------------------------------
|Revenues              |                                
|Installation Segment  |                                
|Manufacturing Segment |                                
|Distribution Segment  |                                
|Total                 |                                



For the nine months ended September 30, 2008 and 2007, our Installation Segment
generated revenues of $208.54 million and $114.19 million which represented
73.5% and 73.2% of our total revenues, respectively. The increase in revenues
was mainly due to the following factors: First, demand for security and
surveillance products has grown in China, which we attribute in part to the
population in China in general becoming relatively wealthier; as well as
increased demand within various industries and organizations, such as
residential estates, factories and shopping centers. Second, the Chinese
government initiated several programs and regulatory drivers during 2006, such
as State Ordinance 458 and the "3111" program, that require many public places,
including city-wide surveillance systems, traffic surveillance systems, critical
government locations, cyber cafés, bars and discotheques, to install security
systems. Third, our strategic efforts to increase our distribution channels
during 2007 and 2008 allowed us to successfully take advantage of the growth in
market demand in the first nine months of 2008. Fourth, we have been successful
in raising sufficient working capital to facilitate expansion in the China
market. Finally, our increased brand recognition also contributed to the growth
in revenue.



For the nine months ended September 30, 2008 and 2007, our Manufacturing Segment
generated revenues of $49.92 million and $41.82 million, representing 17.6% and
26.8% of our total revenues, respectively. The revenue decreased due to the
sales slowdown after the Beijing Olympic Games and the development of the
Industry Park.



In the first nine months of 2008, we established a new segment  our
Distribution Segment which generated revenues of $25.35 million, representing
8.9% of our total revenues for the nine months ended September 30, 2008.



42



---



Cost of goods sold



Our cost of goods sold increased $87.83 million, or 78.9%, to $199.09 million
for the nine months ended September 30, 2008 from $111.26 million during the
same period in 2007. This dollar increase was mainly attributable to our revenue
increase in the first nine months of 2008 as discussed above.



Gross profit and gross margin



Our gross profit increased $39.97 million, or 89.3%, to $84.72 million for the
nine months ended September 30, 2008 from $44.75 million for the same period
last year. Gross margin for the nine months ended September 30, 2008 was 29.9%,
as compared to 28.7% for the same period of 2007. The increase in our gross
margin was primarily driven by the increased economies of scale.



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



|                      |  | Nine months ended September 30,
|--------------------- |  | -------------------------------
|Gross Margin          |  | 2008                           
|Installation Segment  |  |                                
|Manufacturing Segment |  |                                
|Distribution Segment  |  |                                
|Total                 |  |                                



For the nine months ended September 30, 2008, gross margins of the Installation
Segment and Manufacturing Segment were approximately 29.3% and 33.9%,
respectively, compared to 29.0% and 27.9% for the same period last year. The
increase in our gross margin of Manufacturing Segment was primarily driven by
the increased economies of scale. Gross margin of our newly established segment
Distribution Segment was 26.1% in the first nine months of 2008. We decreased
our selling prices as a strategic move to increase our market penetration into
new markets.



Selling and marketing expenses



Our selling and marketing expenses increased $5.60 million, or 192.4%, to $8.51
million for the nine months ended September 30, 2008 from $2.91 million for the
same period in 2007. This dollar increase was primarily attributable to the
consolidation of the financial results of Stonesonic, Longhorn, Guanling and Jin
Lin in 2008, which incurred selling and marketing expenses associated with sales
of their products. As a percentage of revenues, our selling and marketing
expenses increased to 3.0% for the nine months ended September 30, 2008 from
1.9% for the same period in 2007. The percentage increase was mainly due to the
hiring of additional sales staff and promotion cost of new products and
services.



General and administrative expenses



Our general and administrative expenses increased $12.28 million, or 167.5%, to
$19.61 million for the nine months ended September 30, 2008 from $7.33 million
of the same period in 2007. As a percentage of revenues, general and
administrative expenses increased to 6.9% for the nine months ended September
30, 2008 from 4.7% for the same period in 2007. The dollar and percentage
increase was mainly due to the consolidation of the financial results of
Stonesonic, Longhorn, Guanling and Jin Lin, the hiring of additional staff, the
increased costs in connection with documenting and testing our internal controls
and professional expenses related to the costs of these newly acquired
subsidiaries becoming a part of a public reporting company.



