---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549FORM 10-Q(Mark
One)[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31,
2011[     ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
____________to _____________Commission File Number:
001-33774CHINA SECURITY & SURVEILLANCE
TECHNOLOGY, INC.(Exact name of small business issuer as
specified in its charter)

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

13/F, Shenzhen Special Zone Press Tower, Shennan
RoadFutian District, Shenzhen, China 518034(Address of
principal executive offices, Zip Code)(86)
755-8351-0888(Registrant's telephone number, including area
code)_______________________________________________________________(Former
name, former address and former fiscal year, if changed since last report)

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

Yes [X]             No [     ]

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

Yes [     ]             No [     ]

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

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


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

Yes [     ]             No [X]

The number of shares outstanding of each
of the issuer's classes of common equity, as of April 20, 2011 is as
follows:

|Class of Securities             | Shares Outstanding
|------------------------------- | ------------------
|Common Stock, $0.0001 par value | 89,722,023        

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TABLE OF CONTENTS

|         | PART I                                                                                      | Page
|-------- | ------------------------------------------------------------------------------------------- | ----
|         |                                                                                             |     
|Item 1.  | Financial Statements                                                                        | 2   
|Item 2.  | Management's Discussion and Analysis of
      Financial Condition and Results of Operations | 28  
|Item 3.  | Quantitative and Qualitative
      Disclosures About Market Risk                            | 49  
|Item 4.  | Controls and Procedures                                                                     | 49  
|         |                                                                                             |     
|         | PART II                                                                                     |     
|         |                                                                                             |     
|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.  | (Removed and Reserved)                                                                      | 50  
|Item 5.  | Other Information                                                                           | 50  
|Item 6.  | Exhibits                                                                                    | 50  

1

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|PART I                                                               
|---------------------------------------------------------------------
|                                                                     
|FINANCIAL INFORMATION                                                
|                                                                     
|ITEM 1. FINANCIAL STATEMENTS.                                        
|                                                                     
|CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
      SUBSIDIARIES
|CONDENSED CONSOLIDATED BALANCE SHEETS                                
|AS OF MARCH 31, 2011 (UNAUDITED) AND DECEMBER 31,
      2010         
|Expressed in thousands of U.S. dollars                               
|(Except for share and per share amounts)                             
|                                                                     
|ASSETS                                                               

|                                                                                 |   | March 31, 2011 |  |   | December 31, 2010 | 
|-------------------------------------------------------------------------------- | - | -------------- |  | - | ----------------- | 
|Cash and cash equivalents                                                        | $ | 278,739        |  | $ | 65,626            | 
|Restricted cash                                                                  |   | 20,000         |  |   | --                | 
|Accounts receivable, net                                                         |   | 417,966        |  |   | 433,986           | 
|Inventories, net                                                                 |   | 43,026         |  |   | 59,368            | 
|Prepayments and deposits                                                         |   | 56,809         |  |   | 56,241            | 
|Advances to suppliers and subcontractors                                         |   | 103,701        |  |   | 88,360            | 
|Other receivables                                                                |   | 61,011         |  |   | 47,116            | 
|Total current assets                                                             |   | 981,252        |  |   | 750,697           | 
|                                                                                 |   |                |  |   |                   | 
|Deposits paid for business acquisitions, 
      properties and intangible assets |   | 153,657        |  |   | 146,243           | 
|Plant and equipment, net                                                         |   | 75,136         |  |   | 75,294            | 
|Land use rights, net                                                             |   | 7,957          |  |   | 7,896             | 
|Intangible assets, net                                                           |   | 47,346         |  |   | 48,692            | 
|Goodwill                                                                         |   | 79,516         |  |   | 79,516            | 
|Deferred financing costs, net                                                    |   | 2,669          |  |   | 2,684             | 
|TOTAL ASSETS                                                                     | $ | 1,347,533      |  | $ | 1,111,022         | 

Continued

2

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|CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
      SUBSIDIARIES
|---------------------------------------------------------------------
|CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)                    
|AS OF MARCH 31, 2011 (UNAUDITED) AND DECEMBER 31,
      2010         
|Expressed in thousands of U.S. dollars                               
|(Except for share and per share amounts)                             
|                                                                     
|LIABILITIES AND EQUITY                                               

|                                                                                                                                                                                              |   | March 31, 2011 |   |   | December 31, 2010 |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | -------------- | - | - | ----------------- | -
|                                                                                                                                                                                              |   |                |   |   |                   |  
|CURRENT LIABILITIES                                                                                                                                                                           |   |                |   |   |                   |  
|Notes payable  short term                                                                                                                                                                    | $ | 182,657        |   | $ | 196,329           |  
|Obligations under product financing arrangements
                 short
      term                                                                                                           |   | 6,110          |   |   | 6,687             |  
|Guaranteed senior unsecured notes payable 
      short
                term                                                                                                                  |   | 21,907         |   |   | 37,408            |  
|Accounts and bills payable                                                                                                                                                                    |   | 40,608         |   |   | 32,240            |  
|Accrued expenses                                                                                                                                                                              |   | 58,472         |   |   | 49,421            |  
|Advances from customers                                                                                                                                                                       |   | 17,738         |   |   | 15,216            |  
|Taxes payable                                                                                                                                                                                 |   | 26,230         |   |   | 28,648            |  
|Payable for acquisition of businesses, properties and 
                land
      use rights                                                                                                  |   | 3,763          |   |   | 3,763             |  
|Deferred income                                                                                                                                                                               |   | 2,768          |   |   | 3,201             |  
|Total current liabilities                                                                                                                                                                     |   | 360,253        |   |   | 372,913           |  
|                                                                                                                                                                                              |   |                |   |   |                   |  
|                                                                                                                                                                                              |   |                |   |   |                   |  
|LONG TERM LIABILITIES                                                                                                                                                                         |   |                |   |   |                   |  
|Notes payable  long term                                                                                                                                                                     |   | 299,903        |   |   | 60,570            |  
|Obligations under product financing
      arrangements 
           long term                                                                                                                 |   | 5,164          |   |   | 6,474             |  
|Guaranteed senior unsecured notes payable  long term                                                                                                                                         |   | 3,285          |   |   | 6,580             |  
|Net deferred tax liabilities                                                                                                                                                                  |   | 668            |   |   | 282               |  
|Total liabilities                                                                                                                                                                             |   | 669,273        |   |   | 446,819           |  
|                                                                                                                                                                                              |   |                |   |   |                   |  
|EQUITY                                                                                                                                                                                        |   |                |   |   |                   |  
|Preferred stock, $0.0001 par value; 
         10,000,000 shares authorized, no shares issued and
      outstanding                                                                            |   |                |   |   |                   |  
|Common stock, $0.0001 par value; 
      290,000,000 shares
      authorized, 89,722,023 (March 
      31, 2011) and 89,521,115 (December 31,
      2010) shares 
      issued and outstanding |   | 9              |   |   | 9                 |  
|Additional paid-in capital                                                                                                                                                                    |   | 379,964        |   |   | 374,417           |  
|Retained earnings                                                                                                                                                                             |   | 245,050        |   |   | 243,371           |  
|Statutory surplus reserve fund                                                                                                                                                                |   | 804            |   |   | 804               |  
|Accumulated other comprehensive income                                                                                                                                                        |   | 52,450         |   |   | 45,619            |  
|Total equity of the Company                                                                                                                                                                   |   | 678,277        |   |   | 664,220           |  
|Noncontrolling interest                                                                                                                                                                       |   | (17            | ) |   | (17               | )
|Total equity                                                                                                                                                                                  |   | 678,260        |   |   | 664,203           |  
|TOTAL LIABILITIES AND EQUITY                                                                                                                                                                  | $ | 1,347,533      |   | $ | 1,111,022         |  

See accompanying notes to condensed consolidated financial
  statements.

3

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|CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
      SUBSIDIARIES     
|--------------------------------------------------------------------------
|CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
      COMPREHENSIVE INCOME
|FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010                        
|Expressed in thousands of U.S. dollars                                    
|(Except for share and per share amounts)                                  

|                                                                                                                                                                                                |   | Three Months Ended March 31 |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | --------------------------- | -
|                                                                                                                                                                                                |   | 2011                        |  
|                                                                                                                                                                                                |   |                             |  
|Revenues                                                                                                                                                                                        | $ | 99,054                      |  
|                                                                                                                                                                                                |   |                             |  
|Cost of goods sold (including depreciation
      and amortization for 
          the three months ended March
      31, 2011 and 2010 of $259 
          and $254, respectively)                |   | 67,567                      |  
|Gross profit                                                                                                                                                                                    |   | 31,487                      |  
|Selling and marketing                                                                                                                                                                           |   | 2,696                       |  
|General and administrative (including non-cash employee 
           compensation for the three months ended March
      31, 2011 
           and 2010 of $5,547 and $8,326,
      respectively) |   | 17,698                      |  
|Depreciation and amortization                                                                                                                                                                   |   | 2,968                       |  
|Income from operations                                                                                                                                                                          |   | 8,125                       |  
|Interest income                                                                                                                                                                                 |   | 141                         |  
|Interest expense                                                                                                                                                                                |   | (5,114                      | )
|Other income, net                                                                                                                                                                               |   | 596                         |  
|Income before income taxes                                                                                                                                                                      |   | 3,748                       |  
|Income taxes                                                                                                                                                                                    |   | (2,069                      | )
|Net income                                                                                                                                                                                      |   | 1,679                       |  
|                                                                                                                                                                                                |   |                             |  
|Add: net loss attributable to the noncontrolling interest                                                                                                                                       |   | --                          |  
|Net income attributable to the
      Company                                                                                                                                                    |   | 1,679                       |  
|                                                                                                                                                                                                |   |                             |  
|Foreign currency translation gain                                                                                                                                                               |   | 6,831                       |  
|Comprehensive income attributable to the Company                                                                                                                                                |   | 8,510                       |  
|Comprehensive loss attributable to the
      noncontrolling interest                                                                                                                            |   | --                          |  
|                                                                                                                                                                                                |   |                             |  
|COMPREHENSIVE INCOME                                                                                                                                                                            | $ | 8,510                       |  
|                                                                                                                                                                                                |   |                             |  
|NET INCOME PER SHARE                                                                                                                                                                            |   |                             |  
|ATTRIBUTABLE TO THE COMPANYS COMMON     
       SHAREHOLDERS                                                                                                                                   |   |                             |  
|BASIC                                                                                                                                                                                           | $ | 0.02                        |  
|DILUTED                                                                                                                                                                                         | $ | 0.02                        |  
|                                                                                                                                                                                                |   |                             |  
|WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING                                                                                                                                                   |   |                             |  
|BASIC                                                                                                                                                                                           |   | 84,310,000                  |  
|DILUTED                                                                                                                                                                                         |   | 89,696,000                  |  

See the accompanying notes to condensed consolidated financial
  statements.

4

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|CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
      SUBSIDIARIES
|---------------------------------------------------------------------
|CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
      EQUITY          
|FOR THE THREE MONTHS ENDED MARCH 31, 2011
      (UNAUDITED)          
|Expressed in thousands of U.S. dollars                               
|(Except for share and per share amounts)                             

|                                                                                                                                                            |              |            |  |                                  |       |  |   |         | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------ | ---------- |  | -------------------------------- | ----- |  | - | ------- | 
|                                                                                                                                                            |              |            |  | The Companys
      Shareholders |       |  |   |         | 
|                                                                                                                                                            |              |            |  |                                  |       |  |   |         | 
|                                                                                                                                                            | Common Stock |            |  | Additional                       |       |  |   |         | 
|                                                                                                                                                            |              |            |  |                                  | Par   |  |   | Paid-in | 
|                                                                                                                                                            |              | Shares     |  |                                  | Value |  |   | Capital | 
|                                                                                                                                                            |              |            |  |                                  |       |  |   |         | 
|BALANCE AT JANUARY 1, 2011                                                                                                                                  |              | 89,521,115 |  | $                                | 9     |  | $ | 374,417 | 
|                                                                                                                                                            |              |            |  |                                  |       |  |   |         | 
|Issuance of restricted 
          stock under Equity 
          Incentive Plan and 
          recognition of 
          stock-based 
          compensation |              | 200,908    |  |                                  | --    |  |   | 5,547   | 
|Foreign currency
           translation
      gain                                                                                                          |              | --         |  |                                  | --    |  |   | --      | 
|Net income for the 
           period                                                                                                                       |              | --         |  |                                  | --    |  |   | --      | 
|BALANCE AT MARCH 31, 2011                                                                                                                                   |              | 89,722,023 |  | $                                | 9     |  | $ | 379,964 | 

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                      
|FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010                   
|Expressed in thousands of U.S. dollars                               
|(Except for share and per share amounts)                             

|                                                                                                                  |   | Three Months Ended March 31 |  
|----------------------------------------------------------------------------------------------------------------- | - | --------------------------- | -
|                                                                                                                  |   | 2011                        |  
|                                                                                                                  |   | (Unaudited)                 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                             |   |                             |  
|Net income                                                                                                        | $ | 1,679                       |  
|Adjustments to reconcile net income to net
      cash provided by (used in) operating
                activities: |   |                             |  
|Depreciation and amortization                                                                                     |   | 3,227                       |  
|Provision for obsolete inventories                                                                                |   | (6                          | )
|Amortization of deferred
      financing costs                                                                    |   | 833                         |  
|Non-cash compensation expense                                                                                     |   | 5,547                       |  
|Debt discount amortization                                                                                        |   | 524                         |  
|Deferred taxes                                                                                                    |   | 383                         |  
|Changes in operating assets
      and liabilities:                                                                |   |                             |  
|Decrease (increase) in:                                                                                           |   |                             |  
|Accounts receivable                                                                                               |   | 20,408                      |  
|Inventories                                                                                                       |   | 16,947                      |  
|Prepayments and deposits                                                                                          |   | 1                           |  
|Advances to
      suppliers and subcontractors                                                                    |   | (14,447                     | )
|Other receivables                                                                                                 |   | (13,409                     | )
|Increase (decrease) in:                                                                                           |   |                             |  
|Accounts payable and accrued expenses                                                                             |   | 16,289                      |  
|Advances
      from customers                                                                                     |   | 2,369                       |  
|Taxes payable                                                                                                     |   | (2,708                      | )
|Deferred
      income                                                                                             |   | (465                        | )
|Net cash provided by (used
      in) operating activities                                                         |   | 37,172                      |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                                             |   |                             |  
|Additions to plant and
      equipment                                                                            |   | (519                        | )
|Additions to intangible assets, other than
      through business acquisitions                                    |   | (276                        | )
|Deposits paid for business
      acquisitions, properties and intangible assets, net                              |   | (5,935                      | )
|Net cash used in investing activities                                                                             |   | (6,730                      | )
|CASH FLOWS FROM FINANCING
      ACTIVITIES:                                                                       |   |                             |  
|Restricted cash                                                                                                   |   | (20,000                     | )
|Proceeds from borrowings, net
      of financing costs                                                            |   | 300,800                     |  
|Repayment of borrowings                                                                                           |   | (77,992                     | )
|Repayment of guaranteed
      senior unsecured notes payable                                                      |   | (19,320                     | )
|Repayment of obligations under product
      financing arrangements                                               |   | (1,716                      | )
|Net cash provided by
      financing activities                                                                   |   | 181,772                     |  
|NET INCREASE (DECREASE) IN CASH AND CASH
      EQUIVALENTS                                                        |   | 212,214                     |  
|Effect of exchange rate
      changes on cash and cash equivalents                                                |   | 899                         |  
|Cash and cash equivalents, beginning of
      period                                                              |   | 65,626                      |  
|CASH AND CASH EQUIVALENTS,
      END OF PERIOD                                                                    | $ | 278,739                     |  

Continued

6

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|CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
      SUBSIDIARIES
|---------------------------------------------------------------------
|CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
      (CONTINUED)    
|FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010                   
|Expressed in thousands of U.S. dollars                               
|(Except for share and per share amounts)                             

|                                     |   | Three Months Ended March 31, | 
|------------------------------------ | - | ---------------------------- | 
|                                     |   | 2011                         | 
|SUPPLEMENTARY CASH FLOW INFORMATION: |   | (Unaudited)                  | 
|Interest paid                        | $ | 3,884                        | 
|Income taxes paid                    | $ | 568                          | 

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 March 31, 2011 and
  for the three months ended March 31, 2011 and 2010, have been prepared by CHINA
  SECURITY & SURVEILLANCE TECHNOLOGY, INC. (the Company) without an audit.
  Pursuant to the rules and regulations of the Securities and Exchange Commission
  (the SEC), certain information and footnote disclosures normally included in
  the financial statements prepared in accordance with accounting principles
  generally accepted in the United States of America (US GAAP) have been
  condensed or omitted pursuant to such rules and regulations. These financial
  statements should be read in conjunction with the financial statements and the
  notes thereto included in the Companys audited annual financial statements for
  the year ended December 31, 2010, which are included in the Companys Annual
  Report on Form 10-K for the year ended December 31, 2010, filed with the SEC on
  February 28, 2011. Amounts as of December 31, 2010 are derived from these
  audited consolidated financial statements.

In the opinion of management, all adjustments (which include
  only normal recurring adjustments) necessary to present fairly the financial
  position as of March 31, 2011, results of operations and cash flows for the
  three months ended March 31, 2011 and 2010, have been made. The results of
  operations for the three months ended March 31, 2011, are not necessarily
  indicative of the operating results for the full year.

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Use of Estimates

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

(b) Fair Value Measurement

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

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

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

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

At March 31, 2011 and December 31, 2010, the Company has no
  financial assets or liabilities subject to recurring fair value
  measurements.

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

8

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

2. SUMMARY OF SELECTED SIGNIFICANT ACCOUNTING POLICIES
  (CONTINUED)

(c) Cash and Cash Equivalents, and Restricted Cash

The Company considers highly liquid investments purchased with
  original maturities of three months or less to be cash equivalents.

Restricted cash as of March 31, 2011 represents time deposits
  on account to secure short-term notes payable. Also see Note 10.

(d) Accounts Receivable

Financial instruments that potentially subject the Company to
  concentrations of credit risk consist primarily of trade accounts receivable.
  The Company extends credit to its customers in the normal course of business and
  generally does not require collateral. The Companys credit terms in general are
  from 30 to 330 days, dependent upon the segment, the nature of the project, and
  the customer. The Company assesses the probability of collection from each
  customer at the outset of the arrangement based on a number of factors,
  including the customers payment history and its current creditworthiness. If in
  managements judgment collection is not probable, the Company does not record
  revenue until the uncertainty is removed.

Management performs ongoing credit evaluations, and the Company
  maintains an allowance for potential credit losses based upon its loss history
  and its aging analysis. The allowance for doubtful accounts is the Companys
  best estimate of the amount of credit losses in existing accounts receivable.
  Management reviews the allowance for doubtful accounts each reporting period
  based on a detailed analysis of trade receivables. In the analysis, management
  primarily considers the age of the customers receivable, and also considers the
  creditworthiness of the customer, the economic conditions of the customers
  industry, general economic conditions and trends, and the business relationship
  and history with its customers, among other factors. If any of these factors
  change, the Company may also change its original estimates, which could impact
  the level of the Companys future allowance for doubtful accounts. If judgments
  regarding the collectability of receivables were incorrect, adjustments to the
  allowance may be required, which would reduce profitability.

