**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10−Q**


(Mark
      One)


**xQUARTERLY
      REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934**


For
      the
      quarterly period ended: June 30, 2007





**OR**





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


For
      the
      transition period from ____________ to _____________


Commission
      File Number: 000-25901





**CHINA
      SECURITY & SURVEILLANCE TECHNOLOGY, INC.**


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





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








**13/F,
      Shenzhen Special Zone Press Tower, Shennan Road**


**Futian
      District, Shenzhen, China 518034**





(Address
      of principal executive offices, Zip Code)





**(86)
      755-8351-0888**





(Registrant’s
      telephone number, including area code)








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





Indicate
      by check mark whether the registrant is a larger accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one)





Large
      accelerated filer o                                     Accelerated
      filer o                                      Non-accelerated
      filer x





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


Yes oNo
x





The
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of August 10, 2007 is as follows:





Class
                of Securities
            
            Shares
                OutstandingCommon
                Stock, $0.0001 par value
            
            37,798,487












**TABLE
      OF CONTENT**











**PART
                I**
            **Page**Item
                1.
            Financial
                Statements
            3Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            27Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            39Item
                4T.
            Controls
                and Procedures
            39**PART
                II**Item
                1.
            Legal
                Proceedings
            41Item
                1A.
            Risk
                Factors
            41Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            41Item
                3.
            Defaults
                Upon Senior Securities
            41Item
                4.
            Submission
                of Matters to a Vote of Securities Holders
            41Item
                5.
            Other
                Information
            42Item
                6.
            Exhibits
            42







**PART
      I**


**FINANCIAL
      INFORMATION**





**ITEM
      1. FINANCIAL STATEMENTS.**




**CHINA
      SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
      SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**Expressed
      in thousands of U.S. dollars**


**(Except
      for share and per share amounts)**


**June
                30,**
            
            **December
                31,****2007**
            
            **2006****(Unaudited)****USD**
            
            **USD****ASSETS****CURRENT
                ASSETS**Cash
                and cash equivalents
            
            $
            91,784
            
            $
            30,980Accounts
                receivable, net
            
            
            37,466
            
            
            26,754Related
                party receivables
            
            
            559
            
            
            440Inventories,
                net
            
            
            38,982
            
            
            19,721Prepayments
                & deposits
            
            
            6,136
            
            
            3,533Advances
                to suppliers
            
            
            4,950
            
            
            2,889Other
                receivables
            
            
            3,595
            
            
            1,697Deferred
                tax assets - current portion
            
            
            38
            
            
            41Total
                current assets
            
            
            183,510
            
            
            86,055Deposits
                for acquisition of subsidiaries and properties
            
            
            20,023
            
            
            -Property,
                plant and equipment, net
            
            
            15,821
            
            
            8,339Land
                use rights, net
            
            
            2,507
            
            
            1,152Intangible
                assets
            
            
            28,996
            
            
            9,997Investment,
                at cost
            
            
            13
            
            
            12Goodwill
            
            
            43,512
            
            
            8,426Deferred
                financing cost
            
            
            167
            
            
            -Deferred
                tax assets - non-current portion
            
            
            473
            
            
            462**TOTAL
                ASSETS**
            
            $
            295,022
            
            $
            114,443




See
      the accompanying notes to condensed consolidated financial statements





3


**CHINA
      SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
      SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**Expressed
      in thousands of U.S. dollars**


**(Except
      for share and per share amounts)**


**June
                30,**
            
            **December
                31,****2007**
            
            **2006****(Unaudited)****USD**
            
            **USD****LIABILITIES
                AND SHAREHOLDERS' EQUITY****CURRENT
                LIABILITIES**Notes
                payable - short term
            
            $
            10,189
            
            $
            2,272Accounts
                payable
            
            
            12,727
            
            
            4,000Accrued
                expenses
            
            
            3,459
            
            
            749Advances
                from customers
            
            
            2,223
            
            
            5,432Taxes
                payable
            
            
            2,838
            
            
            1,660Payable
                for acquisition of business
            
            
            18,468
            
            
            7,500Deferred
                income
            
            
            826
            
            
            831Due
                to a director
            
            
            -
            
            
            76Total
                current liabilities
            
            
            50,730
            
            
            22,520**LONG-TERM
                LIABILITIES**Notes
                payable - long term
            
            
            906
            
            
            2,010Convertible
                notes payable
            
            
            114,975
            
            
            -Total
                liabilities
            
            
            166,611
            
            
            24,530**MINORITY
                INTEREST IN CONSOLIDATED SUBSIDIARIES**
            
            
            144
            
            
            94**SHAREHOLDERS'
                EQUITY**Common
                stock, $0.0001 par value; 100,000,000 shares authorized 37,771,488
                (June
                30, 2007) and 31,824,938 (December 31, 2006) shares issued and
                outstanding
            
            
            4
            
            
            3Additional
                paid-in capital
            
            
            72,407
            
            
            45,320Retained
                earnings
            
            
            50,281
            
            
            41,483Statutory
                reserves
            
            
            804
            
            
            804Accumulated
                other comprehensive income
            
            
            4,771
            
            
            2,209Total
                shareholders' equity
            
            
            128,267
            
            
            89,819**TOTAL
                LIABILITIES AND SHAREHOLDERS' EQUITY**
            
            $
            295,022
            
            $
            114,443




See
      the accompanying notes to condensed consolidated financial
      statements





4




**CHINA
      SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
      SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME**


**Expressed
      in thousands of U.S. dollars**


**(Except
      for share and per share amounts)**




**Six
                Months Ended June 30,**
            
            **Three
                Months Ended June 30,****2007**
            
            **2006**
            
            **2007**
            
            **2006****(Unaudited)**
            
            **(Unaudited)**
            
            **(Unaudited)**
            
            **(Unaudited)**USD
            
            USD
            
            USD
            
            USD**Revenues**
            
            $
            90,576
            
            $
            22,609
            
            $
            52,125
            
            $
            8,015Cost
                of goods sold
            
            
            65,565
            
            
            15,175
            
            
            37,232
            
            
            4,978**Gross
                profit**
            
            
            25,011
            
            
            7,434
            
            
            14,893
            
            
            3,037Selling
                and marketing
            
            
            1,458
            
            
            293
            
            
            855
            
            
            171General
                and administrative
            
            
            5,559
            
            
            673
            
            
            3,308
            
            
            378(including
                non-cash employee compensation for the six months ended and three
                months
                ended June 30, 2007 and 2006 of $1,066, $801, $0 and $0,
                respectively)Depreciation
                and amortization
            
            
            1,890
            
            
            189
            
            
            1,084
            
            
            87**Income
                from operations**
            
            
            16,104
            
            
            6,279
            
            
            9,646
            
            
            2,401Rental
                income received from related party
            
            
            256
            
            
            246
            
            
            129
            
            
            123Interest
                income
            
            
            225
            
            
            -
            
            
            143
            
            
            -Interest
                expense
            
            
            (5,424
            )
            
            -
            
            
            (4,105
            )
            
            -Other
                income, net
            
            
            718
            
            
            454
            
            
            226
            
            
            334Income
                before income taxes and minority interest
            
            
            11,879
            
            
            6,979
            
            
            6,039
            
            
            2,858Minority
                interest in income of consolidated subsidiaries
            
            
            2
            
            
            -
            
            
            (7
            )
            
            -Income
                taxes
            
            
            (3,083
            )
            
            (943
            )
            
            (1,767
            )
            
            (322
            )**Net
                income**
            
            
            8,798
            
            
            6,036
            
            
            4,265
            
            
            2,536Foreign
                currency translation gain
            
            
            2,562
            
            
            217
            
            
            1,767
            
            
            597**Comprehensive
                income**
            
            $
            11,360
            
            $
            6,253
            
            $
            6,032
            
            $
            3,133**Net
                income per share**Basic
            
            $
            0.26
            
            $
            0.26
            
            $
            0.12
            
            $
            0.10Diluted
            
            $
            0.24
            
            $
            0.26
            
            $
            0.11
            
            $
            0.10**Weighted
                average number of shares outstanding**Basic
            
            
            34,429,780
            
            
            23,046,766
            
            
            35,770,742
            
            
            24,436,755Diluted
            
            
            36,492,123
            
            
            23,139,542
            
            
            38,831,023
            
            
            24,621,287




See
      the accompanying notes to condensed consolidated financial statements


5




**CHINA
      SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
      SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY**


**SIX
      MONTHS ENDED JUNE 30, 2007 (UNAUDITED)**


**Expressed
      in thousands of U.S. dollars**


**(Except
      for share and per share amounts)**




**Common
                Stock**
            
            **Additional**
            
            
            