Non cash employee compensation



Non cash employee compensation for the nine months ended September 30, 2008
increased to $9.66 million from $2.06 million for the same period in 2007. Such
increase was primarily because we granted shares of restricted stock to our
employees, directors and consultant with a vesting period of four years under
the 2007 Equity Incentive Plan in 2007 and 2008. Such costs are generally
recognized over a four-year period.



43



---



Depreciation and amortization



Our depreciation and amortization costs increased $3.42 million, or 102.7%, to
$6.75 million (including $0.52 million depreciation and amortization expense
included under cost of goods sold) for the nine months ended September 30, 2008
from $3.33 million for the same period in 2007. As a percentage of revenues,
depreciation and amortization expenses increased to 2.3% for the nine months
ended September 30, 2008 from 2.1% for the same period in 2007. Such dollar and
percentage increase was primarily due to the amortization of intangible assets
from the acquisition of Stonesonic, Longhorn, Guanling and Jin Lin and the
establishment of the exclusive cooperation relationship with DM and Chuang Guan.



Income from operations



Our income from operations increased $11.59 million, or 39.8%, to $40.71 million
for the nine months ended September 30, 2008 from $29.12 million for the same
period in 2007. As a percentage of revenues, income from operations decreased to
14.3% for the nine months ended September 30, 2008 from 18.7% for the same
period in 2007. Such percentage decrease was primarily due to the increase of
our selling and marketing expenses as well as the general and administrative
expenses and non cash employee compensation as discussed above.



The following table shows the different segments comprising our income from
operations for the nine months ended September 30, 2008 and 2007.

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



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



Income from operations related to the Installation Segment increased 86.8%, or
$23.79 million to $51.21 million for the nine months ended September 30, 2008,
compared to $27.42 million for the same period in 2007. Such increase was mainly
due to higher demand for total one-stop-shop installations from customers.



Income from operations related to the Manufacturing Segment decreased 24.5%, or
$1.55 million to $4.77 million for the nine months ended September 30, 2008,
compared to the income from operations of $6.32 million for the same period in
2007. The Manufacturing Segment moved to the Industry Park in the third quarter
for future development. The Company expects that the income from operations of
the Manufacturing Segment will increase as we integrate the recently completed
acquisitions which will allow us to further benefit from economies of scale.



Income from operations related to our newly established Distribution Segment was
$0.60 million for the nine months ended September 30, 2008.



Loss from operations related to Corporate and others increased 243.5% or $11.25
million to $15.87 million for the nine months ended September 30, 2008, compared
to $4.62 million for the same period in 2007. Such increase was mainly due to
the increase of non cash employee compensation as discussed above and
professional expenses related to the costs of being a public reporting company.



Other income



Our other income decreased $0.34 million, or 19.9% to $1.37 million for the nine
months ended September 30, 2008 from $1.71 million for the same period in 2007.
As a percentage of revenues, other income decreased to 0.5% for the nine months
ended September 30, 2008 from 1.1% for the same period in 2007. Such percentage
decrease was primarily because we received rental income from related parties in
the first nine months of 2007 and the land use rights and buildings generating
such rental income were disposed of in 2007.



44



---



Gain on disposal of land use rights and properties



We sold certain properties and land use rights in 2007. Net proceeds of $5.52
million from such dispositions were recognized in the third quarter of 2007.
Fully diluted net proceeds per share were $0.15 for the first nine months of
2007, as compared to $0 for the same period in 2008.



Interest expense (excluding redemption accretion on convertible notes)



Interest expense for the nine months ended September 30, 2008 was $1.51 million,
as compared to $0.85 million of the same period in 2007. Such increase was primarily due
to new borrowings under bank loans and obligation under product financing
arrangements for our operations.



Redemption accretion on convertible notes



Redemption accretion on convertible notes for the nine months ended September
30, 2008 was $14.09 million, as compared to $9.34 million for the same period in
2007. We raised $110 million from issuance of convertible notes in February and
April 2007 to finance our acquisitions. The redemption accretion on convertible
notes will not be paid if the convertible notes are converted into shares of our
common stock before their maturities.