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

As of March 31, 2011, one individual customer had an accounts
  receivable balance which represented approximately 23.4% of the Companys total
  accounts receivable. There were no other individual customers with a balance
  greater than 10% of total accounts receivable at March 31, 2011. As of December
  31, 2010, one individual customer had an accounts receivable balance which
  represented approximately 13.5% of the Companys total accounts receivable.
  There was no other individual customer that had an accounts receivable balance
  greater than 10% of the Companys total accounts receivable at December 31,
  2010.

From time to time, the Company enters into receivable factoring
  arrangements. The Company accounts for these arrangements under ASC 860,
  Transfers and Servicing. These arrangements are without recourse, the
  receivables are isolated from the Company, the transferee has the right to
  pledge or exchange the receivables, and the Company does not maintain effective
  control over the receivables. Therefore, these arrangements satisfy the
  conditions to be accounted for as a sale and the Company recognizes any gain or
  loss in earnings. The Company did not enter into any receivable factoring
  agreements during the three months ended March 31, 2011 and 2010.

(e) Inventories

Manufacturing, distribution and service segment inventories
  consist of raw materials, work in process and finished goods and are stated at
  the lower of cost, determined on a weighted average basis, or net realizable
  value. Net realizable value is the estimated selling price in the ordinary
  course of business less the estimated cost of completion and the estimated costs
  necessary to make the sale. When inventories are sold, their carrying amount is
  charged to expense in the period in which the revenue is recognized. Write-downs
  for declines in net realizable value or for losses of inventories are recognized
  as an expense in the period the impairment or loss occurs.

Installation segment contract costs are included within
  installations in process, a component of inventories, and include materials,
  labor and overhead related to the installations.

As of March 31, 2011 and December 31, 2010, inventories held
  under product financing arrangements (see Note 11) were $20,008 and $19,808,
  respectively.

During the three months ended March 31, 2011 and 2010,
  approximately 34% and 46%, respectively, of total inventory purchases were from
  five suppliers. Management believes that should the Company lose any one of its
  major suppliers, other suppliers are available that could provide similar
  products to the Company on comparable terms.

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)

(f) Accounting for Software To Be Sold, Leased or
  Marketed

The Company accounts for software development costs in
  accordance with ASC 985-20 Costs of Software to Be Sold, Leased or Marketed. Costs related to establishing the technological feasibility of a software
  product are expensed as incurred as a part of research and development in
  general and administrative expenses. Costs that are incurred to produce the
  finished product after technological feasibility is established are capitalized
  and amortized over the estimated economic life of five years. The Company
  performs periodic reviews to ensure that unamortized software development costs
  remain recoverable from future revenue.

At March 31, 2011 and December 31, 2010, unamortized computer
  software costs were $5,297 and $5,331, respectively. During the three months
  ended March 31, 2011 and 2010, $397 and $313, of amortization expenses were
  charged to income, respectively.

(g) Goodwill

Goodwill represents the excess of the purchase price over the
  net fair value of the identifiable tangible and intangible assets acquired and
  the fair value of liabilities assumed in acquisitions. ASC 350-30-50 Goodwill
    and Other Intangible Assets, requires the testing of goodwill and
  indefinite-lived intangible assets for impairment at least annually. The Company
  tests goodwill for impairment in the fourth quarter of each year.

Under applicable accounting guidance, the goodwill impairment
  analysis is a two-step test. The first step of the goodwill impairment test
  involves comparing the fair value of each reporting unit with its carrying
  amount including goodwill. If the fair value of a reporting unit exceeds its
  carrying amount, goodwill of the reporting unit is considered not impaired;
  however, if the carrying amount of the reporting unit exceeds its fair value,
  the second step must be performed to measure potential impairment.

The second step involves calculating an implied fair value of
  goodwill for each reporting unit for which the first step indicated possible
  impairment. If the implied fair value of goodwill exceeds the goodwill assigned
  to the reporting unit, there is no impairment. If the goodwill assigned to a
  reporting unit exceeds the implied fair value of goodwill, an impairment charge
  is recorded for the excess.

(h) Revenue Recognition

Revenue from sales of surveillance and safety products and
  systems are recognized in accordance with Staff Accounting Bulletin (SAB) No.
  104:  Revenue Recognition and related interpretations. Revenues are
  recognized when the following criteria are met:

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

(ii) Delivery has occurred  For
  product sales, delivery generally takes place when 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.

All revenues are recognized net of any taxes collected from
  customers and subsequently remitted to governmental authorities.

Product sales contracts generally provide a one-to-three-year
  product warranty to customers from the date of purchase. The Company estimates
  the costs of satisfying warranty claims based on an analysis of past experience
  and provides for future claims in the period the revenue is recognized. As of
  March 31, 2011 and December 31, 2010, no material product warranty reserve was
  accrued. Warranty costs incurred by the Company have not been material.

10

---

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

2. SUMMARY OF SELECTED SIGNIFICANT ACCOUNTING POLICIES
  (CONTINUED)

(h) Revenue Recognition - continued

The Company derives a significant portion of its revenue from
  the supply and installation of surveillance and safety equipment in its
  Installation Segment; the two deliverables do not meet the separation criteria
  under ASC 605-25  Multiple-Element Arrangements. Installation segment
  contracts vary in terms of contract amount and period of performance. The
  performance period for short-term contracts is usually between three and six
  months. The period of performance for long-term contracts is typically between a
  year and 36 months. Long-term contracts generally are entered into with
  municipalities, provinces, or their affiliates located in China. These long-term
  contracts are further defined by agreed-upon detail specifications that outline
  defined stages. Completion of a defined stage represents basic service and
  products delivered, such as the installation of specified surveillance and
  safety systems in defined locations within the project area. Stages are
  typically planned to be completed over defined three to six-month periods. Each
  stage represents a discreet, defined phase of the total contract, for which
  completion can be readily determined. At the completion of a stage, and upon
  customer inspection, verification and acceptance of the work performed, the
  Company recognizes the fixed price per stage as revenue. At the time of stage
  completion, the Company considers the title to work performed passing to the
  customer. Other than a warranty reserve, discussed below, the Company has no
  further obligations to the customer for a completed stage.

The use of contract accounting requires significant judgment in
  estimating total contract pricing and costs, including assumptions relative to
  the length of time to complete the contract, the nature and complexity of the
  work to be performed, anticipated increases in wages and prices for
  subcontractor services and materials, and the availability of subcontractor
  services and materials. The Company's estimates are based upon the professional
  knowledge and experience of its engineers, program managers and other personnel,
  who review each long-term contract continually to assess the contract's
  schedule, performance, technical matters and estimated cost at completion. The
  risk to the Company on fixed-price contracts is that if estimates to complete
  the contract change from one period to the next, profit levels will vary from
  period to period.

Approximately 1% of contract installation revenue is deferred
  for repair work during the one-year warranty period. The Company monitors the
  warranty work requested by its customers, and has determined that minimal
  warranty work has historically been requested to be performed. Deferred income
  balances as of March 31, 2011 and December 31, 2010 were $2,768 and $3,201,
  respectively, and represented amounts invoiced but deferred as revenue as an
  estimated warranty reserve. Management believes that this 1% warranty reserve is
  adequate as of March 31, 2011 and December 31, 2010.

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

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

(i) The PCS fee is included with the
  initial licensing fee;

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

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

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

Revenue from surveillance and safety system with 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 above related to
  its PCS arrangements and is therefore in compliance with applicable accounting
  guidance.

During the three months ended March 31, 2011and 2010, one individual
  customer accounted for approximately 47%  and 21% of the Companys revenue,
respectively. There was no other individual customer who accounted for greater
than 10% of the Companys revenue in either period.

11

---

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

2. SUMMARY OF SELECTED SIGNIFICANT ACCOUNTING POLICIES
  (CONTINUED)

(i) Research and Development Costs

Research and development costs are expensed as incurred.
  Research and development costs included in general and administrative expenses
  for the three months ended March 31, 2011 and 2010 amounted to $649 and $633,
  respectively.

(j) Advertising Costs

The Company expenses advertising costs as incurred or the first
  time advertising takes place. During the three months ended March 31, 2011 and
  2010, the Company incurred advertising costs of approximately $1,134 and $649,
  respectively.

(k) 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. Retirement benefit expense for
  the three months ended March 31, 2011 and 2010 were $447 and $290, respectively,
  and are included in both selling and marketing expenses and general and
  administrative expenses.

(l) Income Taxes

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

The Company does not have any material unrecognized tax
  benefits.

The Company files income tax returns with the relevant
  government authorities in the U.S. and the PRC. The Company is not subject to
  U.S. federal tax examinations for years before 2007. The Company does not
  believe there will be any material changes in its unrecognized tax positions
  over the next 12 months.

The Companys policy is to recognize interest and penalties
  accrued on any unrecognized tax benefits as a component of income tax expense.
  The Company does not have any accrued interest or penalties associated with any
  unrecognized tax benefits, nor was any interest expense recognized during the
  three months ended March 31, 2011 and 2010. The Companys effective tax rate
  differs from the federal statutory rate primarily due to non-deductible expenses,
preferential tax treatment, subsidiary tax rates different from the
effective tax rate, and changes in the deferred tax valuation allowance.

(m) Earnings Per Share

ASC 260 Earnings Per Share, requires dual presentation
  of basic and diluted earnings per share (EPS) with a reconciliation of the
  numerator and denominator of the basic EPS computation to the numerator and
  denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted
  EPS reflects the potential dilution that could occur if securities or other
  contracts to issue common stock were exercised or converted into common stock or
  resulted in the issuance of common stock that then shared in the earnings of the
  entity.

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, and warrants outstanding during each
  respective period, using the if-converted or treasury-stock methods.

12

---

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

2. SUMMARY OF SELECTED SIGNIFICANT ACCOUNTING POLICIES
  (CONTINUED)

(m) Earnings Per Share  continued

Unvested restricted shares issued under the Equity Incentive
  Plan are not included in basic weighted average number of shares but are
  considered to be outstanding as of the grant date for purpose of computing
  diluted EPS even though the shares are subject to vesting requirements.

The calculation of diluted EPS also considers the dilutive effect of
  outstanding warrants for the three months ended March 31, 2011 and 2010. With
  respect to outstanding warrants, the dilutive impact on the weighted average
  number of shares as calculated under the if-converted method was 0 and 11,000
  for the three months ended March 31, 2011 and 2010, respectively. Warrants which
  were outstanding to acquire 157,373 and 3,498,296 shares of common stock were
  not included in the dilutive calculation for the three months ended March 31,
  2011 and 2010, as the effect would be anti-dilutive.

Basic and diluted earnings per share for the three months ended
  March 31, 2011 and 2010, were calculated as follows:

|                                               |   | 2011       |  |   | 2010       | 
|---------------------------------------------- | - | ---------- |  | - | ---------- | 
|Net income attributable to the Company         | $ | 1,679      |  | $ | 3,277      | 
|Weighted average number of common shares:      |   |            |  |   |            | 
|Basic                                          |   | 84,310,000 |  |   | 63,961,000 | 
|Effect of dilutive securities:                 |   |            |  |   |            | 
|Warrants                                       |   | --         |  |   | 11,000     | 
|Employee share-based compensation              |   | 5,386,000  |  |   | 4,397,000  | 
|Diluted                                        |   | 89,696,000 |  |   | 68,369,000 | 
|Earnings per share attributable to the Company |   |            |  |   |            | 
|Basic                                          | $ | 0.02       |  | $ | 0.05       | 
|Diluted                                        | $ | 0.02       |  | $ | 0.05       | 

(n) Recently Issued and Adopted Accounting
  Pronouncements

Business Combinations

(Included in ASC 805  Business Combination, previously SFAS
  No. 141(R))

In December 2010, the Financial Accounting Standards Board
  (FASB) issued Accounting Standards Update (ASU) No. 2010-29,Business
    Combinations(Topic 805): Disclosure of Supplementary Pro Forma
      Information for Business Combinations.This ASU specifies that when
  financial statements are presented, the revenue and earnings of the combined
  entity should be disclosed as though the business combination that occurred
  during the current year had occurred as of the beginning of the comparable prior
  annual reporting period only. ASU 2010-29 is effective for business combinations
  with acquisition dates on or after January 1, 2011. The adoption of this update
  did not have an impact on the Company's consolidated financial statements.

Goodwill

(Included in ASC 350 "Intangibles-Goodwill and
  Other)

In December 2010, the FASB issued ASU No. 2010-28, Intangibles-Goodwill and Other(Topic 350): When to Perform Step 2
  of the Goodwill Impairment Test for Reporting Units with Zero or Negative
  Carrying Amounts. This ASU requires that reporting units with zero or
  negative carrying amounts perform Step 2 of the goodwill impairment test if it
  is more likely than not that a goodwill impairment exists. ASU 2010-28 is
  effective for the Company beginning with this interim period. The adoption of this update did not
  have an impact on the Companys financial condition or results of
  operations.

13

---

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

2. SUMMARY OF SELECTED SIGNIFICANT ACCOUNTING POLICIES
  (CONTINUED)

(n) Recently Issued and Adopted Accounting Pronouncements -
  continued

Multiple Deliverable Revenue Arrangements

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

In October 2009, the FASB issued a new accounting standard
  which provides guidance for arrangements with multiple deliverables.
  Specifically, the new standard requires an entity to allocate consideration at
  the inception of an arrangement to all of its deliverables based on their
  relative selling prices. In the absence of the vendor-specific objective
  evidence or third-party evidence of the selling prices, consideration must be
  allocated to the deliverables based on managements best estimate of the selling
  prices. In addition, the new standard eliminates the use of the residual method
  of allocation. In October 2009, the FASB also issued a new accounting standard
  which changes revenue recognition for tangible products containing software and
  hardware elements. Specifically, tangible products containing software and
  hardware that function together to deliver the tangible products essential
  functionality are scoped out of the existing software revenue recognition
  guidance and will be accounted for under the multiple-element arrangements
  revenue recognition guidance discussed above. Both standards were effective for
  the Company beginning on January 1, 2011. The adoption of this standard did not
  have a material impact on the Companys consolidated financial statements.

3. ACCOUNTS AND OTHER RECEIVABLES

The Company provides an allowance for doubtful accounts
  receivable. The receivables and allowance balances at March 31, 2011 and
  December 31, 2010 are as follows:

March 31,
      
      
      December 31,2011
      
      
      2010Accounts receivable
      $
      420,704
      
      $
      436,700Less: allowance for doubtful accounts
      
      (2,738
      )
      
      (2,714
      )Accounts receivable, net
      $
      417,966
      
      $
      433,986


Other receivables primarily represent unsecured, short-term
  advances that the Company makes from time-to-time to third-party entities. These
  advances are due on demand.

4. INVENTORIES

Inventories consist of the following as of March 31, 2011 and
  December 31, 2010:

March 31,
      
      
      December 31,2011
      
      
      2010Raw materials
      $
      13,330
      
      $
      12,449Work in progress
      
      3,161
      
      
      2,713Finished goods
      
      15,158
      
      
      13,465Installations in process
      
      13,606
      
      
      32,953Total
      
      45,255
      
      
      61,580Less: allowance for obsolete inventories
      
      (2,229
      )
      
      (2,212
      )Inventories, net
      $
      43,026
      
      $
      59,368


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)                              

5. PREPAYMENTS AND DEPOSITS

Prepayments and deposits consist of the following as of March
  31, 2011 and December 31, 2010:

|                                                                                              |   | March 31, |  |   | December 31, | 
|--------------------------------------------------------------------------------------------- | - | --------- |  | - | ------------ | 
|Current assets                                                                                |   | 2011      |  |   | 2010         | 
|Prepaid expenses                                                                              | $ | 3,426     |  | $ | 3,392        | 
|Installation contract deposits                                                                |   | 53,383    |  |   | 52,849       | 
|                                                                                              | $ | 56,809    |  | $ | 56,241       | 
|Non-current assets                                                                            |   |           |  |   |              | 
|Deposits paid
      for business acquisitions                                                 | $ | 47,770    |  | $ | 42,888       | 
|Deposits paid for acquisition of
      land use rights, properties 
    and intangible assets |   | 105,887   |  |   | 103,355      | 
|                                                                                              | $ | 153,657   |  | $ | 146,243      | 

Installation contract deposits are made from time-to-time by
  the Company to demonstrate capital and resources in connection with bidding on
  certain projects. Such amounts are refundable upon the grant of the
  contract.

Non-current deposits are refundable on demand, and there are no
  binding commitments to acquire these assets.

6. ADVANCES TO SUPPLIERS AND SUBCONTRACTORS

The Company has made advances to third-party suppliers in
  advance of receiving inventory parts. These advances are generally made to
  expedite the delivery of required inventory when needed and to help to ensure
  priority and preferential pricing on such inventory. The amounts advanced to
  suppliers are fully refundable on demand and totaled $81,509 and $48,977 as of
  March 31, 2011 and December 31, 2010, respectively. The Company has also made
  advances to third-party subcontractors for work to be performed on certain
  projects, as work is performed by sub-contractors, such costs are allocated to
  installations in process (a component of inventories). Any unused amounts of
  such advances are refundable to the Company on demand. Advances to
  subcontractors were $22,192 and $39,383 at March 31, 2011 and December 31,
  2010.

7. PLANT AND EQUIPMENT

Plant and equipment consists of the following as of March 31,
  2011 and December 31, 2010:

|                                     |   | March 31, 2011 |   |   | December 31, 2010 |  
|------------------------------------ | - | -------------- | - | - | ----------------- | -
|Buildings                            | $ | 64,942         |   | $ | 64,029            |  
|Leasehold improvements               |   | 4,517          |   |   | 4,362             |  
|Plant and equipment                  |   | 8,513          |   |   | 8,687             |  
|Electronic equipment                 |   | 10,029         |   |   | 9,872             |  
|Motor vehicles                       |   | 5,439          |   |   | 5,327             |  
|                                     |   | 93,440         |   |   | 92,277            |  
|Less: accumulated
      depreciation |   | (18,304        | ) |   | (16,983           | )
|Plant and equipment, net             | $ | 75,136         |   | $ | 75,294            |  

Depreciation expense for the three months ended March 31, 2011
  and  2010, was $1,439 and $1,209, respectively.

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)                              

8. LAND USE RIGHTS

Land use rights consist of the following as of March 31, 2011
  and December 31, 2010:

|                               |   | March 31, 2011 |   |   | December 31, 2010 |  
|------------------------------ | - | -------------- | - | - | ----------------- | -
|Cost of land use rights        | $ | 8,877          |   | $ | 8,791             |  
|Less: accumulated amortization |   | (920           | ) |   | (895              | )
|Land use rights, net           | $ | 7,957          |   | $ | 7,896             |  

Amortization expense for the three months ended March 31, 2011
  and 2010 was $96 and $42, respectively.