            **Accumulated
                Other**
            
            **Statutory
                Surplus****Shares**
            
            **Par**
              **Value**
            
            **Paid-in**
              **Capital**
            
            **Retained**
              **Earnings**
            
            **Comprehensive
                Income**
            
            **Reserve**
              **Fund**
            
            **Total**USD
            
            USD
            
            USD
            
            USD
            
            USD
            
            USD**BALANCE
                AT JANUARY 1, 2007**
            
            
            31,824,938
            
            $
            3
            
            $
            45,320
            
            $
            41,483
            
            $
            2,209
            
            $
            804
            
            $
            89,819Warrants
                exercised (cashless)
              per
                Securities Purchase
              Agreement
            
            
            237,735
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Warrants
                exercised for cash per Securities Purchase Agreement
            
            
            126,285
            
            
            -
            
            
            606
            
            
            -
            
            
            -
            
            
            -
            
            
            606Warrants
                exercised for cash per Investor Relation Service Agreement
            
            
            356,571
            
            
            -
            
            
            1,712
            
            
            -
            
            
            -
            
            
            -
            
            
            1,712Common
                stock issued under Equity Incentive Plan
            
            
            1,063,500
            
            
            -
            
            
            1,066
            
            
            -
            
            
            -
            
            
            -
            
            
            1,066Common
                stock issued for acquisition of Cheng Feng
            
            
            1,361,748
            
            
            -
            
            
            7,500
            
            
            -
            
            
            -
            
            
            -
            
            
            7,500Common
                stock issued for acquisition of Hongtianzhi
            
            
            2,800,711
            
            
            1
            
            
            16,203
            
            
            
            
            
            
            
            
            
            
            
            16,204Foreign
                currency translation
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            2,562
            
            
            -
            
            
            2,562Net
                income for the period
            
            
            -
            
            
            -
            
            
            -
            
            
            8,798
            
            
            -
            
            
            -
            
            
            8,798**BALANCE
                AT JUNE 30, 2007**
            
            
            37,771,488
            
            $
            4
            
            $
            72,407
            
            $
            50,281
            
            $
            4,771
            
            $
            804
            
            $
            128,267





See
      the accompanying notes to condensed consolidated financial statements


6




**CHINA
      SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
      SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**Expressed
      in thousands of U.S. dollars**


**(Except
      for share and per share amounts)**





**Six
                Months Ended June 30,****2007**
            
            **2006****(Unaudited)**
            
            **(Unaudited)****USD**
            
            **USD****CASH
                FLOWS FROM OPERATING ACTIVITIES:**Net
                income
            
            $
            8,798
            
            $
            6,036Adjustments
                to reconcile net income to net cash (used in) operating activities:Depreciation
                and amortization
            
            
            1,890
            
            
            189Amortization
                of consultancy services
            
            
            60
            
            
            48Amortization
                of deferred financing cost
            
            
            9
            
            
            -Non-cash
                employee compensation
            
            
            1,066
            
            
            -Redemption
                accretion on convertible notes
            
            
            4,975
            
            
            -Deferred
                taxes
            
            
            8
            
            
            (643
            )Minority
                interest
            
            
            (2
            )
            
            -Changes
                in operating assets and liabilities:(Increase)
                decrease in:Accounts
                receivable
            
            
            (4,217
            )
            
            (3,556
            )Related
                party receivables
            
            
            (109
            )
            
            2,891Inventories
            
            
            (7,602
            )
            
            (3,526
            )Prepayments
                & deposits
            
            
            (2,549
            )
            
            -Advances
                to suppliers
            
            
            (1,176
            )
            
            (3,663
            )Other
                receivables
            
            
            (658
            )
            
            (1,736
            )Deferred
                expenses
            
            
            -
            
            
            (12,150
            )(Decrease)
                increase in:Accounts
                payable and accrued expenses
            
            
            (838
            )
            
            (720
            )Advances
                from customers
            
            
            (4,310
            )
            
            -Tax
                payable
            
            
            856
            
            
            (210
            )Deferred
                income
            
            
            16
            
            
            16,959Net
                cash (used in) operating activities
            
            
            (3,783
            )
            
            (81
            )





Continued


7




**CHINA
      SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
      SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)**


**Expressed
      in thousands of U.S. dollars**


**(Except
      for share and per share amounts)**




**Six
                Months Ended June 30,****2007**
            
            **2006****(Unaudited)**
            
            **(Unaudited)****USD**
            
            **USD****CASH
                FLOWS FROM INVESTING ACTIVITIES:**Additions
                to property, plant and equipment
            
            
            (1,528
            )
            
            (1
            )Additions
                to intangible assets
            
            
            (15
            )
            
            -Additions
                to land use rights
            
            
            (565
            )
            
            -Deposits
                paid for acquisition of subsidiaries
            
            
            (14,657
            )
            
            -Deposits
                paid for acquisition of properties
            
            
            (5,366
            )
            
            -Net
                cash outflow for acquisition of subsidiaries
              (net
                of cash acquired from subsidiaries)
            
            
            (30,275
            )
            
            -Net
                cash used in investing activities
            
            
            (52,406
            )
            
            (1
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES:**Due
                to a director
            
            
            (74
            )
            
            1Issuance
                of common stock, net of issuing expenses
            
            
            2,318
            
            
            7,359New
                borrowings, net of issuing cost
            
            
            116,291
            
            
            -Repayment
                of borrowings
            
            
            (2,055
            )
            
            -Net
                cash provided by financing activities
            
            
            116,480
            
            
            7,360**EFFECT
                OF EXCHANGE RATE CHANGES ON CASH**
            
            
            513
            
            
            63**NET
                INCREASE IN CASH AND CASH EQUIVALENTS**
            
            
            60,804
            
            
            7,341Cash
                and cash equivalents, beginning of period
            
            
            30,980
            
            
            2,277**CASH
                AND CASH EQUIVALENTS, END OF PERIOD**
            
            $
            91,784
            
            $
            9,618





Continued


8




**CHINA
      SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND
      SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)**


**Expressed
      in thousands of U.S. dollars**


**(Except
      for share and per share amounts)**




**SUPPLEMENTARY
                CASH FLOW INFORMATION:**Interest
                paid
            
            $
            210
            
            $
            -Income
                taxes paid
            
            $
            2,696
            
            $
            940




**SUPPLEMENTAL
      SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:**








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




2,800,711
                shares of common stock issuable in satisfaction of the equity portion
                of
                the purchase price of approximately $16,162 in the acquisition of
                Shenzhen
                Hongtianzhi Electronics Co., Ltd., (“Hongtianzhi”), were issued in the
                second quarter of 2007. (Note 3)




See
      the accompanying notes to condensed consolidated financial
      statements





9




**CHINA
      SECURITY & SURVEILLANCE TECHNOLOGY, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**


**Expressed
      in thousands of U.S. dollars**


**(Except
      for share and per share amounts)**





1.
            BASIS
                OF PRESENTATION
              
              The
                accompanying financial statements, as of June 30, 2007 and for the
                six
                months and three months ended June 30, 2007 and 2006, have been prepared
                by CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. (the “Company”)
                without audit. Pursuant to the rules and regulations of the Securities
                and
                Exchange Commission (the “SEC”), certain information and footnote
                disclosures normally included in the financial statements prepared
                in
                accordance with accounting principles generally accepted in the United
                States of America (“US GAAP”) have been condensed or omitted pursuant to
                such rules and regulations. These financial statements should be
                read in
                conjunction with the financial statements and the notes thereto included
                in the Company’s audited annual financial statements for the year ended
                December 31, 2006, which are included in the Company’s Annual Report on
                Form 10-K for the year ended December 31, 2006, filed with the SEC
                on
                March 21, 2007, as amended on March 23, 2007. Amounts as of December
                31,
                2006 are derived from these audited consolidated financial
                statements.
              
              The
                preparation of financial statements in conformity with US GAAP requires
                management to make estimates and assumptions that affect the reported
                amounts of assets, liabilities, revenues and expenses and the disclosure
                of contingent assets and liabilities. Actual results could differ
                from
                these estimates.
              
              In
                the opinion of management, all adjustments (which include only normal
                recurring adjustments) necessary to present fairly the Company’s financial
                position as of June 30, 2007, results of operations for the six months
                and
                three months ended June 30, 2007 and 2006, and cash flows for the
                six
                months ended June 30, 2007 and 2006, have been made. The results
                of
                operations for the six months and three months ended June 30, 2007
                are not
                necessarily indicative of the operating results for the full
                year.2.
            SUMMARY
                OF SELECTED SIGNIFICANT ACCOUNTING
                POLICIES




(a)    Accounts
                Receivable





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





No
      trade receivables due from one individual customer exceeds 10% of total accounts
      receivable at June 30, 2007 and December 31, 2006.