Income before taxes



Our income before taxes increased $0.32 million, or 1.2%, to $26.48 million for
the nine months ended September 30, 2008 from $26.16 million for the same period
in 2007. As a percentage of revenues, income before taxes decreased to 9.3% for
the nine months ended September 30, 2008 from 16.8% for the same period in 2007.
Such percentage decrease was primarily due to increased non-cash expenses
including the redemption accretion on convertible notes, depreciation and
amortization and non cash employee compensation as discussed above.



Income taxes



Our income taxes decreased $0.57 million to $5.10 million for the nine months
ended September 30, 2008 from $5.67 million for the same period of 2007. We
incurred less taxes during the nine months ended September 30, 2008 because we
fully utilized the tax exemption of our subsidiaries CSST PRC which was
incorporated in 2006 and Longhorn that became our subsidiary in 2008.



Net income



Net income increased $0.89 million, or 4.3%, to $21.38 million for the nine
months ended September 30, 2008 from $20.49 million for the same period in 2007.
As a percentage of revenues, net income decreased to 7.5% for the nine months
ended September 30, 2008 from 13.1% for the same period in 2007. This percentage
decrease was mainly due to the non-cash expenses such as redemption accretion on
convertible notes, depreciation and amortization and non cash employee
compensation.



Liquidity and Capital Resources



General



As of September 30, 2008, we had cash and cash equivalents of $65.93 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)



|                                                    |  | Nine Months Ended
    September 30, |        
|--------------------------------------------------- |  | ----------------------------------- | -------
|                                                    |  | 2008                                |        
|Net cash (used in) provided by operating activities |  | $                                   | (30.55)
|Net cash used in investing activities               |  | $                                   | (16.13)
|Net cash provided by financing activities           |  | $                                   | 13.66  
|Effect of exchange rate changes on cash             |  | $                                   | 9.87   
|Net cash (outflow) inflow                           |  | $                                   | (23.15)



Operating Activities



Net cash used in operating activities was $30.55 million for the nine months
period ended September 30, 2008, which is an increase of $41.92 million from
$11.37 million net cash provided by operating activities for the same period of
2007. The increase in net cash used in operating activities in the nine months
ended September 30, 2008 was primarily due to increases in inventories and
accounts receivable during the nine months ended September 30, 2008.



45



---



Investing Activities



Our main uses of cash for investing activities during the first nine months of
2008 were deposits for the acquisition of subsidiaries and acquisitions of
subsidiaries, properties and intangible assets.



Net cash used in investing activities for the nine months ended September 30,
2008 was $16.13 million. Our net cash used in investing activities for the nine
months ended September 30, 2007 was $81.15 million. The decrease of net cash
used in investing activities was mainly because we paid less deposit for the
acquisition of subsidiaries, properties and intangible assets in the nine months
ended September 30, 2008.



We closed the acquisition of Stonesonic, Longhorn and Guanling in April 2008. We
also closed the acquisition of Jin Lin in the third quarter of 2008. In
addition, we have signed letters of intent to acquire Shenzhen Coson Technology
Development Co., Ltd., DIT Digital Co., Ltd., and Shenzhen Skyvise Technology
Limited. Pursuant to the letters of intent, the cash consideration for these
three intended acquisitions is expected to total $39 million with additional
consideration to be paid in equity. Consummation of these three acquisitions is
subject to customary closing conditions, including execution of definitive
agreements and receipt of governmental approval. We expect to finance the cash
portion of the purchase price with the net proceeds from our $50 million
convertible notes financing that closed in April 2007. The number of our shares
to issued as part of the purchase price for Stonesonic, Longhorn, Guanling and
Jin Lin acquisitions are subject to the achievement of certain net income
performance targets over certain period. The acquisitions of Stonesonic,
Longhorn, Guanling, and Jin Lin are expected to be accretive to earnings upon
closing and are expected to provide support to the Companys city-wide projects.



Financing Activities



Net cash provided by financing activities in the nine months ended September 30,
2008 totaled $13.66 million as compared to $116.91 million provided in the same
period of 2007. The cash provided by financing activities during the first nine
months of 2008 was mainly attributable to new borrowing and a private placement
of common stock. The cash used in financing activities was mainly attributable
to the repayment of bank loans and new funds raised from obligation under
product financing arrangements in the first nine months of 2008, whereas the net
cash provided by financing activities in the nine months ended September 30,
2007 was mainly attributable to proceeds from the two convertible notes received
in February 2007 and in April 2007.