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

2011 (remaining nine months)
      $
      1332012
      
      1772013
      
      1772014
      
      1772015
      
      1772016
      
      177Thereafter
      
      6,939Total
      $
      7,957


9. INTANGIBLE ASSETS

Intangible assets consist of the following as of March 31, 2011
  and December 31, 2010:

|                                                          |   | March 31, 2011 |   |   | December 31, 2010 |  
|--------------------------------------------------------- | - | -------------- | - | - | ----------------- | -
|Trademarks (life of 11 to 25
      years)                 | $ | 17,222         |   | $ | 17,222            |  
|Exclusive cooperation agreements (life of 20
      years) |   | 13,632         |   |   | 13,632            |  
|Customer base (life of 5 to
      10 years)               |   | 10,448         |   |   | 10,448            |  
|Patents (life of 10 years)                                |   | 4,542          |   |   | 4,542             |  
|Technical know-how (life of 9
      to 10 years)          |   | 17,085         |   |   | 17,072            |  
|Non-compete agreements (life of 5 years)                  |   | 1,303          |   |   | 1,303             |  
|Contracts in progress (life
      of 2 to 9 months)       |   | 410            |   |   | 410               |  
|Surveillance software (life of 5 years)                   |   | 11,581         |   |   | 11,219            |  
|Surveillance recording system
      (life of 5 years)     |   | 500            |   |   | 500               |  
|                                                          |   | 76,723         |   |   | 76,348            |  
|Less: accumulated
      amortization                      |   | (29,377        | ) |   | (27,656           | )
|Intangible assets, net                                    | $ | 47,346         |   | $ | 48,692            |  

Amortization expense for the three months ended March 31, 2011
  and 2010 was $1,692 and $1,983, respectively.

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

2011 (remaining nine months)
      $
      5,2372012
      
      6,2162013
      
      5,6352014
      
      5,2952015
      
      3,9982016
      
      3,553Thereafter
      
      17,412Total
      $
      47,346


16

---

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

10. NOTES PAYABLE

The following is a summary of the Companys short-term and
  long-term notes payable as of March 31, 2011 and December 31, 2010:

|                      |   | March 31, 2011 |   |   | December 31, 2010 |  
|--------------------- | - | -------------- | - | - | ----------------- | -
|Bank loans            | $ | 482,560        |   | $ | 256,899           |  
|Less: current portion |   | (182,657       | ) |   | (196,329          | )
|Long-term portion     | $ | 299,903        |   | $ | 60,570            |  

As of March 31, 2011, notes payable are due as follows:

|                            |   | Long-term |  |   | Short-term |  |   | Total   | 
|--------------------------- | - | --------- |  | - | ---------- |  | - | ------- | 
|                            |   | notes     |  |   | notes      |  |   |         | 
|2011(remaining nine months) | $ | 1,783     |  | $ | 138,920    |  | $ | 140,703 | 
|2012                        |   | 23,717    |  |   | 41,340     |  |   | 65,057  | 
|2013                        |   | 152,686   |  |   | --         |  |   | 152,686 | 
|2014                        |   | 102,867   |  |   | --         |  |   | 102,867 | 
|2015                        |   | 3,060     |  |   | --         |  |   | 3,060   | 
|2016                        |   | 3,265     |  |   | --         |  |   | 3,265   | 
|Thereafter                  |   | 14,922    |  |   | --         |  |   | 14,922  | 
|Total                       | $ | 302,300   |  | $ | 180,260    |  | $ | 482,560 | 

On March 1, 2011, the Company entered into a term loan facility
  agreement with the China Development Bank Corporation Hong Kong Branch (CDB),
  pursuant to which CDB agreed to make available to the Company a term loan
  facility in an aggregate principal amount of up to $200,000, subject to terms
  and conditions of the agreement. The Company borrowed $200,000 from this
  facility on March 1, 2011. The loan carries an annual interest rate of 3% per
  annum over the applicable six-month London Inter Bank Offered Rate (3.46% as of
  March 31, 2011). Approximately $800 of other costs directly associated with the
  facility were recorded as deferred financing costs in the balance sheet on March
  1, 2011.  The Company is
  amortizing these financing costs over the term of the loan. The loan under the
facility will mature on the third anniversary of the first date when the
facility is utilized by the Company with 50% of the principal due in August 2013
and the remaining 50% due in February 2014.  Pursuant to the term loan facility agreement, if the Companys chairman
  and chief executive officer, Mr. Guoshen Tu, (the CEO or Mr. Tu) ceases to
  be the beneficial owner of at least 10% of the Companys outstanding capital
  stock, the facility may be cancelled and all outstanding amounts under the
  facility may become immediately due and payable with no less than 30 days
  notice. As of March 31, 2011, this condition was satisfied, and management
  believes the Company is in compliance with all terms and conditions of the term
  loan facility agreement.

In October 2010, the Company entered into a term loan facility
  agreement with CDB, pursuant to which CDB agreed to make available to the
  Company a term loan facility in an aggregate principal amount of up to $50,000,
  subject to terms and conditions of the agreement. The Company borrowed a total
  of $50,000 on October 29, 2010 under the facility. The loan carries an annual
  interest rate of 3% per annum over the applicable six-month London Inter Bank
  Offered Rate (3.46% as of March 31, 2011). Approximately $1,000 of other costs
  directly associated with the facility were recorded as deferred financing costs
  in the balance sheet on October 29, 2010.  The Company is amortizing these financing costs over the term of
  the loan.  The loan under the facility is due in October 2013. Pursuant to the term loan facility
  agreement, if Mr. Tu ceases to be the beneficial owner of at least 10% of the
  Companys outstanding capital stock, the facility may be cancelled and all
  outstanding amounts due under the facility may become immediately due and
  payable with no less than 30 days notice. As of March 31, 2011, this condition
  was satisfied, and management believes the Company is in compliance with all
  terms and conditions of the term loan facility agreement.

On March 24, 2011, the Company entered into a loan agreement
  with China Merchants Bank. The Company borrowed RMB31,500 (approximately $4,804)
  with an annual interest rate equal to the 1 to 6 months benchmark lending rate
  of the Peoples Bank of China (5.60% as of March 31, 2011), with interest
  payable on the 20th of each month. The loan is due in September 2011. The loan
  is guaranteed by a subsidiary of the Company.

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)                              

10. NOTES PAYABLE (CONTINUED)

On March 21, 2011, the Company entered into a loan agreement
  with China Construction Bank. The Company borrowed RMB50,000 (approximately
  $7,626) with an annual interest rate equal to 7.20%, with interest payable on
  the 20th of each month. The loan is due in March 2012. The loan is guaranteed by
  the CEO and two subsidiaries of the Company, and is collateralized by the
  property of a subsidiary.

On March 16, 2011, the Company entered into a loan agreement
  with Guangdong Development Bank. The Company borrowed RMB121,000 (approximately
  $18,455) with an annual interest rate equal to 105% of the 1 to 6 months
  benchmark lending rate of the Peoples Bank of China (5.88% as of March 31,
  2011), with interest payable on the 20th of each month. The loan is due in March
  2012. The loan is collateralized by a restricted cash amount of $20,000 of a
subsidiary of the Company.

On February 9, 2011, the Company entered into a loan agreement
  with Societe Generale. The Company borrowed RMB27,000 (approximately $4,118)
  with an annual interest rate equal to 9.10%, with interest payable on the due
  date of the loan. The loan was due and repaid in March 2011. The loan was
  guaranteed by a subsidiary of the Company.

On February 1, 2011, the Company entered into a loan agreement
  with China Merchants Bank. The Company borrowed RMB59,000 (approximately $8,999)
  with an annual interest rate equal to 105% of the 1 to 3 years benchmark
  lending rate of the Peoples Bank of China (6.41% as of March 31, 2011), with
  interest payable on the 20th of each month. The loan is due in November 2012.
  The loan is guaranteed by the CEO, his wife and a subsidiary of the Company, and
  is collateralized by the property and land use rights of a subsidiary.

On January 31, 2011, the Company entered into a loan agreement
  with the Industrial and Commercial Bank of China. The Company borrowed
  RMB100,040 (approximately $15,259) with an annual interest rate equal to 95% of
  the 12 months benchmark lending rate of the Peoples Bank of China (5.76% as of
  March 31, 2011), with interest payable on the 20th of each month. The loan is
  due in January 2012. The loan is guaranteed by four subsidiaries of the
  Company.

On January 12, 2011, the Company entered into a loan agreement
  with China Zheshang Bank. The Company borrowed RMB20,000 (approximately $3,050)
  with an annual interest rate equal to 120% of the 6 to 12 months benchmark
  lending rate of the Peoples Bank of China (7.27% as of March 31, 2011), with
  interest payable on the 20th of each month. The loan is due in August 2011. The
  loan is guaranteed by the CEO and two subsidiaries of the Company.

On January 10, 2011, the Company entered into a loan agreement
  with China Merchants Bank. The Company borrowed RMB40,000 (approximately $6,101)
  on January 10, 2011, and RMB169,340 (approximately $25,829) on February 9, 2011
  with an annual interest rate equal to 105% of the 5 to 10 years benchmark
  lending rate of the Peoples Bank of China (6.93% as of March 31, 2011), with
  principal and interest payable in each quarter. In March 2011, the Company
  repaid  principal of the loan in the amount of RMB5,439 (approximately $830)
  in accordance with the terms of the loan. The loan matures in January 2021. The
  loan is guaranteed by Shenzhen Zhonghe Industrial Limited, an independent third
  party, and is secured by the rights of properties currently under construction
  and which will be acquired by the Company upon their completion.

On January 4, 2011, the Company entered into a loan agreement
  with China Merchants Bank. The Company borrowed RMB10,000 (approximately $1,525)
  with an annual interest rate equal to 105% of the 1 to 3 years benchmark
  lending rate of the Peoples Bank of China (6.41% as of March 31, 2011), with
  interest payable on the 20th of each month. The loan is due in November 2012.
  The loan is guaranteed by the CEO, his wife and a subsidiary of the Company, and
  is collateralized by the property and land use rights of a subsidiary.

On December 29, 2010, the Company entered into a loan agreement
  with Bank of China. The Company borrowed RMB71,100 (approximately $10,844) with
  an annual interest rate equal to 5.15%, with interest payable on the 20th of
  each month. The loan is due in December 2011. The loan is guaranteed by the CEO
  and a subsidiary of the Company, and is collateralized by the property and land
  use rights of a subsidiary.

On December 24, 2010, the Company entered into a loan agreement
  with Bank of China. The Company borrowed RMB71,100 (approximately $10,844) with
  an annual interest rate equal to 5.15%, with interest payable on the 20th of
  each month. The loan is due in December 2011. The loan is guaranteed by the CEO
  and a subsidiary of the Company, and collateralized by the property and land use
  rights of a subsidiary.

18

---

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

10. NOTES PAYABLE (CONTINUED)

On December 10, 2010, the Company entered into a loan agreement
  with Shanghai Pudong Development Bank. The Company borrowed RMB66,000
  (approximately $10,066) with an annual interest rate equal to the 6 months
  benchmark lending rate of the Peoples Bank of China (5.60% as of March 31,
  2011), with interest payable on the 20th of each month. The loan is due in June
  2011. The loan is collateralized by a cash deposit of Whitehorse Technology
  Limited, a company wholly-owned by the CEO of the Company. The Company repaid
  RMB6,650 (approximately $1,014) and RMB6,600 (approximately $1,007) in January
  and March 2011, respectively.

On December 2, 2010, the Company entered into a loan agreement
  with China Merchants Bank. The Company borrowed RMB70,000 (approximately
  $10,676) with an annual interest rate equal to 105% of the 1 to 3 years
  benchmark lending rate of the People's Bank of China (6.14% as of March 31,
  2011), with interest payable on the 20th of each month. The loan is due in
  November 2012. The loan is guaranteed by the CEO, his wife and a subsidiary of
  the Company, and is collateralized by the property and land use rights of a
  subsidiary.

On November 19, 2010, the Company entered into a loan agreement
  with Industrial and Commercial Bank of China. The Company borrowed RMB30,000
  (approximately $4,576) on December 21, 2010, RMB30,000 (approximately $4,576) on
  December 29, 2010 and RMB40,000 (approximately $6,101) on January 31, 2011 with
  an annual interest equal to 95% of the 12 month's benchmark lending rate of the
  Peoples Bank of China (5.76% as of March 31, 2011), with interest payable on
  the 20th of each month. The loan is due in December 2011. The loan is guaranteed
  by three subsidiaries of the Company and is collateralized by the property of a
  subsidiary.

On November 17, 2010, the Company entered into a loan agreement
  with Bank of China. The Company borrowed RMB48,600 (approximately $7,413) with
  an annual interest rate equal to 5.15%, with interest payable on the 20th of
  each month. The loan is due in May 2011. The loan is guaranteed by the CEO of
  the Company and a subsidiary of the Company, and was collateralized by the
  property and land use rights of a subsidiary.

On October 29, 2010, the Company entered into a loan agreement
  with the Industrial and Commercial Bank of China. The Company borrowed RMB51,000
  (approximately $7,779) with an annual interest rate equal to 95% of the 12
  month's benchmark lending rate of the Peoples Bank of China (5.76% as of March
  31, 2011), with interest payable on the 20th of each month. The loan is due in
  November 2011. The loan is guaranteed by three subsidiaries of the Company, and
  is collateralized by the property of a subsidiary.

On October 18, 2010, the Company entered into a loan agreement
  with China Merchants Bank. The Company borrowed RMB25,000 (approximately $3,813)
  with an annual interest equal to 110% of the 12 month's benchmark lending rate
  of the Peoples Bank of China (6.67% as of March 31, 2011), with interest
  payable on the 20th of each month. The loan is due in October 2011. The loan is
  guaranteed by the Chief Operating Officer of the company, the CEO of the Company
  and his wife.

On August 18, 2010, the Company entered into a loan agreement
  with Shenzhen Development Bank. The Company borrowed RMB40,000 (approximately
  $6,101) with an annual interest rate equal to 6.06%, with interest payable on
  the 20th of each month. The loan is due in August 2011. The loan is guaranteed
  by the CEO of the Company and two subsidiaries of the Company, and is
  collateralized by the property of a subsidiary.

On August 9, 2010, the Company entered into a loan agreement
  with Societe Generale. The Company borrowed RMB27,000 (approximately $4,118)
  with an annual interest rate equal to 5.35%, with interest payable on the due
  date of the loan. The loan was due and repaid in February 2011. The loan was
  guaranteed by a subsidiary of the Company.

On July 26, 2010, the Company entered into a loan agreement
  with China Everbright Bank Co., Ltd. The Company borrowed RMB40,000
  (approximately $6,101) with an annual interest rate equal to 5.31%, with
  interest payable on the 20th of each month. The loan is due in July 2011. The
  loan is guaranteed by the CEO of the Company, a subsidiary of the Company and
  Chuang Guan.

On July 21, 2010, the Company entered into a loan agreement
  with the Industrial and Commercial Bank of China. The Company borrowed RMB54,600
  (approximately $8,328) with an annual interest rate equal to 6.06%, with
  interest payable on the 20th of each month. The loan is due in July 2011. The
  loan is guaranteed by three subsidiaries of the Company and is collateralized by
  the property of a subsidiary.

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. NOTES PAYABLE (CONTINUED)

On July 15, 2010, the Company entered into a loan agreement
  with China Construction Bank. The Company borrowed RMB30,000 (approximately
  $4,576) with an annual interest rate equal to 6.67%, with interest payable on
  the 20th of each month. The loan is due in July 2011 and is collateralized by
  the property of a subsidiary.

On July 1, 2010, the Company entered into a loan agreement with
  Guangdong Development Bank. The Company borrowed RMB49,600 (approximately
  $7,565) with an annual interest rate equal to 6.67%, with interest payable on
  the 20th of each month. The loan is due in June 2011. The loan is guaranteed by
  the CEO and a subsidiary of the Company.

On June 18, 2010, the Company entered into a loan agreement
  with Industrial and Commercial Bank of China (Asia) Limited. The Company
  borrowed $8,000 and $2,000 on July 15, 2010 and August 12, 2010, respectively,
  with an effective interest rate at 3% per annum over the applicable one year
  London Inter Bank Offered Rate (3.78% at March 31, 2011), with interest payable
  on the due date of the loan. Interest payable is calculated on the basis of the
  actual number of days elapsed and a 360-day year. The loan is due in July 2011.
  The loan is guaranteed by the CEO of the Company and is collateralized by fixed
  assets of a subsidiary and the shares of a subsidiary.

On April 16, 2010, the Company entered into a loan agreement
  with Shanghai Pudong Development Bank. The Company borrowed RMB80,000
  (approximately $12,202) with an annual interest rate equal to 6.06%, with
  interest payable on the 20th of each month. The loan was due and repaid in April
  2011. The loan was guaranteed by the CEO of the Company and a subsidiary of the
  Company, and was collateralized by the properties and land use rights of a
  subsidiary.

On April 15, 2010, the Company entered into a loan agreement
  with Shanghai Pudong Development Bank. The Company borrowed RMB80,000
  (approximately $12,202) with an annual interest rate equal to 6.06%, with
  interest payable on the 20th of each month. The loan was due and repaid in April
  2011. The loan was guaranteed by the CEO of the Company, and was collateralized
  by the properties and land use rights of a subsidiary.

On March 31, 2010, the Company entered into a loan agreement
  with China Merchants Bank. The Company borrowed RMB50,000 (approximately $7,626)
  with an annual interest rate equal to 5.81%, with interest payable on the 20th
  of each month. The loan was due and repaid in March 2011. The loan was
  guaranteed by the CEO of the Company, his wife and a subsidiary of the Company,
  and was collateralized by the property and land use rights of a subsidiary.

On March 25, 2010, the Company entered into a loan agreement
  with China Citic Bank. The Company borrowed RMB90,000 (approximately $13,727)
  with an annual interest rate equal to 5.81%, with interest payable on the 20th
  of each month. The loan was due and repaid in March 2011. The loan was
  guaranteed by the CEO of the Company, his wife and a subsidiary of the Company,
  and was collateralized by the properties of two subsidiaries of the Company.

On March 24, 2010, the Company entered into a loan agreement
  with China Citic Bank. The Company borrowed RMB60,000 (approximately $9,151)
  with an annual interest rate equal to 5.81%, with interest payable on the 20th
  of each month. The loan was due and repaid in March 2011. The loan was
  guaranteed by the CEO of the Company, his wife and a subsidiary of the Company,
  and was collateralized by the properties of two subsidiaries of the Company.

On March 4, 2010, the Company entered into a loan agreement
  with the Industrial and Commercial Bank of China. The Company borrowed RMB31,000
  (approximately $4,728) with an annual interest rate equal to 5.23%, with
  interest payable on the 20th of each month. The loan was due in March 2011, but
  repaid in February 2011. The loan was guaranteed by three subsidiaries of the
  Company, and was collateralized by the property of a subsidiary.

On March 4, 2010, the Company entered into a loan agreement
  with the Industrial and Commercial Bank of China. The Company borrowed RMB39,000
  (approximately $5,948) with an annual interest rate equal to 5.23%, with
  interest payable on the 20th of each month. The loan was due in March 2011, but
  repaid in January 2011. The loan was guaranteed by three subsidiaries of the
  Company, and was collateralized by the property of a subsidiary.

On March 3, 2010, the Company entered into a loan agreement
  with China Construction Bank. The Company borrowed RMB50,000 (approximately
  $7,626) with an annual interest rate equal to 6.10%, with interest payable on
  the 20th of each month. The loan was due and repaid in March 2011. The loan was
  guaranteed by the CEO of the Company and a subsidiary of the Company, and was
  collateralized by the property of a subsidiary.