(b)    Inventories





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





When
      inventories are sold, their carrying amount is charged to expense in the year
      in
      which the revenue is recognized. Write-downs for declines in net realizable
      value or for losses of inventories are recognized as an expense in the year
      the
      impairment or loss occurs. There were no declines in net realizable value of
      inventory for the three and six months ended June 30, 2007 and
      2006.





During
      the six months and three months ended June 30, 2007 and 2006, approximately
      81%,
      72%, 99% and 98%, of total inventory purchases were from five suppliers,
      respectively.





10




**CHINA
      SECURITY & SURVEILLANCE TECHNOLOGY, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**


**Expressed
      in thousands of U.S. dollars**


**(Except
      for share and per share amounts)**




2.
            SUMMARY
                OF SELECTED SIGNIFICANT ACCOUNTING POLICIES
                (CONTINUED)





(c)    Accounting
                for Computer Software To Be Sold, Leased or Otherwise
                Marketed





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





As
      of June 30, 2007 and December 31, 2006, unamortized computer software costs
      were
      $665 and $267, respectively. During the six months and three months ended June
      30, 2007 and 2006, $63, $32, $0 and $0 amortization expense was charged to
      income, respectively.





(d)    Revenue
                Recognition





The
      Company derives the bulk of its revenue from the supply and installation of
      security and surveillance equipment and the two deliverables do not meet the
      separation criteria under Emerging Issues Task Force (“ EITF”)
      issue 00-21. The installation is not considered to be essential to the
      functionality of the equipment having regard to the following criteria as set
      out in Staff Accounting Bulletin (“SAB”) 104:





(i)    The
                security and surveillance equipment is a standard product with minor
                modifications according to customers’
                specifications;




(ii)    Installation
                does not significantly alter the security and surveillance equipment’s
                capabilities; and




(iii)    Other
                companies which possess the relevant licenses are available to perform
                the
                installation services.





In
      early 2006, the Company began performing much larger security installation
      contracts than it had been performing previously. As a marketing approach,
      the
      Company prepared standard contracts with its new larger customers, whereby
      90%
      of the contract amount was due when installation was complete and payment of
      the
      remaining 10% was deferred for one year. Because of the newness of the larger
      contracts and the inability to immediately determine the amount of warranty
      work
      that would be required, the Company initially deferred recognizing the 10%
      of
      the contract amount as revenue and amortized this amount to income over the
      one
      year period. During the second and third quarters of 2006, the Company carefully
      monitored the warranty work requested by its customers, and determined that
      very
      little warranty work had been required to be performed.





The
      Company reduced its estimate of future warranty requirements to approximately
      1%
      of contract installation revenue since the fourth quarter of 2006.





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




(e)    Research
                and Development Costs





Research
      and development costs are expensed as incurred. Research and development costs
      included in general and administrative expenses for the six and three months
      ended June 30, 2007 and 2006 were $108, $87, $0 and $0,
      respectively.


11


**CHINA
      SECURITY & SURVEILLANCE TECHNOLOGY, INC.**


**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)    Advertising
                Costs





The
      Company expenses advertising costs as incurred or the first time advertising
      takes place. During the six and three months ended June 30, 2007 and 2006,
      the
      Company incurred approximately $203, $103, $20 and $3, respectively.





(g)    Retirement
                Benefits





Retirement
      benefits in the form of contributions under defined contribution retirement
      plans to the relevant authorities are charged to the consolidated statements
      of
      income as incurred. The retirement benefit expenses (included in general and
      administrative expenses) for the six and three months ended June 30, 2007 and
      2006 were $127, $73, $10 and $1, respectively.





(h)    Income
                taxes





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





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





The
      Company’s policy is to recognize interest and penalties accrued on any
      unrecognized tax benefits as a component of income tax expense. As of the date
      of adoption of FIN 48, the Company did not have any accrued interest or
      penalties associated with any unrecognized tax benefits, nor was any interest
      expense recognized during the three and six month periods ended June 30, 2007.
      The Company’s effective tax rate differs from the federal statutory rate
      primarily due to non-deductible expenses, temporary differences, and
      preferential tax treatment.





On
      March 16, 2007, the National People’s Congress of the People’s Republic of China
      (“PRC”) adopted a new corporate income tax law in its fifth plenary session. The
      new corporate income tax law unifies the application scope, tax rate, tax
      deduction and preferential policy for both domestic and foreign-invested
      enterprises.  The new corporate income tax law will be effective on January
      1, 2008.  According to the new corporate income tax law, the applicable
      income tax rate for our operating subsidiaries may be subject to change. 
As the implementation detail has not yet been announced, we cannot be sure
      of
      the potential impact of such new corporate income tax law on financial position
      and operating results.





(i)    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.





12




**CHINA
      SECURITY & SURVEILLANCE TECHNOLOGY, INC.**


**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)





(j)    Earnings
                Per Share





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





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





The
      calculation of diluted earnings per share for the three and six months ended
      June 30, 2007 has been calculated using the treasury stock method based on
      the
      weighted average number of dilutive securities outstanding during 2007. As
      of
      June 30, 2007, warrants were outstanding to acquire 610,015 shares of common
      stock.





The
      Company is to issue 1,780,415 shares of common stock in connection with business
      acquisitions (note 3). The impact of these shares has been included in dilutive
      weighted average number of shares from the date of the closing of the
      acquisitions.





3.
            BUSINESS
                ACQUISITIONS





On
      April 2, 2007, the Company entered into an Equity Transfer Agreement relating
      to
      the acquisition of 100% of the equity of Chain Star Investments Limited, the
      holding company of Hongtianzhi. The acquisition was financed with proceeds
      from
      the Company’s February Notes (as defined in note 13). The results of operations
      of Hongtianzhi are included in our consolidated financial statements beginning
      on April 2, 2007.




The
      Company agreed to pay total consideration equaling RMB250,000 (approximately
      $32,324) in exchange for the 100% ownership of Chain Star Investment Limited,
      consisting of RMB125,000 (approximately $16,162) in cash and shares of the
      Company’s common stock valued at RMB125,000. RMB 12,500 (approximately $1,579)
      of the purchase price was paid as a deposit in October 2006. The balance of
      the
      cash portion of the purchase price, RMB 112,500 (approximately $14,583), was
      paid in April 2007. The number of shares issuable in satisfaction of the equity
      portion of the purchase price was 2,800,711 shares, which were issued in May
      and
      June 2007. Chain Star Investment Limited is a holding company with no assets
      other than 100% of the equity interests of Hongtianzhi.





The
      operational control of Hongtianzhi passed to the Company effective April 2,
      2007. Government approval to consummate the acquisition was subsequently
      received. The results of Hongtianzhi's operations from April 2, 2007 through
      June 30, 2007 are included in the Company’s Consolidated Statements of Income
      and Comprehensive Income.





On
      May 11, 2007, the Company entered into an Equity Transfer Agreement relating
      to
      the acquisition of 100% of the equity of Link Billion Limited which is
      the holding company of HiEasy Electronic Technology Development Co., Ltd.
      (“ HiEasy”).
      The acquisition was financed with proceeds from the Company’s February Notes and
      April Notes (as defined in note 13). The results of operations of HiEasy are
      included in our consolidated financial statements beginning on May 11,
      2007.




The
      Company agreed to pay total consideration equaling RMB80,000 (approximately
      $10,382) in exchange for the 100% ownership of Link Billion Limited, consisting
      of RMB40,000 (approximately $5,191) in cash and shares of the Company’s common
      stock valued at RMB40,000. RMB32,290 (approximately $4,200) of the purchase
      price was paid before the execution of the Equity Transfer Agreement. The
      balance of the cash portion of the purchase price, RMB7,710 (approximately
      $991), was paid in June 2007. The number of shares issuable in satisfaction
      of
      the equity portion of the purchase price was 811,804 shares, which will be
      issued in the third quarter of 2007. Link Billion Limited is a holding company
      with no assets other than 100% of the equity interests of HiEasy.




13


**CHINA
      SECURITY & SURVEILLANCE TECHNOLOGY, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**


**Expressed
      in thousands of U.S. dollars**


**(Except
      for share and per share amounts)**





3.
            BUSINESS
                ACQUISITIONS (CONTINUED)




The
      operational control of HiEasy passed to the Company effective May 11, 2007.
      Government approval to consummate the acquisition was subsequently received.
      The
      results of HiEasy’s operations from May 11, 2007 through June 30, 2007 are
      included in the Company’s Consolidated Statements of Income and Comprehensive
      Income.