Loan Facilities



As of September 30, 2008, the amount, maturity date and duration of each of our
bank loans and obligation under finance leases were as follows:

All amounts in millions of U.S. dollars



|Lender                  |   | Amount | Maturity Date | Duration
|----------------------- | - | ------ | ------------- | --------
|                        |   |        |               |         
|China Citic Bank        | $ | 4.40   | November 2008 | 1 year  
|China Construction Bank |   | 7.26   | August 2010   | 2 years 
|Shenzhen Ping An Bank   |   | 0.88   | March 2009    | 3 years 
|A Financial Institution |   | 7.28   | July 2011     | 3 years 
|                        |   |        |               |         
|Total                   | $ | 19.82  |               |         



In July 2008, we entered into finance lease agreements with a financial
institution pursuant to which the Company borrowed RMB53 million (approximately
$7.85 million), consisting of a 3-year loan payable to that financial
institution. These loans mature on July 2011. The interest is payable at the end
of each quarter.



On August 28, 2008, we entered into a long term loan agreement with China
Construction Bank. As of September 30, 2008, the liability relating to this loan
was RMB49.5 million (approximately $7.26 million), consisting of a 2-year loan
payable to the bank. This loan matures on August 27, 2010 with an annual
interest rate equal to 105% of the one to three years benchmark lending rate of
The Peoples Bank of China (7.37% as of September 30, 2008). The interest rate
is changed based on the change of 1 to 3 years benchmark lending rate quarterly, and the
interest is payable at the 20th of each month. The loan agreement
requires us to use the loan proceeds only for our operations.



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 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.



46



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We believe that our currently available working capital, after receiving the
aggregate proceeds of our capital raising activities and the credit facilities
referred to above, 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
September 30, 2008:



All amounts in millions of U.S. dollars



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



Recent Pronouncements



In June 2008, the FASB issued EITF No. 07-5, Determining Whether an
Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock
effective for financial statements issued for fiscal years and interim periods
beginning after December 15, 2008. EITF No.07-5 provides guidance for
determining whether an equity-linked financial instrument (or embedded feature)
is indexed to an entitys own stock. The adoption of EITF No. 07-5 is not
expected to have a material effect on the Companys consolidated financial
statements.



In May 2008, the FASB issued Statement of Financial Accounting Standards ("SFAS")
No. 162, "The Hierarchy of Generally Accepted Accounting Principles" (SFAS
No. 162). SFAS No. 162 identifies the sources of accounting principles and the
framework for selecting the principles used in the preparation of financial
statements. SFAS No. 162 is effective 60 days following the SEC's approval of
the Public Company Accounting Oversight Board amendments to AU Section 411, "The
Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles". The Company does not expect that this standard will have a material
impact on its results of operations, financial position or cash flows.



In April 2008, the FASB issued FASB Staff Position (FSP) No. FAS 142-3,
Determination of Useful Life of Intangible Assets (FSP 142-3). FSP 142-3
amends the factors that should be considered in developing the renewal or
extension assumptions used to determine the useful life of a recognized
intangible asset under SFAS 142, Goodwill and Other Intangible Assets (SFAS
142). The intent of this FSP is to improve the consistency between the useful
life of an intangible asset determined under SFAS 142 and the period of expected
cash flows used to measure the fair value of the asset under SFAS 141R. FSP
142-3 is effective for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years. The Company is currently evaluating
the impact of adopting FSP 142-3 on the financial statements.



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



In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations (SFAS 141R), effective for business combinations for which
the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. SFAS 141R establishes principles
and requirements for how an acquirer recognizes and measures identifiable assets
acquired, liabilities assumed, any noncontrolling interest in the acquiree and
goodwill. SFAS 141R also expands disclosure requirements for business
combinations. The Company is currently evaluating the impact of adopting SFAS
141R on the financial statements.



47



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



Critical Accounting Policies



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



Seasonality



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



Off-Balance Sheet Arrangements



We do not have any off-balance sheet arrangements.