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)                              

10. NOTES PAYABLE (CONTINUED)

On March 2, 2010, the Company entered into a loan agreement
  with China Merchants Bank. The Company borrowed RMB41,000 (approximately $6,253)
  with an annual interest rate equal to 5.81%, with interest payable on the 20th
  of each month. The loan was due and repaid in March 2011. The loan was
  guaranteed by the CEO of the Company, his wife and a subsidiary of the Company,
  and was collateralized by the property and land use rights of a subsidiary.

On February 3, 2010, the Company entered into a loan agreement
  with China Merchants Bank. The Company borrowed RMB59,000 (approximately $8,999)
  with an annual interest rate equal to 5.81%, with interest payable on the 20th
  of each month. The loan was due and repaid in February 2011. The loan was
  guaranteed by the CEO of the Company, his wife and a subsidiary of the Company,
  and was collateralized by the property and land use rights of a subsidiary.

On January 26, 2010, the Company entered into a loan agreement
  with the Industrial and Commercial Bank of China. The Company borrowed
  RMB100,000 (approximately $15,252) with an annual interest rate equal to 4.78%,
  with interest payable on the 20th of each month. The loan was due in January
  2011. The Company repaid RMB80,000 (approximately $12,202) and RMB 20,000
  (approximately $3,050) in June 2010 and January 2011, respectively. The loan was
  guaranteed by the CEO of the Company.

11. OBLIGATIONS UNDER PRODUCT FINANCING ARRANGEMENTS

In June 2010, the Company entered into product financing
  agreements with a financial institution. Under the terms of the agreements, the
  Company agreed to pay an annual interest rate of 8.23% on inventory financings.
  The Company borrowed RMB50,000 (approximately $7,626). The loans expire in June
  2013, and payments of principal and interest are due at the end of each
  quarter.

In September 2009, the Company entered into product financing
  agreements with a financial institution. Under the terms of the agreements, the
  Company agreed to pay an annual interest rate of 8.46% on inventory financings.
  The Company borrowed RMB50,000 (approximately $7,626). The loans expire in
  September 2012, and payments of principal and interest are due at the end of
  each quarter.

In February 2009, the Company entered into product financing
  agreements with a financial institution. Under the terms of the agreements, the
  Company agreed to pay an annual interest rate of 10.5% on inventory financings.
  The Company borrowed RMB 7,114 (approximately $1,085). The loans expire in
  September 2013, and payments of principal and interest are due at the end of
  each quarter.

In July 2008, the Company entered into product financing
  agreements with a financial institution. Under the terms of the agreements, the
  Company agreed to pay an annual interest rate of 10% on inventory financings.
  The Company borrowed RMB53,492 (approximately $8,158). The loans expire in July
  2011, and payments of principal and interest are due at the end of each
  quarter.

The Company incurred $287 and $271 during the three months
  ended March 31, 2011 and 2010, of interest expense on the product financing
  arrangements, respectively.

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)                              

11. OBLIGATIONS UNDER PRODUCT FINANCING ARRANGEMENTS
  (CONTINUED)

The following is a summary of the Companys obligations under
  product financing arrangements as of March 31, 2011 and December 31, 2010:

|                                                       |   | March 31, |   |   | December 31, |  
|------------------------------------------------------ | - | --------- | - | - | ------------ | -
|                                                       |   | 2011      |   |   | 2010         |  
|Obligations under product financing
      arrangements | $ | 11,274    |   | $ | 13,161       |  
|Less: current portion                                  |   | (6,110    | ) |   | (6,687       | )
|Long-term portion                                      | $ | 5,164     |   | $ | 6,474        |  

Estimated repayments for the terms of the arrangements are as
  follows:

|2011 (remaining nine months)       | $ | 5,341  |  
|---------------------------------- | - | ------ | -
|2012                               |   | 5,300  |  
|2013                               |   | 1,629  |  
|Total                              |   | 12,270 |  
|Less: amount representing interest |   | (996   | )
|Net                                | $ | 11,274 |  

Approximately $1,590 and $1,863 of other costs directly
associated with the product financing agreements are recorded as deferred
financing costs in the balance sheets as of March 31, 2011 and December 31,
2010, respectively. The Company is amortizing these financing costs over the
terms of the respective obligations. This amortization is recorded as interest
expense.

12. GUARANTEED SENIOR UNSECURED NOTES PAYABLE

As of March 31, 2011, the Company has outstanding Tranche B
  Zero Coupon Guaranteed Senior Unsecured Notes (the Tranche B Notes). The
  Tranche B Notes had an original principal amount of $84,000, zero coupon
  interest and a fair value of $78,440, resulting in a debt discount of $5,560 and
  an effective interest rate of approximately 5%. The notes mature on September 2,
  2012. The Company is to repay the principal amount in six consecutive
  semi-annual installments, which began on March 2, 2010, with 46%, 46% and 8% of
  the principal amount to be repaid in the first, second and third year,
  respectively. The Tranche B Notes are not convertible. The Company is entitled
  to redeem the Tranche B Notes at any time with no premium or penalty at a
  redemption price equal to 100% of the principal amount of the Tranche B Notes to
  be redeemed, plus default interest, if any. The Tranche B Notes are guaranteed
  by the Company's significant subsidiaries to the extent permitted under the
  applicable laws. The Company repaid $19,320 of principal on the Tranche B Notes
  in both March 2011 and March 2010.

The Company has recorded $524 and $950 of debt discount
  amortization for the three months ended March 31, 2011 and 2010, respectively,
  related to the Tranche B Notes. This amount is included in interest expense.

Approximately $300 of legal fees and other costs directly
associated with the issuance of the Tranche B Notes is recorded as deferred
financing costs in the balance sheet at March 31, 2011. The Company is
amortizing these financing costs over the term of the Tranche B Notes.

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)                              

12. GUARANTEED SENIOR UNSECURED NOTES PAYABLE
  (CONTINUED)

The following is a summary of the Companys guaranteed senior
  unsecured notes payable as of March 31, 2011 and December 31, 2010:

March 31,
      
      
      December 31,2011
      
      
      2010Total
      $
      25,192
      
      $
      43,988Less: current portion
      
      (21,907
      )
      
      (37,408
      )Long-term portion
      $
      3,285
      
      $
      6,580


Repayments under the terms of the notes are as follows:

2011 (remaining nine months)
      $
      19,3202012
      
      6,720Total
      
      26,040Less: amount representing unamortized discount
      
      (848
      )Net
      $
      25,192


13.  WARRANTS

A summary of the status of the Company's warrants and the
  changes during the three months ended March 31, 2011 and 2010, is presented
  below:

|                                       |  | 2011    |  |   | 2010     | 
|-------------------------------------- |  | ------- |  | - | -------- | 
|                                       |  |         |  |   | Weighted | 
|                                       |  |         |  |   | Exercise | 
|                                       |  | Shares  |  |   | Prices   | 
|Outstanding at January 1               |  | 157,373 |  | $ | 18.05    | 
|Granted                                |  | --      |  |   | --       | 
|Exercised                              |  | --      |  |   | --       | 
|Outstanding at March 31                |  | 157,373 |  | $ | 18.05    | 
|Warrants exercisable at March
      31 |  | 157,373 |  | $ | 18.05    | 

14. EQUITY INCENTIVE PLAN

On February 7, 2007, the Company adopted the 2007 Equity
  Incentive Plan (the Plan), which was amended in February 2010. The plan, as
  amended, has a ten-year term and provides for grants of stock options, stock
  appreciation rights, performance units, restricted stock units and performance
  shares. The total number of shares which may be issued under the plan is
  12,000,000. These restricted stock awards represent share-based payments subject
  to the provisions of ASC 718  Stock Compensation. The fair value 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 months ended March 31, 2011 and 2010, the
  Company granted 200,908 and 686,705 shares of restricted stock, respectively.
  During the three months ended March 31, 2011 and 2010, 0 and 59,165 shares of
  restricted stock were forfeited and retired, respectively. The shares that have
  been issued vest over a four to five-year period, and at issuance, resulted in
  total deferred compensation of $102,423 and $101,554 as of March 31, 2011 and
  December 31, 2010, respectively. The fair value of these restricted stock
  awards are equal to the fair value of the Company's stock on the date of grant,
  after taking into account certain discounts. Such restricted stock is subject to
  the risk of forfeiture upon the occurrence of certain events. During the three
  months ended March 31, 2011 and 2010, the Company recognized $5,547 and $8,326,
  respectively, of compensation expense under the plan. As of March 31, 2011 and
  December 31, 2010, there was $36,216 and $40,895, respectively, of unrecognized
  compensation expense related to the nonvested restricted stock. This cost is
  expected to be recognized over a four to five-year period. During the three
  months ended March 31, 2011 and 2010, the Company has not recognized any tax
  benefits for the compensation expense under the 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)                              

14. EQUITY INCENTIVE PLAN (CONTINUED)

The following table summarizes the status of the Company's
  nonvested restricted stock awards during the three months ended March 31, 2011
  and 2010:

|                         |  | Nonvested Restricted |   |   | Nonvested Restricted |  
|------------------------ |  | -------------------- | - | - | -------------------- | -
|                         |  | Stock and Stock Unit |   |   | Stock and Stock Unit |  
|                         |  | Awards               |   |   | Awards               |  
|                         |  | 2011                 |   |   | 2010                 |  
|                         |  |                      |   |   | Weighted             |  
|                         |  |                      |   |   | Average              |  
|                         |  |                      |   |   | Grant Date           |  
|                         |  | Number of            |   |   | Fair                 |  
|                         |  | Shares               |   |   | Values               |  
|Outstanding at January 1 |  | 6,485,008            |   | $ | 6.42                 |  
|Granted                  |  | 200,908              |   |   | 4.32                 |  
|Vested                   |  | (694,228             | ) |   | (7.99                | )
|Forfeited                |  | --                   |   |   | --                   |  
|Outstanding at March 31  |  | 5,991,688            |   | $ | 6.16                 |  

15. CONSOLIDATED SEGMENT DATA

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

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

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

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

(d) Providing surveillance and safety services: provides a full
  range of surveillance and safety services, including network alarm response
  services, surveillance and safety products and solutions post-sale, maintenance
  services, software upgrading services, project integration services, security
  guard services, surveillance and safety consulting services, and surveillance
  and safety trustee services (the Service segment).

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

Selected information in the segment structure is presented in
  the following tables for the three months ended March 31, 2011 and 2010:

Revenues by segment for the three months ended March 31, 2011
  and 2010 are as follows:

|                      |   | March 31, | 
|--------------------- | - | --------- | 
|Revenues(1)           |   | 2011      | 
|Installation Segment  | $ | 79,749    | 
|Manufacturing Segment |   | 14,204    | 
|Distribution Segment  |   | 4,856     | 
|Service Segment       |   | 245       | 
|Total                 | $ | 99,054    | 

(1) Revenues by operating segments exclude intercompany
  transactions.

24

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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)                              

15. CONSOLIDATED SEGMENT DATA (CONTINUED)

Income (loss) by segment for the three months ended March 31,
  2011 and 2010 are as follows:

March 31,Income from operations
      
      2011
      
      
      2010Installation Segment
      $
      24,530
      
      $
      19,742Manufacturing Segment
      
      (2,789
      )
      
      (1,051
      )Distribution Segment
      
      (970
      )
      
      (661
      )Service Segment
      
      (854
      )
      
      --Corporate and others (1)
      
      (11,792
      )
      
      (11,067
      )Income from operations
      
      8,125
      
      
      6,963Corporate interest income
      
      141
      
      
      78Corporate interest expense
      
      (5,114
      )
      
      (2,295
      )Corporate other income
      
      596
      
      
      246Income before income taxes
      
      3,748
      
      
      4,992Income taxes
      
      (2,069
      )
      
      (1,717
      )Net income
      $
      1,679
      
      $
      3,275


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

Non-cash employee compensation by segment for the three months
  ended March 31, 2011 and 2010 is as follows:

March 31,Non-cash employee compensation
      
      2011
      
      
      2010Installation Segment
      $
      370
      
      $
      566Manufacturing Segment
      
      956
      
      
      936Distribution Segment
      
      273
      
      
      362Service Segment
      
      26
      
      
      --Corporate and others
      
      3,922
      
      
      6,462$
      5,547
      
      $
      8,326


Depreciation and amortization by segment for the three months
  ended March 31, 2011 and 2010 are as follows:

March 31,Depreciation and amortization
      
      2011
      
      
      2010Installation Segment
      $
      837
      
      $
      1,091Manufacturing Segment
      
      1,754
      
      
      1,586Distribution Segment
      
      216
      
      
      352Service Segment
      
      7
      
      
      --Corporate and others
      
      413
      
      
      205$
      3,227
      
      $
      3,234


25

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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)                              

15. CONSOLIDATED SEGMENT DATA (CONTINUED)

Total assets by segment as of March 31, 2011 and December 31,
  2010 are as follows:

|Total assets             |   | March 31, |  |   | December 31, | 
|------------------------ | - | --------- |  | - | ------------ | 
|                         |   | 2011      |  |   | 2010         | 
|Installation Segment     | $ | 682,433   |  | $ | 585,439      | 
|Manufacturing Segment    |   | 195,923   |  |   | 197,899      | 
|Distribution Segment     |   | 40,049    |  |   | 46,074       | 
|Service Segment          |   | 13,398    |  |   | 13,905       | 
|Corporate and others (1) |   | 415,730   |  |   | 267,705      | 
|                         | $ | 1,347,533 |  | $ | 1,111,022    | 

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

Goodwill by segment as of March 31, 2011 and December 31, 2010,
  is as follows:

Goodwill
      
      March 31,
      
      
      December 31,2011
      
      
      2010Installation Segment
      $
      11,079
      
      
      11,079Manufacturing Segment
      
      56,456
      
      
      56,456Distribution Segment
      
      11,981
      
      
      11,981Service Segment
      
      --
      
      
      --Total
      $
      79,516
      
      $
      79,516


16. CONTINGENCIES

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

The Company and the members of the Companys board of directors
  are named as defendants in purported class action lawsuits (the Stockholder
  Actions) brought in the Delaware Court of Chancery by several stockholders of
  the Company: Dziak, Levine, Smith and OConner on March 15, 2011, March 16,
2011, March 17, 2011 and March 18, 2011, respectively. The Stockholder Actions
generally allege that the Company and all of its directors breached their
fiduciary duties in connection with the transaction contemplated by the Merger
Agreement (see Note 17). The Stockholder Actions seek, among other things: to
declare that the contemplated Merger Transaction (see Note 17) is unfair, unjust
and inequitable, enjoin the Company from taking any steps necessary to
accomplish or implement the proposed Merger Transaction, and compensate
plaintiff and the members of the class for all losses and damages suffered and
to be suffered by them as a result of the Merger Transaction. The Company
believes the Stockholder Actions are without merit and plans to defend against
them vigorously. At this stage of the proceedings, the Company cannot predict the outcome
  of this litigation or whether it will have a material effect on
  the Companys results of operations, liquidity or capital resources.

17. SUBSEQUENT EVENTS

As disclosed in a current report on Form 8-K filed by the
  Company on April 21, 2011, on April 20, 2011, the Company entered into an
  Agreement and Plan of Merger (the Merger Agreement or the Merger) with Rightmark Holdings
  Limited, a British Virgin Islands company and wholly owned subsidiary of
  Intelligent One Limited, a British Virgin Islands company wholly owned by Mr.
  Guoshen Tu (Rightmark), Rightmark Merger Sub Limited, a Delaware corporation
  and wholly owned subsidiary of Rightmark (Merger Sub) and Mr. Guoshen Tu
  (solely for the purpose of Section 6.15 of the Merger Agreement), pursuant to
  which Merger Sub will merge with and into the Company, with the Company
  continuing as the surviving corporation and a wholly owned subsidiary of
  Rightmark (the Merger Transaction). Mr. Guoshen Tu is the Companys Chief
  Executive Officer and the Chairman of Board of Directors and beneficially owns
  approximately 20.9% of the Companys outstanding shares of common stock (the
  Common Stock).

Pursuant to the terms of the Merger Agreement, at the effective
  time of the Merger (the Effective Time), each share of Common Stock issued and
  outstanding immediately prior to the Effective Time (other than (i) Rollover
  Shares (as defined in the Merger Agreement), (ii) shares owned by Rightmark and
  Merger Sub and (iii) shares in respect of which appraisal rights have been
  properly exercised under Delaware law) will be canceled and will be
  automatically converted into the right to receive $6.50 in cash (the Merger
  Consideration), without interest. In connection with the Merger, each
  outstanding share of Common Stock that is subject to vesting and/or forfeiture restrictions will become fully vested
  immediately prior to the Effective Time. In addition, each warrant that is
  outstanding at the Effective Time will be cancelled and each holder of such
  warrant will receive an amount in cash (without interest) equal to the product
  of (i) the excess of the Merger Consideration over the exercise price per share
  of such warrant and (ii) the number of shares of Company Common Stock subject to
  such warrant; provided, that if the exercise price per share of any such warrant
  is equal to or greater than the Merger Consideration, such warrant shall be
  cancelled without any cash payment being made in respect thereof.

26

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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)                              

17. SUBSEQUENT EVENTS (CONTINUED)

Each of the Company, Rightmark and Merger Sub has made
  customary representations and warranties to each other in the Merger Agreement.
  Completion of the Merger is subject to customary closing conditions, including,
  but not limited to, (i) adoption of the Merger Agreement by the Company
  stockholders, (ii) the absence of any order or injunction prohibiting the
  consummation of the Merger and (iii) truth and correctness of each partys
  representations and warranties at closing. The Merger Agreement may be
  terminated under certain circumstances, including, among others, termination by
  mutual agreement of the parties, termination by either party if the Merger is
  not consummated on or before April 20, 2012 and termination by the Company at
  any time for any reason on or prior to May 4, 2011, as set forth in the Merger
  Agreement.

In connection with the Merger Agreement, Mr. Guoshen Tu also
  entered into a limited guaranty (the Guaranty) in favor of the Company with
  respect to certain payment obligations of Rightmark and Merger Sub under the
  Merger Agreement.

27

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

Special Note Regarding Forward Looking
Statements

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

- Our ability to attract new customers;
- Our ability to employ and retain qualified employees;
- Our ability to successfully integrate companies that we have acquired and
  to avoid or mitigate potential damages arising from risks associated with
  acquired companies and the legal structures utilized to effectuate
  acquisitions of these companies;
- Our ability to keep pace with technological developments in the
  surveillance and safety industry, and to develop and commercialize new
  products;
- Competition and competitive factors in the markets in which we compete;
- General economic and business conditions in China and in the local
  economies in which we regularly conduct business, which can affect demand for
  the Companys products and services;
- Changes in laws, rules and regulations governing the business community in
  China in general and the surveillance and safety industry in particular; and
- The risks identified in the Risk Factors section included in the
  Companys annual report on Form 10-K for the year ended December 31, 2010 and
  the subsequent SEC filings.

All statements other than statements of historical fact are
statements that could be deemed forward-looking statements. The Company assumes
no obligation and does not intend to update these forward-looking statements,
except as required by law.