On
      June 4, 2007, the Company entered into an Equity Transfer Agreement relating
      to
      the acquisition of 100% of the equity of Allied Rich Limited which is
      the holding company of Changzhou Minking Electronics Co., Ltd.
      (“Minking”) .
      The acquisition was financed with proceeds from the Company’s February Notes and
      April Notes. (as defined in note 13) The results of operations of Minking are
      included in our consolidated financial statements beginning on June 4, 2007.




The
      Company agreed to pay RMB200,000 (approximately $26,136) in exchange for 100%
      ownership of Allied Rich Limited, consisting of RMB100,000 (approximately
      $13,068) in cash and shares of the Company’s common stock valued at RMB100,000.
      RMB30,833 (approximately $3,953) of the purchase price was paid as a deposit
      in
      March 2007. The balance of the cash portion of the purchase price, RMB69,167
      (approximately $9,115), was paid in June 2007. The number of shares issuable
      in
      satisfaction of the equity portion of the purchase price was 968,611 shares,
      which will be issued in the third quarter of 2007. Allied Rich Limited is a
      holding company with no assets other than 100% of the equity interests of
      Minking.





The
      operational control of Minking passed to the Company effective June 4, 2007.
      Government approval to consummate the acquisition was subsequently received.
      The
      results of Minking’s operations from June 4, 2007 through June 30, 2007 are
      included in the Company’s Consolidated Statements of Income and Comprehensive
      Income.





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





**Hongtianzhi**
            
            **HiEasy**
            
            **Minking**
            
            **Total**Cash
                and cash equivalents
            
            $
            924
            
            $
            291
            
            $
            2,680
            
            $
            3,895Other
                current assets
            
            
            8,998
            
            
            2,631
            
            
            7,414
            
            
            19,043Property,
                plant and equipment
            
            
            3,869
            
            
            200
            
            
            2,084
            
            
            6,153Other
                assets
            
            
            420
            
            
            -
            
            
            364
            
            
            784Goodwill
            
            
            20,092
            
            
            3,153
            
            
            11,839
            
            
            35,084Intangible
                assets
            
            
            6,051
            
            
            5,587
            
            
            8,560
            
            
            20,198Current
                liabilities
            
            
            (5,931
            )
            
            (1,480
            )
            
            (6,805
            )
            
            (14,216
            )Long-term
                liabilities
            
            
            (2,043
            )
            
            -
            
            
            -
            
            
            (2,043
            )Minority
                interest in consolidated subsidiaries
            
            
            (56
            )
            
            -
            
            
            -
            
            
            (56
            )Total
                purchase price
            
            $
            32,324
            
            $
            10,382
            
            $
            26,136
            
            $
            68,842




14




**CHINA
      SECURITY & SURVEILLANCE TECHNOLOGY, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**


**Expressed
      in thousands of U.S. dollars**


**(Except
      for share and per share amounts)**





3.
            BUSINESS
                ACQUISITIONS (CONTINUED)




The
      following table shows supplemental information of the results of operations
      on a
      pro forma basis for the six months ended and three months ended June 30, 2007
      and 2006 as if the acquisition of Hongtianzhi, HiEasy and Minking had been
      completed at the beginning of 2007 and 2006:




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




**Historical****CSST**
            
            **Hongtianzhi,
                HiEasy and Minking**
            
            **Pro
                  Forma**Adjustments
            
            **Pro
                Forma****Revenues**
            
            $
            90,576
            
            $
            9,899
            
            
            
            
            $
            100,475**Income
                From Operations**
            
            $
            16,104
            
            $
            1,240
            
            $
            (694
            )
            $
            16,650**Net
                Income**
            
            $
            8,798
            
            $
            794
            
            $
            (694
            )
            $
            8,898**Net
                Income Per Share****Basic**
            
            $
            0.26
            
            
            
            
            
            
            
            $
            0.23**Diluted**
            
            $
            0.24
            
            
            
            
            
            
            
            $
            0.22





For
      the six months ended June 30, 2006 (Unaudited)


**Historical****CSST**
              
              **Hongtianzhi,
                  HiEasy and Minking**
              
              **Pro
                    Forma**Adjustments
              
              **Pro
                    Forma****Revenues**
              
              $
              22,609
              
              $
              10,253
              
              
              
              
              $
              32,862**Income
                  From Operations**
              
              $
              6,279
              
              $
              1,347
              
              $
              (1,000
              )
              $
              6,626**Net
                  Income**
              
              $
              6,036
              
              $
              1,058
              
              $
              (1,000
              )
              $
              6,094**Net
                  Income Per Share****Basic**
              
              $
              0.26
              
              
              
              
              
              
              
              $
              0.22**Diluted**
              
              $
              0.26
              
              
              
              
              
              
              
              $
              0.22





15





**CHINA
      SECURITY & SURVEILLANCE TECHNOLOGY, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**


**Expressed
      in thousands of U.S. dollars**


**(Except
      for share and per share amounts)**





3.
            BUSINESS
                ACQUISITIONS (CONTINUED)




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




**Historical****CSST**
            
            **Hongtianzhi,
                HiEasy and Minking**
            
            **Pro
                FormaAdjustments**
            
            **Pro
                Forma****Revenues**
            
            $
            52,125
            
            $
            3,194
            
            
            
            
            $
            55,319**Income
                From Operations**
            
            $
            9,646
            
            $
            334
            
            $
            (195
            )
            $
            9,785**Net
                Income**
            
            $
            4,265
            
            $
            176
            
            $
            (195
            )
            $
            4,246**Net
                Income Per Share****Basic**
            
            $
            0.12
            
            
            
            
            
            
            
            $
            0.11**Diluted**
            
            $
            0.11
            
            
            
            
            
            
            
            $
            0.10





For
      the three months ended June 30, 2006 (Unaudited)




**Historical****CSST**
            
            **Hongtianzhi,
                HiEasy and Minking**
            
            **Pro
                Forma Adjustments**
            
            **Pro
                Forma****Revenues**
            
            $
            8,015
            
            $
            5,911
            
            
            
            
            $
            13,926**Income
                From Operations**
            
            $
            2,401
            
            $
            915
            
            $
            (499
            )
            $
            2,817**Net
                Income**
            
            $
            2,536
            
            $
            704
            
            $
            (499
            )
            $
            2,741**Net
                Income Per Share****Basic**
            
            $
            0.10
            
            
            
            
            
            
            
            $
            0.09**Diluted**
            
            $
            0.10
            
            
            
            
            
            
            
            $
            0.09




The
      pro forma adjustments represent the amortization of the intangible assets
      arising upon the acquisitions of Hongtianzhi, HiEasy and Minking.





16











**CHINA
      SECURITY & SURVEILLANCE TECHNOLOGY, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**


**Expressed
      in thousands of U.S. dollars**


**(Except
      for share and per share amounts)**




4.
            ACCOUNTS
                RECEIVABLE




The
      Company provides an allowance for doubtful accounts related to its receivables.
      The receivables and allowance balances at June 30, 2007 and December 31, 2006
      are as follows:




**June
                30, 2007**
            
            **December
                31,****2006**Accounts
                receivable
            
            $
            37,721
            
            $
            26,877Less:
                allowance for doubtful accounts
            
            
            (255
            )
            
            (123
            )Accounts
                receivable, net
            
            $
            37,466
            
            $
            26,754





5.
            RELATED
                PARTY RECEIVABLES




The
      Company had receivables from several companies whose directors and shareholders
      are common with the Company. All receivables arise from advances made prior
      to
      the date of the reverse merger on September 22, 2005 and from the rental of
      real
      estate properties. The receivables are classified as related party receivables
      on the balance sheets. The balances as of June 30, 2007 and December 31, 2006
      are as follows:




**June
                30, 2007**
            
            **December
                31,2006**Related
                party receivables
            
            $
            559
            
            $
            440Less:
                allowance for doubtful accounts
            
            
            -
            
            
            -Related
                party receivables, net
            
            $
            559
            
            $
            440





The
      Company has leased offices to three related parties since January 1, 2004.
      The
      leases expire on December 31, 2007. The rental income was $256, $127, $246
      and
      $123 for the six and three months ended June 30, 2007 and 2006,
      respectively.