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK



Interest Rate Risk



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



Foreign Exchange Risk



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



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



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



Inflation



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



Although we do not believe that inflation has had a material impact on our
financial position or results of operations to date, a high rate of inflation in
the future may have an adverse effect on our ability to maintain current levels
of gross margin and selling, general and administrative expenses as a percentage
of net revenues if the selling prices of our products do not increase with these
increased costs.



48



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ITEM 4. CONTROLS AND PROCEDURES



Evaluation of Disclosure Controls and Procedures. We maintain a system of
disclosure controls and procedures. The term disclosure controls and
procedures, as defined by regulations of the SEC, means controls and other
procedures that are designed to ensure that information required to be disclosed
in the reports that we file or submit to the SEC under the Exchange Act, is
recorded, processed, summarized and reported, within the time periods specified
in the SECs rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by us in the reports that we file or submit to the SEC
under the Exchange Act is accumulated and communicated to our management,
including our principal executive officer and our principal financial officer,
or persons performing similar functions, as appropriate to allow timely
decisions to be made regarding required disclosure. Each of Guoshen Tu, our
Chief Executive Officer, and Terence Yap, our Chief Financial Officer, have
evaluated the design and operating effectiveness of our disclosure controls and
procedures as of September 30, 2008. Based upon their evaluation, these
executive officers have concluded that our disclosure controls and procedures
are effective as of September 30, 2008.



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



49



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PART II

OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



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



ITEM 1A. RISK FACTORS



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



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



On July 7, 2008, pursuant to an equity transfer agreement with Qingqing Peng,
the sole owner of Long Top, we agreed to issue 268,870 shares of our common
stock to Qingqing Peng as part of the total consideration for the acquisition of
100% of the equity interest of Long Top. The offer and sales of the securities
were made in an offshore transaction pursuant to Regulation S under the
Securities Act.



On August 6, 2008, pursuant to an equity transfer agreement with Ms. Wenyan Zeng,
the sole owner of Huge Long, we agreed to issue 453,736 shares of our common
stock to Wenyan Zeng as part of the total consideration for the acquisition of
100% of the equity interest of Huge Long. The offer and sales of the securities
were made in an offshore transaction pursuant to Regulation S under the
Securities Act.



ITEM 3. DEFAULTS UPON SENIOR SECURITIES



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



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



N/A



ITEM 5. OTHER INFORMATION



On October 13, 2008, the Companys common stock commenced secondary trading on
the Dubai International Financial Exchange (DIFX). The Companys common stock
is trading on the DIFX in U.S. dollars under the ticker symbol CSR.  The
Companys common stock is primarily listed on the New York Stock Exchange.



ITEM 6. EXHIBITS



|Exhibit Number |  | Description                                                                                                                                                             
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |  |                                                                                                                                                                         
|31.1           |  | Certification of Principal Executive Officer filed pursuant to Section 302
    of the Sarbanes-Oxley Act of 2002.                                                       
|               |  |                                                                                                                                                                         
|31.2           |  | Certification of Principal Financial Officer filed pursuant to Section 302
    of the Sarbanes-Oxley Act of 2002.                                                       
|               |  |                                                                                                                                                                         
|32.1           |  | Certification of Principal Executive Officer furnished pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002.
|               |  |                                                                                                                                                                         
|32.2           |  | Certification of Principal Financial Officer furnished pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002.



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SIGNATURES



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



DATED: October 28, 2008



| | China Security & Surveillance Technology, Inc.
| | ----------------------------------------------
| |                                               
| |                                               
| | By:                                           
| |                                               
| |                                               
| |                                               
| |                                               
| | By:                                           
| |                                               
| |                                               



51



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EXHIBIT INDEX

|Exhibit Number |  | Description                                                                                                                                                             
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |  |                                                                                                                                                                         
|31.1           |  | Certification of Principal Executive Officer filed pursuant to Section 302
    of the Sarbanes-Oxley Act of 2002.                                                       
|               |  |                                                                                                                                                                         
|31.2           |  | Certification of Principal Financial Officer filed pursuant to Section 302
    of the Sarbanes-Oxley Act of 2002.                                                       
|               |  |                                                                                                                                                                         
|32.1           |  | Certification of Principal Executive Officer furnished pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002.
|               |  |                                                                                                                                                                         
|32.2           |  | Certification of Principal Financial Officer furnished pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002.





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