Use of terms

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

- Allied Rich are to Allied Rich Limited, a Hong Kong corporation and an
  indirect, wholly-owned subsidiary of the Company;
- Chain Star are to Chain Star Investments Limited, a Hong Kong corporation
  and an indirect, wholly-owned subsidiary of the Company;
- Cheng Feng are to Shanghai Cheng Feng Digital Technology Co. Ltd., a
  corporation incorporated in the Peoples Republic of China and an indirect,
  wholly-owned subsidiary of the Company;
- Chuang Guan are to Shenzhen Chuang Guan Intelligence Network Technology
  Co., Ltd., a corporation incorporated in the Peoples Republic of China;
- Coson are to Shenzhen Coson Electronic Co. Ltd., a corporation
  incorporated in the Peoples Republic of China and an indirect, wholly-owned
  subsidiary of the Company;
- CSSI are to China Security & Surveillance Intelligence (PRC) Inc.,
  previously named China Security & Surveillance Manufacturing (PRC) Inc., a
  corporation incorporated in the Peoples Republic of China and a direct,
  wholly-owned subsidiary of the Company;
- CSSD are to China Security & Surveillance Distribution (PRC) Inc., a
  corporation incorporated in the Peoples Republic of China and a direct,
  wholly-owned subsidiary of the Company;

28

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- CSST Investment are to China Security & Surveillance Investment (PRC)
  Inc., a corporation incorporated in the Peoples Republic of China and a
  direct, wholly-owned subsidiary of the Company;
- CSSS are to China Security & Surveillance Services (PRC) Inc., a
  corporation incorporated in the Peoples Republic of China and a direct,
  wholly-owned subsidiary of the Company;
- CSST HK are to China Security & Surveillance Technology (HK) Ltd., a
  Hong Kong corporation and an indirect, wholly-owned subsidiary of the Company;
- CSST PRC are to China Security & Surveillance Technology (PRC) Inc.,
  a corporation incorporated in the Peoples Republic of China and a direct,
  wholly-owned subsidiary of the Company;
- DIT are to DIT Industry(H.K.) Limited, a Hong Kong corporation and an
  indirect, wholly-owned subsidiary of the Company;
- DM are to Beijing DM Security & Technology Co., Ltd., a corporation
  incorporated in the Peoples Republic of China;
- Golden are to Golden Group Corporation (Shenzhen) Limited, a corporation
  incorporated in the Peoples Republic of China and an indirect, wholly-owned
  subsidiary of the Company;
- Guanling are to Beijing Aurine Divine Land Technology Co., Ltd., a
  corporation incorporated in the Peoples Republic of China and an indirect,
  wholly-owned subsidiary of the Company;
- HiEasy are to HiEasy Electronic Technology Development Co., Ltd., a
  corporation incorporated in the Peoples Republic of China and an indirect,
  wholly-owned subsidiary of the Company;
- Hongtianzhi are to Shenzhen Hongtianzhi Electronics Co., Ltd., a
  corporation incorporated in the Peoples Republic of China and an indirect,
  wholly-owned subsidiary of the Company;
- Huge Long are to Huge Long Limited, a Hong Kong corporation and an
  indirect, wholly-owned subsidiary of the Company;
- Jin Lin are to Shenzhen Jin Lin Technology Co., Ltd., a corporation
  incorporated in the Peoples Republic of China and an indirect, wholly-owned
  subsidiary of the Company;
- Kit Grant are to Kit Grant Limited, a Hong Kong corporation and an
  indirect, wholly-owned subsidiary of the Company;
- Link Billion are to Link Billion Investment Limited, a Hong Kong
  corporation and an indirect, wholly-owned subsidiary of the Company;
- Long Top are to Long Top Limited, a Hong Kong corporation and an
  indirect, wholly-owned subsidiary of the Company;
- Longhorn are to Shenzhen Longhorn Security Technology Co., Ltd., a
  corporation incorporated in the Peoples Republic of China and an indirect,
  wholly-owned subsidiary of the Company;
- Minking are to Changzhou Minking Electronics Co., Ltd., a corporation
  incorporated in the Peoples Republic of China and an indirect, wholly-owned
  subsidiary of the Company;
- Multiwin are to Multiwin International Holdings Limited, a Hong Kong
  corporation and an indirect, wholly-owned subsidiary of the Company;
- Ocean Pacific are to Ocean Pacific Technology Limited, a Hong Kong
  corporation and an indirect, wholly-owned subsidiary of the Company;
- Safetech are to China Safetech Holdings Limited, a British Virgin Islands
  corporation and a direct, wholly-owned subsidiary of the Company;
- Sharp Eagle are to Sharp Eagle (HK) Limited, a Hong Kong corporation and
  an indirect, wholly-owned subsidiary of the Company;
- Sincere On are to Sincere On Limited, a Hong Kong corporation and an
  indirect, wholly-owned subsidiary of the Company;

29

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- Stonesonic are to Guangdong Stonesonic Digital Technique Co., Ltd., a
  corporation incorporated in the Peoples Republic of China and an indirect,
  wholly-owned subsidiary of the Company;
- Tsingvision are to Hangzhou Tsingvision Intelligence System Co., Ltd., a
  corporation incorporated in the Peoples Republic of China and an indirect,
  wholly-owned subsidiary of the Company;
- WDH are to Shenzhen Wandaiheng Industry Limited, a corporation
  incorporated in the Peoples Republic of China and an indirect, wholly-owned
  subsidiary of the Company;
- BVI are to the British Virgin Islands;
- PRC and China are to the Peoples Republic of China;
- Renminbi and RMB refer to the legal currency of China;
- U.S. dollars, dollars and $ refer to the legal currency of the United
  States;
- Exchange Act are to the Securities Exchange Act of 1934, as amended; and
- Securities Act are to the Securities Act of 1933, as amended.

Overview of Our Business

We manufacture, distribute, install and service surveillance
and safety products and systems and develop surveillance and safety related
software in China. We generate revenues within four primary operating segments:
Installation Segment, Manufacturing Segment, Distribution Segment and Service
Segment. A majority of our revenues is derived from the provision of
surveillance and safety packaged solutions which include the products,
installation and after-sale service maintenance to our customers. Because the
majority of our revenues are derived from installations, they are generally
non-recurring. Maintenance services in our packaged solution are
included for the first year from the date of completion. Our customers may
extend our maintenance program after the first year for an additional fee.

Our Manufacturing Segment revenue is primarily derived from the
sales of our products, excluding products sold in connection with the
installation projects described above. The acquisitions of: Hongtianzhi, HiEasy,
and Minking in 2007; the acquisitions of Stonesonic, Longhorn and DIT in 2008;
and the acquisition of Coson in 2009 collectively expanded and are expected to
continue to expand our manufacturing business. We sell our cameras, DVRs,
software, alarm systems, access control systems, and other products to various
vendors primarily in China. Although we have sold a small number of manufactured
products internationally, we do not anticipate that the international market
will be a significant source of revenues for us in the foreseeable future.

Our customers are primarily comprised of: (1) Chinese
governmental entities and their affiliates, such as cities, municipalities,
provinces, customs agencies, courts, public security bureaus, and prisons; (2)
non-profit organizations, including schools, museums, sports arenas, and
libraries; and (3) commercial entities, such as airports, hotels, real estate
developments, banks, mines, railways, supermarkets, and entertainment venues.

In the Installation Segment, contracts vary in amount and
period of performance. The performance period for short-term contracts is
usually between three and six months. Short-term contract award amounts are
typically less than $7 million. Our long-term contracts are typically
in excess of one year, and up to 36 months. In general, long-term contract
awards have historically been in excess of $40 million, and have been entered
into with municipalities, cities and provinces, or their affiliates located in
China. These long-term contracts are further defined by agreed-upon detailed
specifications that outline defined stages. Completion of a defined stage
represents basic service and products delivered, such as the installation of
specified surveillance and safety systems in defined locations within the
project area. Stages are typically planned to be completed over defined three to
six-month periods. Each stage represents a discreet, defined phase of the total
contract, for which completion can be readily determined. At the completion of a
stage, and upon customer inspection, verification and acceptance of the work
performed, we recognize as revenue, the agreed-upon fixed price for the
installation work completed in the respective stage. Other than a warranty
reserve, we have no further obligations to the customer for a completed stage.

In the Manufacturing and Distribution Segments, we sell
products under purchase agreements, supply contracts and purchase orders on a
routine basis. Purchase orders tend to be of a relatively short duration. The
pricing is generally fixed and the quantities are based on individual purchase
orders. The individual contract amount in these segments is typically less than
RMB1 million (approximately $150,000). Revenue is recognized when title
transfers, which is usually upon shipment of products, and when all revenue
recognition criteria have been satisfied.

30

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The use of contract accounting requires significant judgment in
estimating total contract pricing and costs, including assumptions relative to
the length of time to complete the contract, the nature and complexity of the
work to be performed, anticipated increases in wages and prices for
subcontractor services and materials, and the availability of subcontractor
services and materials. Our estimates are based upon the professional knowledge
and experience of our engineers, program managers and other personnel, who
review each long-term contract continually to assess the contracts schedule,
performance, technical matters and estimated cost at completion. Our risk on
fixed-price contracts is that if estimates to complete the contract change from
one period to the next, profit levels will vary from period to period.

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.

Reportable Operating Segments

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

(a) The Installation Segment provides design, sales,
installation, services and monitoring of electronics surveillance and safety
systems to residential, commercial, industrial and governmental customers;

(b) The Manufacturing Segment provides design, manufacturing
and sales of surveillance and safety products, including intrusion security,
access control and video management systems;

(c) The Distribution Segment provides distribution and sales of
surveillance and safety products and services, including intrusion security,
access control and video management systems; and

(d) The Service Segment provides a full range of surveillance
and safety services, including network alarm response services, surveillance and
safety products and solutions post-sale, maintenance services, software
upgrading services, project integration services, security guard services,
surveillance and safety consulting services, and surveillance and safety trustee
services.

We also provide general corporate services to our segments and
these costs are reported as Corporate and Others.

The Service Segment represents approximately 0.3% of revenues
and approximately 10.5% of operating loss for the three months ended March 31,
2011. However, because we believe the Service Segment will expand substantially
in the future, we have made the decision to show it as a separate segment.

Recent Development

On April 20, 2011, we entered into an Agreement and Plan of
Merger (the Merger Agreement) with Rightmark Holdings Limited, a British
Virgin Islands company and wholly owned subsidiary of Intelligent One Limited, a
British Virgin Islands company wholly owned by Mr. Guoshen Tu (Rightmark),
Rightmark Merger Sub Limited, a Delaware corporation and wholly owned subsidiary
of Rightmark (Merger Sub) and Mr. Guoshen Tu (solely for the purpose of
Section 6.15 of the Merger Agreement), pursuant to which Merger Sub will merge
with and into the Company, with the Company continuing as the surviving
corporation and a wholly owned subsidiary of Rightmark (the Merger
Transaction or the Merger). Mr. Guoshen Tu is our Chief Executive Officer and the Chairman of
Board of Directors and beneficially owns approximately 20.9% of our outstanding
shares of common stock, $0.0001 par value per share (the Common Stock).

Pursuant to the terms of the Merger Agreement, at the effective
time of the Merger (the Effective Time), each share of Common Stock issued and
outstanding immediately prior to the Effective Time (other than (i) Rollover
Shares (as defined in the Merger Agreement), (ii) shares owned by Rightmark and
Merger Sub and (iii) shares in respect of which appraisal rights have been
properly exercised under Delaware law) will be canceled and will be
automatically converted into the right to receive $6.50 in cash (the Merger
Consideration), without interest. In connection with the Merger, each
outstanding share of Common Stock that is subject to vesting and/or forfeiture
restrictions will become fully vested immediately prior to the Effective Time.
In addition, each warrant that is outstanding at the Effective Time will be
cancelled and each holder of such warrant will receive an amount in cash
(without interest) equal to the product of (i) the excess of the Merger
Consideration over the exercise price per share of such warrant and (ii) the
number of shares of Company Common Stock subject to such warrant; provided, that
if the exercise price per share of any such warrant is equal to or greater than
the Merger Consideration, such warrant shall be cancelled without any cash
payment being made in respect thereof.

We, Rightmark and Merger Sub each has made customary
representations and warranties to each other in the Merger Agreement.

31

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Completion of the Merger is subject to customary closing
conditions, including, but not limited to, (i) adoption of the Merger Agreement
by our stockholders, (ii) the absence of any order or injunction prohibiting the
consummation of the Merger and (iii) truth and correctness of each partys
representations and warranties at closing. The Merger Agreement may be
terminated under certain circumstances, including, among others, termination by
mutual agreement of the parties, termination by either party if the Merger is
not consummated on or before April 20, 2012 and termination by us at any time
for any reason on or prior to May 4, 2011, as set forth in the Merger Agreement.

In connection with the Merger Agreement, Mr. Guoshen Tu also
entered into a limited guaranty (the Guaranty) in favor of the Company with
respect to certain payment obligations of Rightmark and Merger Sub under the
Merger Agreement.

The foregoing description of the Merger Agreement and Guaranty
is qualified in its entirety by reference to the full text of the Merger
Agreement and Guaranty, copies of which have been filed as Exhibits to our
current report on Form 8-K dated April 21, 2011, and which are incorporated
herein by reference.

First Quarter Financial Performance
Highlights

Our financial results in the first quarter of 2011 were
affected by seasonality. As we succeeded in securing more larger scale
installation projects which generally require longer installation time, we
completed less installation projects in this quarter. Despite the revenue
decrease, our gross margin and operating margin improved from 24.1% and 5.8% in
the first quarter of 2010 to 31.8% and 8.3% in the first quarter of 2011,
respectively. We believe the surveillance and safety product market in China
will remain strong due, in part, to favorable government initiatives and a
general rise in affluence of the population of China. As the first quarter has
historically been our slowest quarter, we expect our revenue will grow in the
remainder of 2011.

Following are some financial highlights for the first quarter
of 2011:

- Revenues:Revenues decreased $21.14 million, or 17.6%, to $99.05
  million for the three months ended March 31, 2011, from $120.19 million for
  the three months ended March 31, 2010.
- Gross margin: Gross margin was 31.8% for the three months ended
  March 31, 2011, compared to 24.1% for the three months ended March 31, 2010.
- Income from operations:Income from operations increased $1.16
  million, or 16.6%, to $8.13 million for the three months ended March 31, 2011,
  from $6.97 million for the three months ended March 31, 2010.
- Operating margin: Operating margin (the ratio of income from
  operations to revenues, expressed as a percentage) was 8.3% for the three
  months ended March 31, 2011, compared to 5.8% for the same period in 2010.
- Net income attributable to the Company: Net income attributable to
  the Company decreased $1.60 million, or 48.8%, to $1.68 million for the three
  months ended March 31, 2011, from $3.28 million for the three months ended
  March 31, 2010.
- Net margin: Net margin (the ratio of net income attributable to the
  Company to revenues, expressed as a percentage) was 1.7% for the three months
  ended March 31, 2011, compared to 2.8% for the three months ended March 31,
  2010.
- Fully diluted net income per share: Fully diluted net income per
  share was $0.02 for the three months ended March 31, 2011, as compared to
  $0.05 for the three months ended March 31, 2010.
- Non-cash expenses: Total non-cash expenses were $8.78 million for the three
  months ended March 31, 2011, representing a decrease of $2.78 million, or
  24.0%, from $11.56 million during the same period of 2010. Non-cash expenses
  for the three months ended March 31, 2011 included (i) depreciation and
  amortization of $3.23 million, and (ii) non-cash employee compensation expense
  of $5.55 million.

32

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Results of Operations

The following table sets forth key components of our results of
operations for the three months ended March 31, 2011 and 2010, in dollars and as
a percentage of revenues.

|(All amounts, other than percentages, in
      millions of U.S. dollars)                                                        |  
|------------------------------------------------------------------------------------------------------------------------------- | -
|                                                                                                                                |  
|                                                                                                                                |  
|Revenues                                                                                                                        | $
|Cost of goods sold (including depreciation and
              amortization amounted $0.26 and $0.25,
              respectively) |  
|Gross profit                                                                                                                    |  
|Selling and marketing                                                                                                           |  
|General and administrative                                                                                                      |  
|Non-cash employee compensation                                                                                                  |  
|Depreciation and amortization                                                                                                   |  
|Income from operations                                                                                                          |  
|Other income                                                                                                                    |  
|Interest expense                                                                                                                |  
|Income before income taxes                                                                                                      |  
|Income taxes                                                                                                                    |  
|Net income attributable to the
      Company                                                                                    | $

Revenues

Our revenues are primarily generated from system installations,
manufacturing and distribution of surveillance and safety products and providing
surveillance and safety services. Revenues decreased $21.14 million, or 17.6%,
to $99.05 million for the three months ended March 31, 2011 from $120.19 million
for the three months ended March 31, 2010. Due to our marketing efforts and
increased brand recognition, we were able to secure a greater number of larger scale
installation projects which requires longer periods of time to complete the installation. As a result, we
completed a lesser number of installation projects in the first quarter of 2011,
which led to the decrease in our revenues. Most of local governments 2011 Safe
City projects were at the bidding stage in the first quarter. Historically, the
first quarter has generally been a slow quarter for us largely because fewer
projects are undertaken during and around the Chinese New Year holiday, and the
fourth quarter has generally been the strongest quarter. Management expects the
same trend in 2011.

The following table shows the components of revenues recognized
in the first quarter of 2011.

|(In millions of U.S. dollars)                                                                              
|-----------------------------------------------------------------------------------------------------------
|Revenues from the Installation Segment
      recognized from contracts signed in 2010                      
|Revenues from the Installation Segment
      recognized from contracts signed in the first quarter of 2011 
|Revenues from the Manufacturing Segment
      recognized from contracts signed in 2010                     
|Revenues from the Manufacturing Segment
      recognized from contracts signed in the first quarter of 2011
|Revenues from the Distribution Segment
      recognized from contracts signed in 2010                      
|Revenues from the Distribution Segment
      recognized from contracts signed in the first quarter of 2011 

33

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Revenues from the Service Segment
      recognized from contracts signed in 2010
    
    0.25Revenues from the Service Segment recognized from contracts
      signed in the first quarter of 2011
    
    --Total revenues recognized in the first
      quarter of 2011
    $
    99.05Revenues deferred
    $
    2.77Backlog of sales contracts signed before
      March 31, 2011 (1)
    $
    330.97


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

The following table shows the different segments comprising our
total revenues for the three months ended March 31, 2011 and 2010.

(All amounts in millions of U.S. dollars)March 31,Revenues
    
    2011
    
    
    2010Installation Segment
    $
    79.74
    
    
    80.5%
    
    $
    92.75
    
    
    77.2%Manufacturing Segment
    
    14.20
    
    
    14.3%
    
    
    16.01
    
    
    13.3%Distribution Segment
    
    4.86
    
    
    4.9%
    
    
    11.43
    
    
    9.5%Service Segment
    
    0.25
    
    
    0.3%
    
    
    --
    
    
    --Total
    $
    99.05
    
    
    100.0%
    
    $
    120.19
    
    
    100.0%


For the three months ended March 31, 2011 and 2010, our
Installation Segment generated revenues of $79.74 million and $92.75 million
which represented 80.5% and 77.2% of our total revenues, respectively. This
decrease in revenues was mainly because a lesser number of projects were
completed during the first quarter of 2011 as compared to the same period last
year. Many of our installation projects were in the  progress at March 31, 2011. During
the three months ended March 31, 2011 and 2010, one individual customer accounted for
approximately 47% and 21% of our revenue, respectively. There were no other individual customers who
accounted for greater than 10% of our revenue in either period.