6.
            INVENTORIES




Inventories
      consist of the following as of June 30, 2007 and December 31, 2006:




**June
                30,**
              **2007**
            
            **December
                31,****2006**Raw
                materials
            
            $
            10,088
            
            $
            2,261Work
                in progress
            
            
            1,670
            
            
            -Finished
                goods
            
            
            9,397
            
            
            642Installations
                in process
            
            
            18,344
            
            
            17,091Total
            
            
            39,499
            
            
            19,994Less:
                allowance for obsolete inventories
            
            
            (517
            )
            
            (273
            )Inventories,
                net
            
            $
            38,982
            
            $
            19,721





17


**CHINA
      SECURITY & SURVEILLANCE TECHNOLOGY, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**


**Expressed
      in thousands of U.S. dollars**


**(Except
      for share and per share amounts)**





7.
            PREPAYMENTS
                & DEPOSITS




Prepayments
      and deposits consist of the following as of June 30, 2007 and December 31,
      2006:




**June
                30,**
              **2007**
            
            **December
                31,****2006**Current
                portion
            
            $
            6,136
            
            $
            3,533Non
                current portion
              -
                Deposits paid for acquisition of properties
            
            
            5,366
            
            
            --
                Deposits paid for acquisition of subsidiaries
            
            
            14,657
            
            
            -$
            20,023
            
            $
            -





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




8.
            ADVANCE
                PAYMENTS




The
      Company has made payments to unrelated suppliers in advance of receiving
      merchandise. The advance payments are meant to ensure preferential pricing
      and
      delivery. The amounts advanced under such arrangements totaled $4,950 and $2,889
      as of June 30, 2007 and December 31, 2006, respectively.




9.
            PROPERTY,
                PLANT AND EQUIPMENT




At
      June 30, 2007 and December 31, 2006, property, plant and equipment, at cost,
      consist of




**June
                30,**
              **2007**
            
            **December
                31,2006**Buildings
            
            $
            12,577
            
            $
            7,450Leasehold
                improvements
            
            
            1,004
            
            
            888Plant
                and equipment
            
            
            2,002
            
            
            267Electronic
                equipment
            
            
            1,616
            
            
            669Motor
                vehicles
            
            
            1,947
            
            
            93819,146
            
            
            10,212Less:
                accumulated depreciation
            
            
            (3,325
            )
            
            (1,873
            )Property,
                plant and equipment, net
            
            $
            15,821
            
            $
            8,339





18




**CHINA
      SECURITY & SURVEILLANCE TECHNOLOGY, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**


**Expressed
      in thousands of U.S. dollars**


**(Except
      for share and per share amounts)**




10.
            LAND
                USE RIGHTS




Land
      use rights consist of the following as of June 30, 2007 and December 31,
      2006:





**June
                30,**
              **2007**
            
            **December
                31,2006**Cost
                of land use rights
            
            $
            2,861
            
            $
            1,445Less:
                Accumulated amortization
            
            
            (354
            )
            
            (293
            )Land
                use rights, net
            
            $
            2,507
            
            $
            1,152




Amortization
      expense for the six and three months ended June 30, 2007 and 2006 was $20,
      $12,
      $14 and $7, respectively.





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








2007
                (for the remaining 6 months)
            
            $
            292008
            
            
            572009
            
            
            572010
            
            
            572011
            
            
            572012
            
            
            57Thereafter
            
            
            2,193Total
            
            $
            2,507




19




**CHINA
      SECURITY & SURVEILLANCE TECHNOLOGY, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**


**Expressed
      in thousands of U.S. dollars**


**(Except
      for share and per share amounts)**




11.
            INTANGIBLE
                ASSETS




**June
                30,**
              **2007**
            
            **December
                31, 2006**Acquired
                trademarks from Hongtianzhi, HiEasy and Minking (life of 11 to 25
                years)
            
            $
            11,638
            
            $
            -Acquired
                customer base from the Four-Related Companies, Hongtianzhi, HiEasy
                and
                Minking (life of 5 to 10 years)
            
            
            6,993
            
            
            5,840Acquired
                patents from Minking (life of 10 years)
            
            
            4,555
            
            
            -Acquired
                technical know-how from HiEasy (life of 9 years)
            
            
            2,372
            
            
            -Acquired
                non-compete agreements from the Four-Related Companies, and HiEasy
                (life
                of 5 to 9 years)
            
            
            1,334
            
            
            953Acquired
                surveillance software from HiEasy (life of 5 years)
            
            
            260
            
            
            -Acquired
                contracts in progress from the Four-Related Companies and Hongtianzhi
                (life of 2 to 9 months)
            
            
            414
            
            
            177Acquired
                surveillance software and patents from Cheng Feng (life of 5
                years)
            
            
            3,593
            
            
            3,159Acquired
                surveillance recording system from Yuan Da (life of 5
                years)
            
            
            519
            
            
            511Less:
                accumulated amortization
            
            
            (2,682
            )
            
            (643
            )Intangible
                assets, net
            
            $
            28,996
            
            $
            9,997





The
      Company acquired Hongtianzhi, HiEasy and Minking during the second quarter
      of
      2007. The valuations and allocation of the intangible assets were determined
      by
      a third party appraisal firm.





The
      Company acquired Cheng Feng and the security and surveillance businesses of
      Jian
      Golden An Ke Technology Co., Ltd., Shenzhen Golden Guangdian Technology Co.,
      Ltd., Shenyang Golden Digital Technology Co., Ltd., and Jiangxi Golden Digital
      Technology Co., Ltd. (collectively referred to herein as the “the Four-Related
      Companies”) in 2006. The valuations and allocation of the intangible assets were
      determined by a third party appraisal firm.





The
      Company's intangible assets from Shenzhen Yuan Da Wei Shi Technology Limited
      (“Yuan Da”) represent the value determined by an independent accounting firm for
      the intellectual property pertaining to a surveillance recording system
      developed by Yuan Da which was acquired by the Company on December 31,
      2005.





The
      amortization expense for the six and three months ended June 30, 2007 and 2006
      was $1,465, $844, $51 and $26, respectively.





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





2007
                (for the remaining 6 months)
            
            $
            2,0802008
            
            
            4,2152009
            
            
            4,7652010
            
            
            3,4652011
            
            
            2,4262012
            
            
            1,857Thereafter
            
            
            10,188Total
            
            $
            28,996





20




**CHINA
      SECURITY & SURVEILLANCE TECHNOLOGY, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**Expressed
      in thousands of U.S. dollars**


**(Except
      for share and per share amounts)**




12.
            NOTES
                PAYABLE




The
      following is a summary of the Company’s short-term and long-term notes payable
      as of June 30, 2007 and December 31, 2006:




**June
                30,**
              **2007**
            
            **December
                31, 2006**Bank
                loans
            
            $
            11,095
            
            $
            4,282Less:
                current portion
            
            
            (10,189
            )
            
            (2,272
            )Long-term
                portion
            
            $
            906
            
            $
            2,010




At
                June 30, 2007, notes payable are due as follows:
            
            **Long-term
                notes**
            
            **Short-term
                notes**
            
            **Total**2007
                (for the remaining six months)
            
            $
            236
            
            $
            1,838
            
            $
            2,0742008
            
            
            472
            
            
            7,878
            
            
            8,3502009
            
            
            671
            
            
            -
            
            
            671Total
            
            $
            1,379
            
            $
            9,716
            
            $
            11,095







On
      May 28, 2007, the Company entered into a loan agreement with a Chinese bank.
      The
      Company borrowed RMB20,000 (approximately $2,626) with an annual interest rate
      of 5.913%. The loan is due in May 2008, and the interest is payable at the
      end
      of each month. The loan agreement requires the Company to use the loan proceeds
      only for the Company’s operations. The loan is guaranteed by the directors and
      the CEO of the Company and by a subsidiary of the Company.





On
      February 16, 2007, the Company entered into a loan agreement with a Chinese
      bank. The Company borrowed RMB 10,000 (approximately $1,313) with an annual
      interest rate of 6.39%. The loan is due in February 2008, and the interest
      is
      payable at the end of each month. The loan agreement requires the Company to
      use
      the loan proceeds only for the Company’s operations. The bank has the right to
      increase the interest rate and demand repayment of the entire loan principal
      and
      unpaid interest if the Company uses the loan for any purpose other than
      operations. The loan is guaranteed by the directors and the CEO of the Company
      and by Shenzhen Chuang Guan Intelligent Network Technology Co.,
      Ltd.





On
      February 2, 2007, the Company entered into a loan agreement with a Chinese
      bank.
      The Company borrowed RMB 30,000 (approximately $3,939) with an annual interest
      rate of 6.12%. The loan is due in February 2008, and the interest is payable
      at
      the end of each month. The loan agreement requires the Company to use the loan
      proceeds only for the Company’s operations. The bank has the right to increase
      the interest rate and demand repayment of the entire loan principal and unpaid
      interest if the Company uses the loan for any purpose other than operations.
      The
      loan is guaranteed by the directors and the CEO of the Company and by Shenzhen
      Chuang Guan Intelligent Network Technology Co., Ltd.