For the three months ended March 31, 2011 and 2010, our
Manufacturing Segment generated revenues of $14.20 million and $16.01 million,
representing 14.3% and 13.3% of our total revenues, respectively. Such decrease
was mainly because management was focused on the segment integration and
research and development of new products. The integration and development
of these new products are part of managements efforts to develop our
Manufacturing Segment into a leading provider of  surveillance and
safety products in the Chinese market.

For the three months ended March 31 2011, our Distribution
Segment generated revenues of $4.86 million, representing 4.9% of our total
revenues, as compared to $11.43 million for the three months ended March 31,
2010, representing 9.5% of our total revenues. The revenue decrease was mainly
due to the decrease in selling prices due to market competition. In addition, we
made a strategic decision to cease the distribution of some lower margin  products.

For the three months ended March 31, 2011, our Service Segment,
which was established in the second quarter of 2010, generated revenues of $0.25
million, representing 0.3% of our total revenues.

Cost of goods sold

Our cost of goods sold primarily consists of the costs of our
raw materials, labor and overhead. Cost of goods sold for the three months ended
March 31, 2011 decreased by 25.9% to $67.57 million, as compared to $91.21
million for the three months ended March 31, 2010.

The following table shows the segment components of cost of
goods sold for each of the three months ended March 31, 2011 and 2010.

(All amounts in millions of U.S. dollars)March 31,Cost of goods sold
    
    2011
    
    
    2010Installation Segment
    $
    52.38
    
    
    77.5%
    
    $
    69.71
    
    
    76.4%Manufacturing Segment
    
    10.74
    
    
    15.9%
    
    
    11.56
    
    
    12.7%Distribution Segment
    
    4.24
    
    
    6.3%
    
    
    9.94
    
    
    10.9%Service Segment
    
    0.21
    
    
    0.3%
    
    
    --
    
    
    --Total
    $
    67.57
    
    
    100.0%
    
    $
    91.21
    
    
    100.0%


34

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The cost of goods sold related to the Installation Segment
decreased by $17.33 million, or 24.9% to $52.38 million for the three months
ended March 31, 2011, from $69.71 million for the three months ended March 31,
2010. The dollar decrease was mainly due to the decreased number of completed installation
projects. The cost of goods sold related to the Manufacturing Segment decreased
to $10.74 million for the three months ended March 31, 2011 as compared to
$11.56 million for the three months ended March 31, 2010, mainly due to the
decrease in revenues. The cost of goods sold related to our Distribution Segment
accounted for approximately 6.3% of our total cost of goods sold for the three
month ended March 31, 2011 as compared to 10.9% for the three months ended March
31, 2010. The cost of goods sold related to our Service Segment which was
established in the second quarter of 2010 for the three months ended March 31,
2011 was $0.21 million, representing 0.3% of our total cost of goods sold.

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 was $31.48 million and
$28.98 million and our gross margin was approximately 31.8% and 24.1% for the
three months ended March 31, 2011 and 2010, respectively. The increase was
mainly driven by an increasing gross margin in the Installation Segment and
disciplined execution of cost control initiatives.

The following table shows the different segment components
comprising our gross profit margin over the three months ended March 31, 2011
and 2010.

March 31,Gross Margin
    
    2011
    
    
    2010Installation Segment
    
    34.3%
    
    
    24.8%Manufacturing Segment
    
    24.4%
    
    
    27.8%Distribution Segment
    
    12.7%
    
    
    13.0%Service Segment
    
    16.2%
    
    
    --Total
    
    31.8%
    
    
    24.1%


For the three months ended March 31, 2011, gross margins of the
Installation Segment, Manufacturing Segment and Distribution Segment were
approximately 34.3%, 24.4% and 12.7%, respectively, compared to 24.8%, 27.8% and
13.0% for the three months ended March 31, 2010.

The increase in our gross margin for the Installation Segment
was primarily because a larger proportion of our revenue was generated from
larger scale projects in the first quarter of 2011 as compared to the same
period in 2010. We are generally able to demand higher price and enjoy higher
margin for larger scale projects. The security installation competitive
landscape in China is dominated by many small vendors (who may not have all the
necessary qualifications to perform larger scale projects which we often bid
on). These smaller vendors typically focus on the retail and small corporate
customer market segments instead of larger scale projects. Many competitors we
typically face in smaller scale projects are often either eliminated in the
bidding process or disqualified from bidding on large scale projects. As a
result, we typically face a significantly reduced number of competitors on
larger scale projects, which generally allowed us to command relatively higher
prices. In addition, we also benefited from our experiences gained from our past
installation projects and our research in developing more cost-effective
installation processes, project design and solutions for our customers. As a
result, we were able to reduce certain hardware components used in our
installation projects while maintaining or improving the level of services to
our customers.

The decrease in our gross margins for the Manufacturing Segment
and the Distribution Segment in the first quarter of 2011 were primarily driven
by the decrease of selling prices in an effort to maintain and expand our
customer base.

The gross margin of our Service Segment which was established
in the second quarter of 2010 was 16.2% for the three months ended March 31,
2011.

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 decreased $0.01 million to
$2.70 million for the three months ended March 31, 2011 from $2.71 million for
the three months ended March 31, 2010. As a percentage of revenues, our selling
and marketing expenses increased to 2.7% for the three months ended March 31,
2011 from 2.3% for the three months ended March 31, 2010. The percentage
increase was mainly due to our decreased revenues.

35

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General and administrative expenses

General and administrative expenses consist primarily of
compensation and benefits to our general management, finance and administrative
staff, professional advisor fees, audit fees, and other expenses incurred in
connection with general operation.

Our general and administrative expenses increased $4.14
million, or 51.8%, to $12.13 million for the three months ended March 31, 2011
from $7.99 million for the three months ended March 31, 2010. As a percentage of
revenues, general and administrative expenses increased to 12.2% for the three
months ended March 31, 2011 from 6.6% in the same period of 2010. The dollar and
percentage increase was mainly due to the hiring of additional staff and
professional expenses related to the proposed Merger Transaction.

Non-cash employee compensation

Non-cash employee compensation by segment for the three months
ended March 31, 2011 and 2010 is as follows:

|(All amounts in millions of U.S. dollars) |  
|----------------------------------------- | -
|                                          |  
|Non-cash employee compensation            |  
|Installation Segment                      | $
|Manufacturing Segment                     |  
|Distribution Segment                      |  
|Service Segment                           |  
|Corporate and Other                       |  
|Total                                     | $

Effective February 7, 2007, our board of directors adopted the
2007 Equity Incentive Plan which was subsequently amended in February 2010 (the
Plan). The Plan provides for grants of stock options, stock appreciation
rights, performance units, restricted stock, restricted stock units, and
performance shares. A total of 12,000,000 shares of our common stock may be
issued under the Plan. The Plan has a 10-year term.

For the three months ended March 31, 2011, we granted an
aggregate of 200,908 shares of restricted stock pursuant to the Plan to our
employees and consultants. These shares will vest with respect to each of the
employees and consultants over a period of four-to-five-year. Non-cash employee
compensation for the three months ended March 31, 2011 decreased to $5.55
million from $8.33 million for the three months ended March 31, 2010, primarily
because part of the shares granted in 2007 was fully vested during the first quarter
of 2011.

Depreciation and amortization

Depreciation and amortization by segment for the three months
ended March 31, 2011 and 2010 is as follows:

|(All amounts in millions of U.S. dollars) |  
|----------------------------------------- | -
|                                          |  
|                                          |  
|Depreciation and amortization             |  
|Installation Segment                      | $
|Manufacturing Segment                     |  
|Distribution Segment                      |  
|Service Segment                           |  
|Corporate and Other                       |  
|Total                                     | $

Our depreciation and amortization expense was $3.23 million
(including $0.26 million of depreciation and amortization expense included in
cost of goods sold) for the three months ended March 31, 2011 as compared to
$3.23 million (including $0.25 million of depreciation and amortization expense
included in cost of goods sold) for the three months ended March 31, 2010. As a
percentage of revenues, depreciation and amortization expenses increased to 3.3%
for the three months ended March 31, 2011 from 2.7% for the three months ended
March 31, 2010. This percentage increase was primarily due to the decrease in
incremental revenue in the first quarter of 2011.

36

---

Income (loss) from operations

Our income from operations increased $1.16 million, or 16.6%,
to $8.13 million for the three months ended March 31, 2011 compared to $6.97
million for the three months ended March 31, 2010. As a percentage of revenues,
income from operations increased to 8.3% for the three months ended March 31,
2011 from 5.8% for the three months ended March 31, 2010.

The following table shows the different segments comprising our
income (loss) from operations for the three months ended March 31, 2011 and
2010.

(All amounts in millions of U.S. dollars)March 31,Income (loss) from operations
    
    2011
    
    
    2010Installation Segment
    $
    24.53
    
    
    301.7%
    
    $
    19.74
    
    
    283.2%Manufacturing Segment
    
    (2.79
    )
    
    (34.3%
    )
    
    (1.05
    )
    
    (15.1%
    )Distribution Segment
    
    (0.97
    )
    
    (11.9%
    )
    
    (0.66
    )
    
    (9.5%
    )Service Segment
    
    (0.85
    )
    
    (10.5%
    )
    
    --
    
    
    --Corporate and others
    
    (11.79
    )
    
    (145.0%
    )
    
    (11.06
    )
    
    (158.6%
    )Total
    $
    8.13
    
    
    100.0%
    
    $
    6.97
    
    
    100.0%


Income from operations related to the Installation Segment
increased $4.79 million, or 24.3%, to $24.53 million for the three months ended
March 31, 2011, compared to $19.74 million for the three months ended March 31,
2010. This increase was mainly because the installation projects we finished in
the first quarter of 2011 generally had higher margins as compared to projects
completed in the same period in 2010.

Loss from operations related to the Manufacturing Segment
increased $1.74 million to $2.79 million for the three months ended March 31,
2011, from $1.05 million for the same period in 2010. In the first quarter of
2011, we hired additional staff to meet the anticipated growth of the
Manufacturing Segment.

Loss from operations related to the Distribution Segment was
$0.97 million for the three months ended March 31, 2011, as compared to $0.66
million for the three months ended March 31, 2010. Such increase in loss from
operations was mainly due to the decrease of gross margin for the Distribution
Segment.

Loss from operations related to the Service Segment which was
established in the second quarter of 2010 was $0.85 million for the three months
ended March 31, 2011.

We also provide general corporate services to our segments.
Costs attributable to these services were reported as corporate and other
expenses. These costs included amortization, depreciation, and non-cash
compensation for employees. Loss from operations related to the Corporate and
others for the three months ended March 31, 2011 and 2010 was $11.79 million and
$11.06 million, respectively. The increase was mainly due to the hiring of
additional staff, and professional
expenses related to the
proposed Merger Transaction.

Other income

Our other income for the three months ended March 31, 2011
increased $0.41 million, or 128.1%, to $0.73 million for the three months ended
March 31, 2011 from $0.32 million for the three months ended March 31, 2010. As
a percentage of revenues, other income for the three months ended March 31, 2011
was 0.7%, as compared to 0.3% for the three months ended March 31, 2010. The
dollar and percentage increase was mainly due to a  subsidy received
from a local government in the first quarter of 2011.

Interest expense

During the first quarter of 2011, we had borrowings under 9
long-term loans and 28 short-term loans from banks and 4 product financing
arrangements from financial institutions. We incurred total interest expense of
$5.11 million for the three months ended March 31, 2011, as compared to $2.29
million for the same period in 2010. We incurred $0.52 million and $0.95 million
in interest during the three months ended March 31, 2011 and 2010, respectively,
in connection with our outstanding Tranche B Zero Coupon Guaranteed Senior
Unsecured Notes (the Tranche B Notes). The dollar increase in interest expense
in the first quarter of 2011 was primarily due to the increase in the
outstanding balance of our bank loans.

37

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Income before taxes

Our income before income taxes decreased $1.25 million, or
25.0%, to $3.75 million for the three months ended March 31, 2011 from $5.00
million for the same period in 2010. As a percentage of revenues, income before
income taxes for the three months ended March 31, 2011, decreased to 3.8% from
4.2% for the same period in 2010. Such dollar and percentage increase was
primarily due to the decrease of the incremental revenue and the increase in
interest expenses.

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 for the three
months ended March 31, 2011 or 2010.

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

Our subsidiaries, Golden and Hongtianzhi are located in
Shenzhen and Zhuhai DIT Digital Technology Limited is located in Zhuhai. They
are each subject to an EIT rate of 24% in 2011. Chengfeng, HiEasy, Minking,
Stonesonic, Tsingvision and Coson were each subject to an EIT rate of 15% in
2011 due to their high-technology company status. CSST PRC, Longhorn and Jin Lin
are located in Shenzhen and they are subject to an EIT rate of 12% in 2011
because they received the lower tax rate as high-technology companies. CSSI,
CSSS, CSSD and Guanling were subject to an EIT rate of 25% in 2011.

Our income taxes increased $0.35 million to $2.07 million for
the three months ended March 31, 2011 from $1.72 million for the three months
ended March 31, 2010. Such increase was primarily because of the increase in
certain subsidiaries income tax rates and an increase in the deferred tax
valuation allowance on U.S. operating losses during the quarter.

Net income attributable to the Company

Net income attributable to the Company decreased $1.60 million,
or 48.8%, to $1.68 million for the three months ended March 31, 2011 from $3.28
million for the same period in 2010. As a percentage of revenues, net income
attributable to the Company decreased to 1.7% for the three months ended March
31, 2011 from 2.8% for the same period in 2010. This dollar and percentage
decrease was mainly due to the decrease in incremental revenue and increase in
interest expenses in the first quarter of 2011.

Foreign Currency Translation Gains

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

On July 21, 2005, China reformed its foreign currency exchange
policy, revalued the RMB by 2.1 percent and allowed the RMB to appreciate as
much as 0.3 percent per day against the U.S. dollar. As a result, we implemented
different exchange rates in translating RMB into U.S. dollars in our financial
statements for the first quarter of 2011 and 2010.

For the three months ended March 31, 2011, we utilized the
exchange rates of 6.56, 6.57, and 8.04 in calculating the assets and
liabilities, revenue and expenses, and equity, respectively, which resulted in
an $6.83 million foreign currency translation gain. For the three months ended
March 31, 2010, we implemented the exchange rates of 6.83, 6.83, and 8.04 in
calculating the assets and liabilities, revenue and expenses, and equity,
respectively, which resulted in a $0.12 million foreign currency translation
gain.

Liquidity and Capital Resources

General

As of March 31, 2011 and December 31, 2010, we had cash and
cash equivalents of $278.74 million and $65.63 million, respectively. The
following table provides detailed information about our net cash flow for the
three months ended March 31, 2011 and 2010.

Cash Flow

|(All amounts in millions of U.S. dollars)                
|---------------------------------------------------------
|                                                         
|                                                         
|Net cash provided by (used in) operating
      activities
|Net cash used in investing activities                    
|Net cash provided by financing activities                
|Effect of exchange rate changes on cash                  
|Net cash inflow (outflow)                                

38

---

Operating Activities:

Net cash provided by operating activities was $37.17 million
for the three months ended March 31, 2011, as compared to net cash used in
operating activities of $60.88 million for the same period in 2010. The increase
in net cash provided by operating activities in the first quarter of 2011 was
primarily due to decreases in accounts receivable and inventories, compared to
increases in the first quarter of 2010. We enhanced
our credit control and collected more receivables in the first quarter of
2011.

Investing Activities:

Our main uses of cash for investing activities during the three
months ended March 31, 2011 and 2010 were acquisitions of plant and equipment
and
deposits for the acquisition of subsidiaries.

Net cash used in investing activities for the three months
ended March 31, 2011 was $6.73 million, which is a decrease of $0.93 million
from net cash used in investing activities of $7.66 million in the same period
of 2010. This decrease was primarily due to the decrease in net cash used for
additions to intangible assets, other than through business acquisitions as well
as a decrease in net cash used for deposits paid for business acquisitions,
properties and intangible assets in the
first quarter 2011.

Financing Activities:

Net cash provided by financing activities for the three months
ended March 31, 2011 totaled $181.77 million, as compared to $56.34 million in
the same period of 2010. The increase in net cash provided by financing activities was
mainly attributable to proceeds from additional bank loans obtained in the first
quarter of 2011. For details of the loan facilities, please refer to the Loan
Facilities section below.

Loan Facilities:

a) Notes payable

As of March 31, 2011, the amount, maturity date and original
term of each of our bank loans were as follows:

|(All amounts in millions of U.S. dollars)      |  
|---------------------------------------------- | -
|                                               |  
|Lender                                         |  
|                                               |  
|China Development Bank                         | $
|China Development Bank                         |  
|China Construction Bank                        |  
|China Merchants Bank                           |  
|Guangdong Development Bank                     |  
|China Merchants Bank                           |  
|Industrial and Commercial Bank of China        |  
|China Zheshang Bank                            |  
|China Merchants Bank                           |  
|China Merchants Bank                           |  
|Bank of China                                  |  
|Bank of China                                  |  
|Shanghai Pudong Development Bank               |  
|China Merchants Bank                           |  
|Industrial and Commercial Bank of China        |  
|Industrial and Commercial Bank of China        |  
|Industrial and Commercial Bank of China        |  
|Bank of China                                  |  
|Industrial and Commercial Bank of China        |  
|China Merchants Bank                           |  
|Shenzhen Development Bank                      |  
|China Everbright Bank                          |  
|Industrial and Commercial Bank of China        |  
|China Construction Bank                        |  
|Guangdong Development Bank                     |  
|Industrial and Commercial Bank of China (Asia) |  
|Shanghai Pudong Development Bank               |  
|Shanghai Pudong Development Bank               |  
|Total                                          | $

* Calculated on the basis that $1 = RMB6.56.

39

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We have entered the following bank loans. The terms of bank
loans that we typically enter into require collateral for the loans. Collateral
is usually defined in the agreements as buildings and land use rights.

On March 1, 2011, we entered into a term loan facility
agreement with China Development Bank Corporation Hong Kong Branch (CDB),
pursuant to which CDB agreed to make available to us a term loan facility in an
aggregate principal amount of up to $200.00 million, subject to terms and
conditions of the agreement. We borrowed a total of $200.00 million on March 1,
2011 under the facility, with an annual interest rate of 3% per annum over the
applicable six-month London Inter Bank Offered Rate (3.46% as of March 31,
2011). The loan under the facility will mature on the third anniversary of the
first date when the facility is utilized by us with 50% of the principal due in
August 2013 and the remaining 50% due in February 2014. Pursuant to the term
loan facility agreement, if our chairman and CEO, Mr. Guoshen Tu, ceases to be
the beneficial owner of at least 10% of our capital stock, the facility may be
cancelled and all outstanding loans under the facility may become immediately
due and payable with no less than 30 days notice. As of March 31, 2011, this
condition was satisfied, and management believes the Company is in compliance
with all terms and conditions of the term loan facility agreement.

In October 2010, we entered into a term loan facility agreement
with CDB, pursuant to which CDB agreed to make available to us a term loan
facility in aggregate principal amount of up to $50.00 million, subject to terms
and conditions of the agreement. We borrowed a total of $50.00 million on
October 29, 2010 under the facility, with an annual interest rate of 3% per
annum over the applicable six-month London Inter Bank Offered Rate (3.46% as of
March 31, 2011). The loan under the facility is due in October 2013. Pursuant to
the term loan facility agreement, if our chairman and CEO, Mr. Tu, ceases to be
the beneficial owner of at least 10% of our outstanding capital stock, the
facility may be cancelled and all outstanding loans under this facility may
become immediately due and payable with no less than 30 days notice. As of March
31, 2011, this condition was satisfied and management believes we are in
compliance with all terms and conditions of the term loan facility
agreement.

On March 24, 2011, we entered into a loan agreement with China
Merchants Bank. We borrowed RMB31.50 million (approximately $4.80 million) with
an annual interest rate equal to the 1 to 6 months benchmark lending rate of
the Peoples Bank of China (5.60% as of March 31, 2011) with interest payable on
the 20th of each month. The loan is due in September 2011. The loan is
guaranteed by one of our subsidiaries.

On March 21, 2011, we entered into a loan agreement with China
Construction Bank. We borrowed RMB50.00 million (approximately $7.63 million)
with an annual interest rate equal to 7.20%, with interest payable on the 20th
of each month. The loan was due in March 2012. The loan is guaranteed by our CEO
and two of our subsidiaries, and is collateralized by the property of a
subsidiary.

On March 16, 2011, we entered into a loan agreement with
Guangdong Development Bank. We borrowed RMB121.00 million (approximately $18.45
million) with an annual interest rate equal to 105% of the 1 to 6 months
benchmark lending rate of the Peoples Bank of China (5.88% as of March 31,
2011) with interest payable on the 20th of each month. The loan is due in March
2012. The loan is collateralized by a restricted cash amount of $20,000 of one
of our subsidiaries.

On February 9, 2011, we entered into a loan agreement with
Societe Generale. We borrowed RMB27.00 million (approximately $4.12 million)
with an annual interest rate equal to 9.10%, with interest payable on the due
date of the loan. The loan was due and repaid in March 2011. The loan was
guaranteed by one of our subsidiaries.

On February 1, 2011, we entered into a loan agreement with
China Merchants Bank. We borrowed RMB59.00 million (approximately $9.00 million)
with an annual interest rate equal to 105% of the 1 to 3 years benchmark
lending rate of the Peoples Bank of China (6.41% as of March 31, 2011) with
interest payable on the 20th of each month. The loan is due in November 2012.
The loan is guaranteed by our CEO, his wife and one of our subsidiaries, and is
collateralized by the property and land use rights of a subsidiary.

On January 31, 2011, we entered into a loan agreement with the
Industrial and Commercial Bank of China. We borrowed RMB100.04 million
(approximately $15.26 million) with an annual interest rate equal to 95% of the
12 months benchmark lending rate of the Peoples Bank of China (5.76% as of
March 31, 2011), with interest payable on the 20th of each month. The loan is
due in January 2012. The loan is guaranteed by four of our subsidiaries.

On January 12, 2011, we entered into a loan agreement with
China Zheshang Bank. We borrowed RMB20.00 million (approximately $3.05 million) with an
annual interest rate equal to 120% of the 6 to 12 months benchmark lending rate
of the Peoples Bank of China (7.27% as of March 31, 2011) with interest payable
on the 20th of each month. The loan is due in August 2011. The loan is
guaranteed by our CEO and two of our subsidiaries.

40

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On January 10, 2011, we entered into a loan agreement with
China Merchants Bank. We borrowed RMB40.00 million (approximately $6.10 million)
on January 10, 2011, and RMB169.34 million (approximately $25.83 million) on
February 9, 2011, with an annual interest rate equal to 105% of the 5 to 10
years benchmark lending rate of the Peoples Bank of China (6.93% as of March
31, 2011) with principal and  interest payable in each quarter. The loan matures in January
2021. In March 2011, we repaid  principal of the loan in the amount of
RMB5.44 million (approximately $0.83 million) in accordance with the terms of
the loan. The loan is guaranteed by Shenzhen Zhonghe Industrial Limited, an
independent third party, and is secured by the rights of properties currently
under construction which will be acquired by us upon their completion.

On January 4, 2011, we entered into a loan agreement with China
Merchants Bank. We borrowed RMB10.00 million (approximately $1.53 million) with an
annual interest rate equal to 105% of the 1 to 3 years benchmark lending rate
of the Peoples Bank of China (6.41% as of March 31, 2011) with interest payable
on the 20th of each month. The loan is due in November 2012. The loan is
guaranteed by our CEO, his wife and one of our subsidiaries, and is
collateralized by the property and land use rights of a subsidiary.

On December 29, 2010, we entered into a loan agreement with
Bank of China. We borrowed RMB71.10 million (approximately $10.84 million) with
an annual interest rate equal to 5.15%, with interest payable on the 20th of
each month. The loan is due in December 2011. The loan is guaranteed by our CEO
and one of our subsidiaries, and is collateralized by the property and land use
rights of a subsidiary.

On December 24, 2010, we entered into a loan agreement with
Bank of China. We borrowed RMB71.10 million (approximately $10.84 million) with
an annual interest rate equal to 5.15%, with interest payable on the 20th of
each month. The loan is due in December 2011. The loan is guaranteed by our CEO and
one of our subsidiaries, and collateralized by the property and land use rights
of a subsidiary.

On December 10, 2010, we entered into a loan agreement with
Shanghai Pudong Development Bank. We borrowed RMB66.00 million (approximately
$10.07 million) with an annual interest rate equal to the 6 month's benchmark
lending rate of the Peoples Bank of China (5.60% as of March 31, 2011) with
interest payable on the 20th of each month. The loan is due in June 2011. The
loan is collateralized by a cash deposit of Whitehorse Technology Limited, a
company wholly-owned by our CEO. We repaid RMB6.65 million (approximately $1.01
million) and RMB6.60 million (approximately $1.01 million) in January and March
2011, respectively.

On December 2, 2010, we entered into a loan agreement with
China Merchants Bank. We borrowed RMB70.00 million (approximately $10.68
million) with an annual interest rate equal to 105% of the 1 to 3 years
benchmark lending rate of the Peoples Bank of China (6.14% as of March 31,
2011) with interest payable on the 20th of each month. The loan is due in
November 2012. The loan is guaranteed by our CEO, his wife and one of our
subsidiaries, and is collateralized by the property and land use rights of a
subsidiary.

On November 19, 2010, we entered into a loan agreement with
Industrial and Commercial Bank of China. We borrowed RMB30.00 million
(approximately $4.58 million) on December 21, 2010, RMB30.00 million
(approximately $4.58 million) on December 29, 2010 and RMB40.00 million
(approximately $6.10 million) on January 31, 2011 with an annual interest equal
to 95% of the 12 month's benchmark lending rate of the Peoples Bank of China
(5.76% as of March 31, 2011) with interest payable on the 20th of each month.
The loan is due in December 2011. The loan is guaranteed by three of our
subsidiaries and is collateralized by the property of a subsidiary.

On November 17, 2010, we entered into a loan agreement with
Bank of China. We borrowed RMB48.60 million (approximately $7.41 million) with
an annual interest rate equal to 5.15%, with interest payable on the 20th of
each month. The loan is due in May 2011. The loan is guaranteed by our CEO and
one of our subsidiaries, and was collateralized by the property and land use
rights of a subsidiary.

On October 29, 2010, we entered into a loan agreement with the
Industrial and Commercial Bank of China. We borrowed RMB51.00 million
(approximately $7.78 million) with an annual interest rate equal to 95% of the
12 months benchmark lending rate of the Peoples Bank of China (5.76% as of
March 31, 2011) with interest payable on the 20th of each month. The loan is due
in November 2011. The loan is guaranteed by three of our subsidiaries, and is
collateralized by the property of a subsidiary.

On October 18, 2010, we entered into a loan agreement with
China Merchants Bank. We borrowed RMB25.00 million (approximately $3.81 million)
with an annual interest equal to 110% of the 12 months benchmark lending rate
of the Peoples Bank of China (6.67% as of March 31, 2011) with interest payable
on the 20th of each month. The loan is due in October 2011. The loan is
guaranteed by our Chief Operating Officer, our CEO and his wife.

On August 18, 2010, we entered into a loan agreement with
Shenzhen Development Bank. We borrowed RMB40.00 million (approximately $6.10
million) with an annual interest rate equal to 6.06%, with interest payable on
the 20th of each month. The loan is due in August 2011. The loan is guaranteed
by our CEO and two of our subsidiaries, and is collateralized by the property of
a subsidiary.

41

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On August 9, 2010, we entered into a loan agreement with
Societe Generale. We borrowed RMB27.00 million (approximately $4.12 million)
with an annual interest rate equal to 5.35%, with interest payable on the due
date of the loan. The loan was due and repaid in February 2011. The loan was
guaranteed by one of our subsidiaries.

On July 26, 2010, we entered into a loan agreement with China
Everbright Bank Co., Ltd. We borrowed RMB40.00 million (approximately $6.10
million) with an annual interest rate equal to 5.31%, with interest payable on
the 20th of each month. The loan is due in July 2011. The loan is guaranteed by
our CEO, one of our subsidiaries and Chuang Guan.

On July 21, 2010, we entered into a loan agreement with the
Industrial and Commercial Bank of China. We borrowed RMB54.60 million
(approximately $8.33 million) with an annual interest rate equal to 6.06%, with
interest payable on the 20th of each month. The loan is due in July 2011. The
loan is guaranteed by three of our subsidiaries and is collateralized by the
property of a subsidiary.

On July 15, 2010, we entered into a loan agreement with China
Construction Bank. We borrowed RMB30.00 million (approximately $4.58 million)
with an annual interest rate equal to 6.67%, with interest payable on the 20th
of each month. The loan is due in July 2011 and is collateralized by the
property of one of our subsidiaries.

On July 1, 2010, we entered into a loan agreement with
Guangdong Development Bank. We borrowed RMB49.60 million (approximately $7.56
million) with an annual interest rate equal to 6.67%, with interest payable on
the 20th of each month. The loan is due in June 2011. The loan is guaranteed by
our CEO and one of our subsidiaries.

On June 18, 2010, we entered into a loan agreement with
Industrial and Commercial Bank of China (Asia) Limited. We borrowed $8.00
million and $2.00 million on July 15, 2010 and August 12, 2010, respectively,
with an effective interest rate at 3% per annum over the applicable one year
London Inter Bank Offered Rate (3.78% at March 31, 2011), with interest payable
on the due date of the loan. Interest payable is calculated on the basis of the
actual number of days elapsed and a 360-day year. The loan is due in July 2011.
The loan is guaranteed by our CEO and is collateralized by fixed assets of one
of our subsidiaries and the shares of one of our subsidiaries.

On April 16, 2010, we entered into a loan agreement with
Shanghai Pudong Development Bank. We borrowed RMB80.00 million (approximately
$12.20 million) with an annual interest rate equal to 6.06%, with interest
payable on the 20th of each month. The loan was due and repaid in April 2011.
The loan was guaranteed by our CEO and one of our subsidiaries, and was
collateralized by the properties and land use rights of a subsidiary.

On April 15, 2010, we entered into a loan agreement with
Shanghai Pudong Development Bank. We borrowed RMB80.00 million (approximately
$12.20 million) with an annual interest rate equal to 6.06%, with interest
payable on the 20th of each month. The loan was due and repaid in April 2011.
The loan was guaranteed by our CEO, and was collateralized by the properties and
land use rights of one of our subsidiaries.

On March 31, 2010, we entered into a loan agreement with China
Merchants Bank. We borrowed RMB50.00 million (approximately $7.63 million) with
an annual interest rate equal to 5.81%, with interest payable on the 20th of
each month. The loan was due and repaid in March 2011. The loan was guaranteed
by our CEO, his wife and one of our subsidiaries, and was collateralized by the
property and land use rights of a subsidiary.

On March 25, 2010, we entered into a loan agreement with China
Citic Bank. We borrowed RMB90.00 million (approximately $13.73 million) with an
annual interest rate equal to 5.81%, with interest payable on the 20th of each
month. The loan was due and repaid in March 2011. The loan was guaranteed by our
CEO, his wife and one of our subsidiaries, and was collateralized by the
properties of two subsidiaries of the Company.

On March 24, 2010, we entered into a loan agreement with China
Citic Bank. We borrowed RMB60.00 million (approximately $9.15 million) with an
annual interest rate equal to 5.81%, with interest payable on the 20th of each
month. The loan was due and repaid in March 2011. The loan was guaranteed by our
CEO, his wife and one of our subsidiaries, and was collateralized by the
properties of two subsidiaries of the Company.

On March 4, 2010, we entered into a loan agreement with the
Industrial and Commercial Bank of China. We borrowed RMB31.00 million
(approximately $4.73 million) with an annual interest rate equal to 5.23%, with
interest payable on the 20th of each month. The loan was due in March 2011, but
repaid in February 2011. The loan was guaranteed by three of our subsidiaries,
and was collateralized by the property of a subsidiary.

On March 4, 2010, we entered into a loan agreement with the
Industrial and Commercial Bank of China. We borrowed RMB39.00 million
(approximately $5.95 million) with an annual interest rate equal to 5.23%, with
interest payable on the 20th of each month. The loan was due in March 2011, but
repaid in January 2011. The loan was guaranteed by three of our subsidiaries,
and was collateralized by the property of a subsidiary.

42

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On March 3, 2010, we entered into a loan agreement with China
Construction Bank. We borrowed RMB50.00 million (approximately $7.63 million)
with an annual interest rate equal to 6.10%, with interest payable on the 20th
of each month. The loan was due and repaid in March 2011. The loan was
guaranteed by our CEO and one of our subsidiaries, and was collateralized by the
property of a subsidiary.

On March 2, 2010, we entered into a loan agreement with China
Merchants Bank. We borrowed RMB41.00 million (approximately $6.25 million) with
an annual interest rate equal to 5.81%, with interest payable on the 20th of
each month. The loan was due and repaid in March 2011. The loan was guaranteed
by our CEO, his wife and one of our subsidiaries, and was collateralized by the
property and land use rights of a subsidiary.

On February 3, 2010, we entered into a loan agreement with
China Merchants Bank. We borrowed RMB59.00 million (approximately $9.00 million)
with an annual interest rate equal to 5.81%, with interest payable on the 20th
of each month. The loan was due and repaid in February 2011. The loan was
guaranteed by our CEO, his wife and one of our subsidiaries, and was
collateralized by the property and land use rights of a subsidiary.

On January 26, 2010, we entered into a loan agreement with the
Industrial and Commercial Bank of China. We borrowed RMB100.00 million
(approximately $15.25 million) with an annual interest rate equal to 4.78%, with
interest payable on the 20th of each month. The loan was due in January 2011.
The Company repaid RMB80.00 million (approximately $12.20 million) and RMB 20.00
million (approximately $3.05 million) in June 2010 and January 2011,
respectively. The loan was guaranteed by our CEO

b) Product financing arrangements

As of March 31, 2011, the amount, maturity date and original
term of each of our obligations under product financing arrangements were as
follows:

|(All amounts in millions of U.S. dollars)
|-----------------------------------------
|                                         
|Lender                                   
|A Financial Institution                  
|A Financial Institution                  
|A Financial Institution                  
|A Financial Institution                  
|Total                                    

* Calculated on the basis that $ 1 = RMB6.56

In June 2010, we entered into product financing agreements with
a financial institution. Under the terms of the agreements, we agreed to pay an
annual interest rate of 8.23% on inventory financings. We borrowed RMB50 million
(approximately $7.63 million). The loans expire in June 2013, and payments of
principal and interest are due at the end of each quarter.

In September 2009, we entered into product financing agreements
with a financial institution. Under the terms of the agreements, we agreed to
pay an annual interest rate of 8.46% on inventory financings. We borrowed RMB50
million (approximately $7.63 million). The loans expire in September 2012, and
payments of principal and interest are due at the end of each quarter.

In February 2009, we entered into product financing agreements
with a financial institution. Under the terms of the agreements, we agreed to
pay an annual interest rate of 10.5% on inventory financings. We borrowed
RMB7.11 million (approximately $1.09 million). The loans expire in September
2013, and payments of principal and interest are due at the end of each
quarter.

In July 2008, we entered into product financing agreements with
a financial institution. Under the terms of the agreements, we agreed to pay an
annual interest rate of 10% on inventory financings. We borrowed RMB53.49
million (approximately $8.16 million). The loans expire in July 2011, and
payments of principal and interest are due at the end of each quarter.

c) Guaranteed senior unsecured notes payable

As of March 31, 2011, we had outstanding the Tranche B Notes.
The Tranche B Notes have a principal amount of $84.00 million, zero coupon
interest and a fair value of $78.44 million, resulting in a debt discount of
$5.56 million and an effective interest rate of approximately 5%. The Tranche B
Notes mature on September 2, 2012. We are to repay the principal amount in six
consecutive semi-annual installments, that began on March 2, 2010, with 46%,
46%, and 8% of the principal amount to be repaid in the first, second and third
year, respectively. The Tranche B Notes are not convertible. We will be entitled
to redeem the Tranche B Notes at any time with no premium or penalty at a
redemption price equal to 100% of the principal amount of the Tranche B Notes to
be redeemed, plus default interest, if any. The Tranche B Notes are guaranteed
by our significant subsidiaries to the extent permitted under applicable laws.
We repaid $19.32 million of the principal on the Tranche B Notes in March
2011.

43

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d) Others

The Kunming Safe City project consisted of two stages - Stage I
and Stage II. Stage I was completed in December 2008, and Stage II was completed
in March 2009. All receivables totaling RMB123 million (approximately $18
million) related to Stage I were sold to Industrial and Commercial Bank of China
(ICBC) in March 2009 for RMB113 million (approximately $16.5 million). This
amount was fully collected from ICBC in March 2009. Stage II receivables were
RMB86 million ($12.6 million), of which RMB11.33 million (approximately $1.73
million) was outstanding as of December 31, 2010. The remaining receivables from
the Kunming Municipal Government were fully collected in February 2011.

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 us 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 us; 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.

Loan facility liquidity requirements

In the remaining nine months of 2011, we have approximately
$140.70 million in bank loans that will mature. We believe we will be able to
pay all obligations as they become due. As some of our loans become due, we may
elect to renew or refinance, rather than repay, the indebtedness. However, there
is no assurance that additional financing will become available on terms
acceptable to us. We believe that we will have the ability to refinance our
indebtedness when and if we elect to do so. While we currently are not in a
position to know the terms of such refinancing, we expect to refinance our
indebtedness at prevailing market rates and on prevailing market terms. We are
exposed to a variety of risks associated with short-term borrowings including
adverse fluctuations in fixed interest rates for short-term borrowings and
unfavorable increases in variable interest rates, potential inability to service
our short term indebtedness through cash flow from operations and the overall
reduction of credit in the current economic environment.

We believe that our currently available working capital, after
receiving the aggregate proceeds of our capital raising activities, the credit
facilities referred to above and the anticipated bank loans, should be adequate
to sustain our operations at our current levels through at least the next twelve
months.