On
      November 27, 2006, the Company entered into a loan agreement with a Chinese
      bank. The Company borrowed RMB 8,000 (approximately $1,050) with an annual
      interest rate of 6.732%. The loan is due in November 2007, and the interest
      is
      payable at the end of each month. The loan agreement requires the Company to
      use
      the loan proceeds only for the construction of the Company’s factory. The bank
      has the right to increase the interest rate and demand repayment of the entire
      loan principal and unpaid interest if the Company uses the loan for other
      purposes. The land use rights are pledged as collateral for the bank
      loan.





The
      long term note payable is from another Chinese bank. As of June 30, 2007, total
      long term liabilities were RMB10,500 (approximately $1,379), consisting of
      a
      3-year loan payable to a Chinese Bank. This loan was borrowed on January 17,
      2006 and matures on March 3, 2009, with an annual interest rate of 6.435 %.
      The
      loan agreement requires the Company to use the loan proceeds only for the
      construction of the Company’s factory. The loan is collateralized by the
      personal assets of the CEO of one of the Company’s subsidiaries.




21





**CHINA
      SECURITY & SURVEILLANCE TECHNOLOGY, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**Expressed
      in thousands of U.S. dollars**


**(Except
      for share and per share amounts)**




12.
            NOTES
                PAYABLE  (CONTINUED)




On
      August 16, 2006, the Company entered into a loan agreement with a Chinese bank,
      guaranteed by the CEO of the Company. The Company borrowed RMB 10,000
      (approximately $1,313) with an annual interest rate of 5.94% payable at the
      end
      of each month. The loan was repaid in February 2007.





On
      November 1, 2005, a subsidiary of the Company entered into a loan agreement
      with
      a Chinese bank in the amount of RMB 6,000 (approximately $788) with an annual
      interest rate of 5.76%. The loan is due on November 7, 2007, and the interest
      is
      payable at the end of each quarter. The loan agreement requires the Company
      to
      use the loan proceeds only for the Company’s operations. The bank has the right
      to increase the interest rate and demand repayment of the entire loan principal
      and unpaid interest if the Company uses the loan for any purpose other than
      operations.





The
      loan is guaranteed by two third-party companies. According to the guaranty
      and
      security agreement, the loan is also collateralized by the office building
      owned
      by such subsidiary and the personal assets of the subsidiary’s CEO. The Company
      is required to pay the guarantors an annual guaranty fee equal to 2.5% of the
      loan principal amount and an annual management and security fee equal to 3%
      of
      the loan principal amount. The Company prepaid these fees in November 2005
      and
      amortizes the fees throughout the loan term. The Company is also required to
      pay
      the guarantors a loan default fee equal to 20% of the loan principal amount
      plus
      interest at 10.7% if the loan is in default.




13.
            CONVERTIBLE
                NOTES PAYABLE




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





Under
      the February Notes indenture, the February Notes are convertible, by the holders
      thereof, at any time on or prior to maturity, into common stock of the Company
      initially at the conversion price of $18 per share (subject to adjustment in
      certain circumstances, including semi-annual reset of the conversion price
      and
      upon occurrence of certain dilutive events, in each case subject to certain
      conditions). If the February Notes are not converted before maturity, the
      February Notes will be redeemed by the Company on the maturity date at a
      redemption price equal to 100% of the principal amount of the February Notes
      then outstanding plus an additional amount of 15.0% per annum, calculated on
      a
      quarterly compounded basis, plus any accrued and unpaid interest. In addition,
      if the 45-day variable weighted average price (“VWAP”) during the one year
      period from February 16, 2009 to February 15, 2010 equals or is greater than
      $30.0 per share of common stock, the Company shall, within one trading day,
      force holders of the February Notes to convert 50% of the then-outstanding
      principal amount of the February Notes at the then applicable conversion rate
      on
      a pro rata basis (the “February Notes 2010 Mandatory Conversion”). If the 45-day
      VWAP during the one year period from February 16, 2010 to February 15, 2011
      equals or is greater than $35.0 per share of common stock (the “February Notes
      2011 Mandatory Conversion Trigger”) and the February Notes 2010 Mandatory
      Conversion had occurred, the Company shall, within one trading day, force
      holders of the February Notes to convert all of the then-outstanding principal
      amount of the February Notes at the then applicable conversion price. If the
      February Notes 2011 Mandatory Conversion Trigger occurs and the February Notes
      2010 Mandatory Conversion had not occurred, the Company shall, within one
      trading day, force holders of the February Notes to convert 50% of the
      then-outstanding principal amount of the February Notes at the then applicable
      conversion rate on a pro rata basis.





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


22




**CHINA
      SECURITY & SURVEILLANCE TECHNOLOGY, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**Expressed
      in thousands of U.S. dollars**


**(Except
      for share and per share amounts)**





13.
            CONVERTIBLE
                NOTES PAYABLE - CONTINUED




Under
      the April Notes indenture, the April Notes are convertible, by the holders
      thereof, at any time on or prior to maturity, into common stock of the Company
      initially at the conversion price of $23.60 per share (subject to adjustment
      in
      certain circumstances, including semi-annual reset of the conversion price
      and
      upon occurrence of certain dilutive events, in each case subject to certain
      conditions). If the April Notes are not converted before maturity, the April
      Notes will be redeemed by the Company on the maturity date at a redemption
      price
      equal to 100% of the principal amount of the April Notes then outstanding plus
      an additional amount of 15.0% per annum, calculated on a quarterly compounded
      basis, plus any accrued and unpaid interest. In addition, if the 45-day VWAP
      during the one year period from February 16, 2009 to February 15, 2010 equals
      or
      is greater than $40.0 per share of common stock, the Company shall, within
      one
      trading day, force holders of the April Notes to convert 50% of the
      then-outstanding principal amount of the April Notes at the then applicable
      conversion rate on a pro rata basis (the “April Notes 2010 Mandatory
      Conversion”). If the 45-day VWAP during the one year period from February 16,
      2010 to February 15, 2011 equals or is greater than $45.00 per share of common
      stock (the “April Notes 2011 Mandatory Conversion Trigger”) and the April Notes
      2010 Mandatory Conversion had occurred, the Company shall, within one trading
      day, force holders of the April Notes to convert all of the then-outstanding
      principal amount of the April Notes at the then applicable conversion price.
      If
      the April Notes 2011 Mandatory Conversion Trigger occurs and the April Notes
      2010 Mandatory Conversion had not occurred, the Company shall, within one
      trading day, force holders of the April Notes to convert 50% of the
      then-outstanding principal amount of the April Notes at the then applicable
      conversion rate on a pro rata basis.





As
      of June 30, 2007, the Company has accreted $4,975 of the additional redemption
      amount related to the February Notes and April Notes, which amount is included
      in interest expense.





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





Approximately
      $176 of legal fees and other costs directly associated with the issuance of
      the
      February Notes and April Notes is recorded as deferred financing costs in the
      balance sheet at June 30, 2007. The Company has amortized these financing costs
      over the life of the February Notes and April Notes. As of June 30, 2007,
      approximately $9 was amortized to interest expenses.








14.
            DEFERRED
                INCOME




Deferred
      income balances as of June 30, 2007 and December 31, 2006 were $826 and $831,
      respectively, and represented amounts invoiced but deferred as revenues as
      an
      estimated warranty reserve.




15.
            DUE
                TO A DIRECTOR




The
      Company had received advances from a director that were repaid during the six
      months ended June 30, 2007. The advances were non-interest bearing and were
      repayable upon demand. The balances due to the director were $0 and $76, at
      June
      30, 2007 and December 31, 2006, respectively.




23




**CHINA
      SECURITY & SURVEILLANCE TECHNOLOGY, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**Expressed
      in thousands of U.S. dollars**


**(Except
      for share and per share amounts)**





16.
            ISSUANCE
                OF COMMON STOCK AND WARRANTS




On
      July 6, 2006, the Company entered into a definitive Securities Purchase
      Agreement with certain accredited investors relating to the private placement
      of
      units, consisting of one share of the Company’s common stock and a warrant to
      purchase one-fifth of one share of common stock.




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





Pursuant
      to the Securities Purchase Agreement, the Company sold 4,634,592 units to
      certain accredited investors at $3.50 per unit for gross proceeds of
      $16,200.





Net
      proceeds to the Company from the sale of all of the units pursuant to the
      Securities Purchase Agreement were approximately $14,900. 482,856 and 128,571
      warrants were exercised at $4.80 per share during the six months and three
      months ended June 30, 2007, respectively.




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





The
      Company also issued warrants to purchase 324,421 shares of its common stock
      with
      an exercise price of $4.20 to two private placement agents as commission for
      their services in connection with the private placement. 324,421 and 97,326
      of
      such warrants were exercised using the cashless exercise feature during the
      six
      months ended and three months ended June 30, 2007.





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





**2007**
            
            **2006**Weighted
                Average Exercise
            
            
            
            Weighted
                Average ExerciseShares
            
            Prices
            
            Shares
            
            PricesOutstanding
                at January 1
            
            
            1,417,292
            
            $
            4.40
            
            
            100,000
            
            $
            1.85Granted
            
            
            -
            
            
            -
            
            
            416,667
            
            
            3.22Exercised
            
            
            (807,277
            )
            
            (4.50
            )
            
            -
            
            
            -Outstanding
                at June 30
            
            
            610,015
            
            
            4.23
            
            
            516,667
            
            
            2.95Warrants
                exercisable at June 30
            
            
            610,015
            
            $
            4.23
            
            
            516,667
            
            $
            2.95




24





**CHINA
      SECURITY & SURVEILLANCE TECHNOLOGY, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**Expressed
      in thousands of U.S. dollars**


**(Except
      for share and per share amounts)**





16.
            ISSUANCE
                OF COMMON STOCK AND WARRANTS -
                (CONTINUED)





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


**2007**
              
              **2006**Weighted
                  Average Exercise
              
              
              
              Weighted
                  Average ExerciseShares
              
              Prices
              
              Shares
              
              PricesOutstanding
                  at April 1
              
              
              835,912
              
              $
              4.28
              
              
              100,000
              
              $
              1.85Granted
              
              
              -
              
              
              -
              
              
              416,667
              
              
              3.22Exercised
              
              
              (225,897
              )
              
              (4.34
              )
              
              -
              
              
              -Outstanding
                  at June 30
              
              
              610,015
              
              
              4.23
              
              
              516,667
              
              
              2.95Warrants
                  exercisable at June 30
              
              
              610,015
              
              $
              4.23
              
              
              516,667
              
              $
              2.95




17.
            EQUITY
                INCENTIVE PLAN




On
      February 7, 2007, the Company adopted the 2007 Equity Incentive Plan, which
      has
      a five-year term and provides for grants of stock options, stock appreciation
      rights, performance units, restricted stock units and performance shares. The
      total number of shares which may be issued under the plan is 8,000,000 shares
      of
      common stock. On February 27, 2007, the Company granted an aggregate of
      1,052,100 shares of restricted stock. On April 16, 2007, the Company granted
      an
      aggregate of 10,600 shares of restricted stock. On May 8, 2007, the Company
      granted an aggregate of 12,800 shares of restricted stock and retired 28,900
      shares of restricted stock. On May 9, 2007, the Company granted an aggregate
      of
      16,900 shares of restricted stock. The shares issued vest over a four-year
      period, and at issue resulted in total deferred compensation of $12,874. The
      fair values of these restricted stock awards are equal to the fair value of
      the
      Company’s stock on the date of grant. Such restricted stock is subject to the
      risk of forfeiture upon the occurrence of certain events. During the six and
      three months ended June 30, 2007, the Company has recognized $1,066 and $801
      of
      compensation expense under the plan, respectively. As of June 30, 2007, there
      was $11,808 of unrecognized compensation expense related to the nonvested
      restricted stock. This cost is expected to be recognized over a four-year
      period.





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




**Nonvested
                Restricted Stock and Stock Unit Awards**Number
                of Shares
            
            Weighted
                Average Grant Date Fair ValuesOutstanding
                at January 1, 2007
            
            
            -
            
            $
            -Granted
            
            
            1,092,400
            
            
            14.24Vested
            
            
            (87,621
            )
            
            14.22Retired
            
            
            (28,900
            )
            
            (14.20
            )Outstanding
                at June 30, 2007
            
            
            975,879
            
            $
            14.24


25


**CHINA
      SECURITY & SURVEILLANCE TECHNOLOGY, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**Expressed
      in thousands of U.S. dollars**


**(Except
      for share and per share amounts)**








17.
            EQUITY
                INCENTIVE PLAN - (CONTINUED)





The
      following table summarizes the status of the Company’s nonvested restricted
      stock awards during the three months ended June 30, 2007:




**Nonvested
                Restricted Stock and Stock Unit Awards**Number
                of Shares
            
            Weighted
                Average Grant Date Fair ValuesOutstanding
                at April 1, 2007
            
            
            1,030,181
            
            $
            14.20Granted
            
            
            40,300
            
            
            15.29Vested
            
            
            (65,702
            )
            
            14.23Retired
            
            
            (28,900
            )
            
            (14.20
            )Outstanding
                at June 30, 2007
            
            
            975,879
            
            $
            14.24






18.
            SUBSEQUENT
                EVENTS




Acquisition
      of Hangzhou Tsingvision Intelligence System Co., Ltd.





On
      July 2, 2007, the Company entered into an Equity Transfer Agreement relating
      to
      the acquisition of 100% of the equity of Ocean Pacific Technology Limited which
      is the holding company of Hangzhou Tsingvision Intelligence System Co., Ltd.
      (“Tsingvision”). Ocean Pacific Technology Limited is a holding company, the only
      assets of which are 100% of the equity of Tsingvision. The results of operations
      of Tsingvision will be included in the Company’s consolidated financial
      statements beginning on July 2, 2007.




The
      Company agreed to pay RMB99,346 (approximately $13,039) in exchange for 100%
      ownership of Tsingvision, consisting of RMB 50,000 (approximately $6,565) in
      cash and shares of the Company’s common stock valued at RMB49,346. All cash
      consideration of RMB50,000 (approximately $6,565) was paid in the second quarter
      of 2007. The number of shares issuable in satisfaction of the equity portion
      of
      the purchase price is 459,000, which will be issued in the third quarter of
      2007.


26


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





***Special
      Note Regarding Forward Looking Statements***




This
      Quarterly Report on Form 10-Q, including the following “Management’s Discussion
      and Analysis of Financial Condition and Results of Operations,” contains
      forward-looking statements within the meaning of Section 27A of the Securities
      Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
      1934,
      as amended (the “Exchange Act”). Such statements include, among others, those
      concerning our expected financial performance and strategic and operational
      plans, our future operating results, our expectations regarding the market
      for
      security and surveillance products, our expectations regarding the continued
      growth of the security and surveillance market, as well as all assumptions,
      expectations, predictions, intentions or beliefs about future events. You are
      cautioned that any such forward-looking statements are not guarantees of future
      performance and that a number of risks and uncertainties could cause our actual
      results to differ materially from those anticipated, expressed or implied in
      the
      forward-looking statements. These risks and uncertainties include, but not
      limited to, the factors mentioned in the “Risk Factors” section of our Annual
      Report on Form 10-K for the year ended December 31, 2006, and other risks
      mentioned in this Form 10-Q or in our other reports filed with the Securities
      Exchange Commission (the “SEC”). The words “believe,” “expect,” “anticipate,”
“project,” “targets,” “optimistic,” “intend,” “aim,” “will” or similar
      expressions are intended to identify forward-looking statements. All statements
      other than statements of historical fact are statements that could be deemed
      forward-looking statements. The Company assumes no obligation and does not
      intend to update any forward-looking statements, except as required by
      law.




***Use
      of terms***




Except
      as
      otherwise indicated by the context, references in this Form 10-Q to “CSST,”
“we,” “us,” “our,” 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 (i) “Safetech” are to
      China Safetech Holdings Limited, a British Virgin Islands corporation; (ii)
      “Golden” are to Golden Group Corporation (Shenzhen) Limited, a corporation
      incorporated in the People’s Republic of China; (v) “Cheng Feng” are to Shanghai
      Cheng Feng Digital Technology Co. Ltd., a corporation incorporated in the
      People’s Republic of China; (vi) “Hongtianzhi” are to Shenzhen Hongtianzhi
      Electronics Co., Ltd., a corporation incorporated in the People’s Republic of
      China; (vii) “Minking” are to Changzhou Minking Electronics Co., Ltd., a
      corporation incorporated in the People’s Republic of China; (viii) “HiEasy” are
      to HiEasy Electronic Technology Development Co., Ltd., a corporation
      incorporated in the People’s Republic of China; (ix) “BVI” are to the British
      Virgin Islands; (x) “PRC” and “China” are to the People’s Republic of China;
      (xi) “U.S. dollar,” “$” and “US$” are to United States dollars; (xii) “RMB” are
      to Yuan Renminbi of China; (xiii) “Securities Act” are to the Securities Act of
      1933, as amended; and (xiv) “Exchange Act” are to the Securities Exchange Act of
      1934, as amended.