Our liquidity and working capital may be affected by the
substantial amount of our outstanding short-term loans, which represent our
primary source of financing in China. Depending on the level of cash used in our
operating activities and the level of our indebtedness, (i) it may become more
difficult for us to satisfy our existing or future liabilities or obligations,
which could in turn result in an event of default on such obligations, (ii) we
may have to dedicate a substantial portion of our cash flows from borrowings to
our operating activities and to debt service payments, thereby reducing the
availability of cash for working capital and capital expenditures, acquisitions,
general corporate purposes or other purposes, (iii) our ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes may become impaired,
(iv) our ability to withstand a downturn in our business, the industry in which
we operate or the economy generally may be diminished, (v) we may experience
limited flexibility in planning for, or reacting to, changes in our business and
the industry in which we operate and (vi) we may find ourselves at a competitive
disadvantage compared to competitors that have proportionately less debt. If we
are unable to meet our debt service obligations, we could be forced to
restructure or refinance our indebtedness, seek additional equity capital or
sell assets. We may be unable to obtain financing or sell assets on satisfactory
terms, or at all, which could cause us to default on our debt service
obligations and be subject to foreclosure on such loans. Additionally, we could
incur additional indebtedness in the future and, if new debt is added to our
current debt levels, the risks above could intensify.

Obligations Under Material Contracts

Below is a table setting forth our material contractual
obligations as of March 31, 2011:

(All amounts in millions of U.S. dollars)Payments due by periodLess than 1
    
    
    
    
    
    
    
    
    More than 5Total
    
    
    year
    
    
    1-3
      years
    
    
    3-5
      years
    
    
    yearsDebt Obligations
    $
    520.87
    
    $
    212.00
    
    $
    285.46
    
    $
    6.02
    
    $
    17.39Operating Lease Obligations
    
    2.56
    
    
    1.76
    
    
    0.80
    
    
    --
    
    
    --Total
    $
    523.43
    
    $
    213.76
    
    $
    286.26
    
    $
    6.02
    
    $
    17.39


44

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Critical Accounting Policies

The preparation of consolidated financial statements, in
conformity with accounting principles generally accepted in the United States,
requires our management to make assumptions, estimates and judgments that affect
the amounts reported in the financial statements, including the notes thereto,
and related disclosures of commitments and contingencies, if any. We consider
our critical accounting policies to be those that require the most significant
judgments and estimates in the preparation of financial statements, including
the following:

- Use of Estimates-The preparation of the 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.
- Fair Value Measurement -We utilize a fair value hierarchy
  that prioritizes the inputs to valuation techniques used to measure fair
  value. The hierarchy gives the highest priority to unadjusted quoted prices in
  active markets for identical assets or liabilities (Level 1 measurements) and
  the lowest priority to unobservable inputs (Level 3 measurements). The three
  levels of the fair value hierarchy are described below:
  Level 1: Unadjusted
  quoted prices in active markets that are accessible at the measurement date
  for identical, unrestricted assets or liabilities;
  Level 2: Quoted prices
  in markets that are not active, or inputs that are observable, either directly
  or indirectly, for substantially the full term of the asset or liability;
  and
  Level 3: Prices or valuation techniques that require inputs that are
  both significant to the fair value measurement and unobservable (supported by
  little or no market activity).
  At March 31, 2011, we had no financial
  assets or liabilities subject to recurring fair value measurements.
  Our
  financial instruments include cash, accounts receivable, other receivables,
  accounts and bills payable, notes payable, obligations under product financing
  arrangements and guaranteed senior unsecured notes payable. Management
  estimates that the carrying amounts of the non-related party financial
  instruments approximate their fair values due to their short-term nature
  and/or market rates of interest currently available to the company.
- Accounts ReceivableFinancial instruments that
  potentially subject us to concentration of credit risk consist primarily of
  trade accounts receivable. We extend credit to our customers in the normal
  course of business when considered appropriate. Our credit terms in general
  are from 30 to 330 days, dependent upon the segment. We perform ongoing credit
  evaluations and generally do not require collateral. We maintain an allowance
  for potential credit losses based upon our loss history and its aging
  analysis. The allowance for doubtful accounts is our best estimate of the
  amount of probable credit losses in our existing accounts receivable. We
  review the allowance for doubtful accounts each reporting period based on a
  detailed analysis of our accounts receivable. In the analysis, we primarily
  consider the age of the customers receivable and also consider the
  creditworthiness of the customer, the economic conditions of the customers
  industry, and general economic conditions, among other factors. If any of
  these factors change, we may also change our original estimates, which could
  impact the level of our future allowance for doubtful accounts.
  If payment
  is not made timely, we contact the customer to try to obtain payment. Once all
  collection efforts are exhausted, the receivable is written off against the
  allowance for doubtful accounts.
  From time to time, we enter into
  receivable factoring agreements. We account for such arrangements under ASC
  860  Transfer and Servicing. These arrangements are without
  recourse, the receivables are isolated from us, the transferee has the right
  to pledge or exchange the receivables, and we do not maintain effective
  control over the receivables. Therefore, these arrangements satisfy the
  conditions to be accounted for as a sale and we recognize any gain or loss in
  earnings.
- Inventories- Inventories are stated at the lower of cost,
  determined on a weighted average basis, and net realizable value. Net
  realizable value is the estimated selling price in the ordinary course of
  business less the estimated cost of completion and the estimated costs
  necessary to make the sale.When inventories are sold, their carrying
  amount is charged to expense in the period in which the revenue is recognized.

45

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| | Write-downs for declines in net realizable value or for
      losses of inventories are recognized as an expense in the period the
      impairment or loss occurs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Goodwill- Goodwill represents the excess
      of the purchase price over the net of the fair value of the identifiable
      tangible and intangible assets acquired and the fair value of liabilities
      assumed in acquisitions. ASC 350-30-50,  Goodwill and Other Intangible
      Assets requires the testing of goodwill and indefinite-lived
      intangible assets for impairment at least annually. We test goodwill for
      impairment in the fourth quarter each year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Under applicable accounting guidance, the goodwill
      impairment analysis is a two-step test. The first step of the goodwill
      impairment test involves comparing the fair value of each reporting unit
      with its carrying amount including goodwill. If the fair value of a
      reporting unit exceeds its carrying amount, goodwill of the reporting unit
      is considered not impaired; however, if the carrying amount of the
      reporting unit exceeds its fair value, the second step must be performed
      to measure potential impairment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | The second step involves calculating an implied fair
      value of goodwill for each reporting unit for which the first step
      indicated possible impairment. The implied fair value of goodwill is
      determined in the same manner as the amount of goodwill recognized in a
      business combination, which is the excess of the fair value of the
      reporting unit, as determined in the first step, over the aggregate fair
      values of the assets, liabilities and identifiable intangibles as if the
      reporting unit was being acquired in a business combination. The
      adjustments to measure the assets, liabilities and intangibles at fair
      value are for the purpose of measuring the implied fair value of goodwill,
      and such adjustments are not reflected in the consolidated balance sheet.
      If the implied fair value of goodwill exceeds the goodwill assigned to the
      reporting unit, there is no impairment. If the goodwill assigned to a
      reporting unit exceeds the implied fair value of goodwill, an impairment
      charge is recorded for the excess.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Revenue Recognition-Revenue from
      sales of surveillance and safety products and systems are recognized in
      accordance with Staff Accounting Bulletin (SAB) No. 104:  Revenue
      Recognition and related interpretations. Revenues are recognized
      when the following criteria are met:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (i)
      Persuasive evidence of an arrangement exists  We require
        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  We perform a credit review of
        all customers with significant transactions to determine whether a
    customer is creditworthy and collection is probable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | All revenues are recognized net of any taxes collected
      from customers and subsequently remitted to governmental
    authorities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Product 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | We derive a significant portion of our revenue from the
      supply and installation of surveillance and safety equipment and the two
      deliverables do not meet the separation criteria under ASC 605-25 
      Multiple-Element Arrangements. Installation segment contracts
      vary in terms of contract amount and period of performance. The
      performance period for short-term contracts is usually between three and
      six months. The period of performance for long-term contracts is typically
      between a year and 36 months. Long-term contracts generally are entered
      into with municipalities, cities, provinces, or their affiliates located
      in China. These long-term contracts are further defined by agreed-upon
      detail specifications that outline defined stages. Completion of a defined
      stage represents basic service and products delivered, such as the
      installation of specified surveillance and safety systems in defined
      locations within the project area. Stages are typically planned to be
      completed over defined three to six-month periods. Each stage represents a
      discreet, defined phase of the total contract, for which completion can be
      readily determined. At the completion of a stage, and upon customer
      inspection, verification and acceptance of the work performed, we
      recognize the fixed price per stage as revenue. At the time of stage
      completion, we consider the title to work performed passing to the
      customer. Other than a warranty reserve, discussed below, we have no
      further obligations to the customer for a completed
  stage.

46

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The use of contract accounting requires
significant judgment in estimating total contract pricing and costs, including
assumptions relative to the length of time to complete the contract, the nature
and complexity of the work to be performed, anticipated increases in wages and
prices for subcontractor services and materials, and the availability of
subcontractor services and materials. Our estimates are based upon the
professional knowledge and experience of its engineers, program managers and
other personnel, who review each long-term contract continually to assess the
contracts schedule, performance, technical matters and estimated cost at
completion. Our risk on fixed-price contracts is that if estimates to complete
the contract change from one period to the next, profit levels will vary from
period to period.

Approximately 1% of contract
installation revenue is deferred for the repair work during the one-year
warranty period. We carefully monitor the warranty work requested by our
customers, and has determined that minimal warranty work has historically been
requested to be performed. We believe that this 1% warranty reserve is
adequate.

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

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

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

- Income taxes- We account for income taxes using the asset
  and liability method prescribed by ASC 740  Income Taxes. Under this
  method, deferred tax assets and liabilities are determined based on the
  difference between the financial reporting and tax bases of assets and
  liabilities using enacted tax rates that will be in effect in the year in
  which the differences are expected to reverse. We record a valuation allowance
  to offset deferred tax assets if based on the weight of available evidence, it
  is more-likely-than-not that some portion, or all, of the deferred tax assets
  will not be realized. The effect on deferred taxes of a change in tax rates is
  recognized as income or loss in the period that includes the enactment
  date.
  We do not have any material unrecognized tax benefits.
  We file
  income tax returns with the relevant government authorities in the U.S. and
  the PRC. We were not subject to U.S. federal tax examinations for years before
  2007. We do not believe there will be any material changes in its unrecognized
  tax positions over the next 12 months.
  Our policy is to recognize interest
  and penalties accrued on any unrecognized tax benefits as a component of
  income tax expense. We do not have any accrued interest or penalties
  associated with any unrecognized tax benefits, nor was any interest expense
  recognized. Our effective tax rate differs from the federal statutory rate
  primarily due to non-deductible expenses, and preferential tax treatment.
- Earnings Per Share- ASC 260 Earnings Per Share,
  requires dual presentation of basic and diluted earnings per share (EPS)
  with a reconciliation of the numerator and denominator of the basic EPS
  computation to the numerator and denominator of the diluted EPS computation.
  Basic EPS excludes dilution. Diluted EPS reflects the potential dilution that
  could occur if securities or other contracts to issue common stock were
  exercised or converted into common stock or resulted in the issuance of common
  stock that then shared in the earnings of the entity.
  Earnings per basic
  share of common stock is based on the weighted average number of shares of
  common stock outstanding during each respective period. Earnings per diluted
  share of common stock adds to basic weighted shares the weighted average
  number of shares issuable under contingent issuances, stock options and
  warrants outstanding during each respective period, using the if-converted or
  treasury-stock methods.
  For purposes of the computation of net income per
  share, shares issued in connection with acquisitions that are returnable are
  considered contingently returnable shares. These contingently returnable
  shares, although classified as issued and outstanding, are not included in
  basic weighted average number of shares until all necessary conditions are met
  that no longer cause the shares to be contingently returnable. These
  contingently returnable shares are included in diluted weighted average number
  of shares as of the beginning of the period in which the conditions were
  satisfied (or as of the date of the agreement, if later).

47

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

For additional Critical Accounting Policies, please 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, 2010, for a discussion of the Companys critical accounting
policies.

Recently Issued and Adopted Accounting
Pronouncements

Business Combinations

(Included in ASC 805 Business Combination, previously SFAS
No. 141(R))

In December 2010, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update (ASU) No. 2010-29,Business
Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information
for Business Combinations.This ASU specifies that when financial
statements are presented, the revenue and earnings of the combined entity should
be disclosed as though the business combination that occurred during the current
year had occurred as of the beginning of the comparable prior annual reporting
period only. ASU 2010-29 is effective for business combinations with acquisition
dates on or after January 1, 2011. The adoption of this update did not have an
impact on our consolidated financial statements.

Goodwill

(Included in ASC 350 Intangibles-Goodwill and
Other)

In December 2010, the FASB issued ASU No.2010-28,
Intangibles-Goodwill and Other (Topic 350): When to Perform
Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative
Carrying Amounts. This ASU requires that reporting units with zero or
negative carrying amount perform Step 2 of the goodwill impairment test if it is
more likely than not that a goodwill impairment exists. ASU 2010-28 is
effective for us beginning with this interim period. The adoption of this update did not
have an
impact on our financial condition or results of operations.

Multiple Deliverable Revenue Arrangements

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

In October 2009, the FASB issued a new accounting standard
which provides guidance for arrangements with multiple deliverables.
Specifically, the new standard requires an entity to allocate consideration at
the inception of an arrangement to all of its deliverables based on their
relative selling prices. In the absence of the vendor-specific objective
evidence or third-party evidence of the selling prices, consideration must be
allocated to the deliverables based on managements best estimate of the selling
prices. In addition, the new standard eliminates the use of the residual method
of allocation. In October 2009, the FASB also issued a new accounting standard
which changes revenue recognition for tangible products containing software and
hardware elements. Specifically, tangible products containing software and
hardware that function together to deliver the tangible products essential
functionality are scoped out of the existing software revenue recognition
guidance and will be accounted for under the multiple-element arrangements
revenue recognition guidance discussed above. Both standards were effective for
us beginning on  January 1, 2011. The adoption of this standard did not
have a material impact on our consolidated financial statements.

Seasonality

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

Inflation

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

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

48

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK

Interest Rate Risk

We deposit surplus funds with Chinese banks earning daily
interest and do not invest in any instruments for trading purposes. Most of our
outstanding debt instruments carry fixed rates of interest. Our operations
generally are not directly sensitive to fluctuations in interest rates. The
amount of long-term debt outstanding as of March 31, 2011 and December 31, 2010
was $308.35 million and $73.62 million, respectively. A hypothetical 1.0%
increase in the annual interest rates for all of our credit facilities under
which we had outstanding borrowings at March 31, 2011, would decrease net income
before provision for income taxes by approximately $7 million or 10% for the
three months ended March 31, 2011. Management monitors the banks prime rates in
conjunction with our cash requirements to determine the appropriate level of
debt balances relative to other sources of funds. We have not entered into any
hedging transactions in an effort to reduce our exposure to interest rate
risk.

Foreign Exchange Risk

Our reporting currency is the U.S. dollar. Except for the U.S.
holding company, all of our consolidated revenues, consolidated costs and
expenses, and our assets are denominated in RMB. As a result, we are exposed to
foreign exchange risk as our revenues and results of operations may be affected
by fluctuations in the exchange rate between U.S. dollars and RMB. If the RMB
depreciates against the U.S. dollar, the value of our RMB revenues, earnings and
assets as expressed in our U.S. dollar financial statements will decline. Assets
and liabilities are translated at exchange rates at the balance sheet dates and
revenue and expenses are translated at the average exchange rates and equity is
translated at historical exchange rates. Any resulting translation adjustments
are not included in determining net income but are included in determining other
comprehensive income, a component of equity. An average appreciation
(depreciation) of the RMB against the U.S. dollar of 5% would increase our
comprehensive income by $6.83 million based on our outstanding revenues, costs
and expenses, assets and liabilities denominated in RMB as of March 31, 2011. As
of March 31, 2011, our accumulated other comprehensive income was $52.45
million. We have not entered into any hedging transactions in an effort to
reduce our exposure to foreign exchange risk.

The value of the Renminbi against the U.S. dollar and other
currencies is affected by, among other things, changes in Chinas political and
economic conditions. Since July 2005, the Renminbi has not been pegged to the
U.S. dollar. Although the Peoples Bank of China regularly intervenes in the
foreign exchange market to prevent significant short-term fluctuations in the
exchange rate, the Renminbi may appreciate or depreciate significantly in value
against the U.S. dollar in the medium to long term. Moreover, it is possible
that in the future, PRC authorities may lift restrictions on fluctuations in the
Renminbi exchange rate and lessen intervention in the foreign exchange
market.

Inflation

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

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures. The
term disclosure controls and procedures, as defined by regulations of the SEC,
means controls and other procedures that are designed to ensure that information
required to be disclosed in the reports that we file or submit to the SEC under
the Exchange Act, is recorded, processed, summarized and reported, within the
time periods specified in the SECs rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by us in the reports that we
file or submit to the SEC under the Exchange Act is accumulated and communicated
to our management, including our principal executive officer and our principal
financial officer, or persons performing similar functions, as appropriate to
allow timely decisions to be made regarding required disclosure. Each of Guoshen
Tu, our Chief Executive Officer, and Terence Yap, our Chief Financial Officer,
have evaluated the design and operating effectiveness of our disclosure controls
and procedures as of March 31, 2011. Based upon their evaluation, these
executive officers have concluded that our disclosure controls and procedures
are effective as of March 31, 2011.

(b) Changes in Internal Controls Over Financial
Reporting

There were no changes in our internal control over financial
reporting that have materially affected, or are reasonably likely to materially
affect, its internal control over financial reporting during the three months
ended March 31, 2011.

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 material legal proceedings to which we are
a party, or to which any of our property is subject, that we expect to have a
material adverse effect on our financial condition, except as follows:

The Company and the members of our board of directors are named
as defendants in purported class action lawsuits (the Stockholder Actions)
brought in the Delaware Court of Chancery by several stockholders: Dziak,
Levine, Smith and OConner on March 15, 2011, March 16, 2011, March 17, 2011 and March
18, 2011, respectively. The Stockholder Actions generally allege that the
Company and all of our directors breached their fiduciary duties in connection
with the transaction contemplated by the Merger Agreement. The Stockholder
Actions seek, among other things: to declare that the contemplated Merger
Transaction is unfair, unjust and inequitable, enjoin the Company from taking
any steps necessary to accomplish or implement the proposed Merger Transaction,
and compensate the plaintiff and the members of the class for all losses and
damages suffered and to be suffered by them as a result of the Merger
Transaction. We believe the Stockholder Actions are without merit and plan to
defend against them vigorously. At this stage of the proceedings, we cannot predict
the outcome of this litigation or whether it will have a material effect on our
results of operations, liquidity or capital resources.

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, 2010, filed with the SEC on February 28,
2011.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. (REMOVED AND RESERVED)

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

|Exhibit |                                                                                                                                                                             
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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.

50

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SIGNATURES

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

DATED: April 25, 2011

China Security & Surveillance Technology, Inc.

By: /s/ Guoshen TuPrincipal Executive OfficerBy: /s/ Terence
      YapPrincipal Financial Officer


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.

52

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