***Overview
      of Our Business***





China
      Security & Surveillance Technology, Inc. is a Delaware holding company whose
      China-based operating subsidiaries are primarily engaged in manufacturing,
      distributing, installing and servicing security and surveillance products and
      systems and developing security and surveillance related software in China.
      In
      July 2006, we acquired 100% of the equity of Cheng Feng. On April 2, 2007,
      we
      acquired 100% of the equity of Chain Star Investment, a Hong Kong corporation
      and the holding company of Hongtianzhi, a manufacturer of digital camera. On
      May
      11, 2007, we acquired 100% of the equity of Link Billion Limited, a Hong Kong
      corporation and the holding company of HiEasy, a software developer. On June
      4,
      2007, we acquired 100% of the equity of Allied Rich Limited, a Hong Kong
      corporation and the holding company of Minking, a manufacturer of high speed
      dome cameras.





Our
      customers mainly comprise (i) governmental entities (including customs agencies,
      courts, public security bureaus and prisons) ,
      (ii) non-profit organizations (including schools, museums, sports arenas and
      libraries) and (iii) commercial entities (including airports, hotels, real estate, banks, mines,
      railways, supermarkets and entertainment venues). These account for
      approximately 40%, 1%, and 59% of our revenues, respectively.





27





A
      majority of our revenue is derived from the provision of security and
      surveillance packaged solutions which include the products, installation and
      after sale service maintenance to our customers. Because majority of our
      revenues are derived from the installation, they are generally non-recurring.
      Our revenues are not concentrated within any one customer or group of related
      customers. Maintenance services in our packaged solutions are included for
      the
      first year from the date of completion. Our customers have an option to sign
      up
      for our maintenance program after the first year.




Our
      sales
      network covers most of China and we do not rely on any particular region for
      our
      business. Among our subsidiaries, Golden has 33 branch offices in provincial
      cities, Cheng Feng has 22 distribution points, Hongtianzhi has 53 distribution
      points, HiEasy has 11 distribution points and Minking has 10 distribution
      points.




***Recent
      Developments***





We
      have
      received approval for listing on the New York Stock Exchange (“NYSE”) and expect
      to start trading on the NYSE shortly after the Company appoints the requisite
      number of independent directors as required by the NYSE listing
      standards.





On
      July
      2, 2007, the Company and Safetech entered into an Equity Transfer Agreement
      with
      Li Ngai, the sole owner of Ocean Pacific Technology Limited, a Hong Kong
      corporation (“Ocean Pacific”) pursuant to which Safetech purchased 100%
      ownership of Ocean Pacific from Mr. Li. Ocean Pacific is a holding company
      that
      owns all the outstanding equity of Hangzhou Tsingvision Intelligence System
      Co.
      Ltd. (“Hangzhou Tsingvision”), a PRC corporation which is engaged in the
      business of researching, developing, manufacturing and selling computer software
      and digital audio and video products. Under the Equity Transfer Agreement,
      in
      exchange for 100% ownership of Ocean Pacific, the Company agreed to pay RMB50
      million (approximately $6.56 million) in cash and approximately RMB49 million
      (approximately $6.48 million) in shares of the Company’s common stock. The $6.56
      million cash price was paid as of the execution of the Equity Transfer
      Agreement. The number of shares issuable in satisfaction of the equity portion
      of the purchase price is 459,000, which will be issued within 90 days following
      the signing of the Equity Transfer Agreement. Please see our Current Report
      on
      Form 8-K filed on July 9, 2007, for more details.





***Second
      Quarter Financial Performance Highlights***





We
      continued to experience strong demand for our products and services during
      the
      second fiscal quarter of 2007 and growth in our revenues and net income. The
      security and surveillance product market in China continued to expand in the
      second quarter of 2007 due, in part, to several programs and regulatory drivers
      initiated by the Chinese government, such as State Ordinance 458 and the Safe
      City program, which require many public places, including city-wide surveillance
      systems, traffic conjunctions, critical government locations, cyber cafés, bars
      and discotheques, to install security systems. In addition, the economic
      development in China and the fact that the population in China in general is
      becoming relatively wealthier also contributed to increased demand for security
      and surveillance products within various industries and organizations, such
      as
      residential estates, factories and shopping centers. Our second fiscal quarter
      financial results also benefited from the consolidation of the three newly
      acquired companies, which contributed approximately $7.9 million revenues in
      aggregate, accounting for approximately 15.2% of the total revenues of the
      second fiscal quarter of 2007.




The
      following are some financial highlights for the second quarter of 2007:




·
            *Revenues*:
                Revenues increased $44.1 million, or 551.3%, to $52.1 million for
                the
                second quarter of 2007, from $8.0 million for the same quarter of
                last
                year.





·
            *Gross
                margin*:
                Gross margin was 28.6% for the second quarter of 2007, compared to
                37.5%
                for the same period in 2006. Such decrease was mainly due to increased
                competition and the Company’s strategic decision to lower its selling
                price to attract more customers and penetrate into new
                markets.





·
            *Income
                from operations*:
                Income from operations increased $7.2 million, or 300.0%, to $9.6
                million
                for the second quarter of 2007, from $2.4 million for the same period
                last
                year.





·
            *Operating
                margin*:
                Operating margin (the ratio of income from operations to revenues,
                expressed as a percentage) was 18.4 % for the second quarter of 2007,
                compared to 30.0% during the same period in 2006.




28




·
            *Net
                income*:
                Net income increased $1.8 million, or 72.0%, to $4.3 million for
                the
                second quarter of 2007, from $2.5 million for the same period of
                last
                year.





·
            *Net
                margin*:
                Net margin (the ratio of net income to revenues, expressed as a
                percentage) was 8.3% for the second quarter of 2007, compared to
                31.3% for
                the same period in 2006. The decrease was mainly due to the non-cash
                expenses.





·
            *Fully
                diluted net income per share*:
                Fully diluted net income per share was $0.11 for the second quarter
                of
                2007, as compared to $0.10 for the same period last
                year.





·
            *Non-cash
                items*:
                Non-cash items included (i) the redemption accretion on convertible
                notes
                of $3.8 million, (ii) depreciation and amortization of $1.1 million,
                and
                (iii) non-cash employee compensation expense of $0.8 million for
                the
                second quarter of 2007. Total non-cash items are $5.7 million, an
                increase
                of $5.6 million, or 5600%, from $0.1 million for the same quarter
                of last
                year.





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





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





**Three
                Months Ended June 30,****Non-cash
                items**
            
            **2007**
            
            **2006**
            
            **Increase**
              **(Decrease)**Depreciation
                and amortization
            
            $
            1.09
            
            $
            0.09
            
            
            1.00Non-cash
                employee compensation
            
            
            0.80
            
            
            -
            
            
            0.80Redemption
                accretion on convertible notes
            
            
            3.81
            
            
            -
            
            
            3.81**Total**
            
            $
            5.70
            
            $
            0.09**Non-cash
                items per share - basic**Depreciation
                and amortization
            
            $
            0.03
            
            $
            0.00
            
            
            0.03Non-cash
                employee compensation
            
            
            0.02
            
            
            -
            
            
            0.02Redemption
                accretion on convertible notes
            
            
            0.11
            
            
            -
            
            
            0.11**Total
                non-cash items per share - basic**
            
            $
            0.16
            
            $
            0.00**Non-cash
                items per share - diluted**Depreciation
                and amortization
            
            $
            0.03
            
            $
            0.00
            
            
            0.03Non-cash
                employee compensation
            
            
            0.02
            
            
            -
            
            
            0.02Redemption
                accretion on convertible notes
            
            
            0.10
            
            
            -
            
            
            0.10**Total
                non-cash items per share - diluted**
            
            $
            0.15
            
            $
            0.00**Net
                income per share - basic**
            
            $
            0.12
            
            $
            0.10**Net
                income per share - diluted**
            
            $
            0.11
            
            $
            0.10**Weighted
                average number of shares outstanding****Basic**
            
            
            35,770,742
            
            
            24,436,755**Diluted**
            
            
            38,831,023
            
            
            24,621,287





The
      following table summarizes the Company’s non-cash components during the six
      months ended June 30, 2007 and 2006:


29





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


**Six
                  Months Ended June 30,****Non-cash
                  items**
              
              **2007**
              
              **2006**
              
              **Increase**
                **(Decrease)**Depreciation
                  and amortization
              
              $
              1.89
              
              $
              0.19
              
              
              1.70Non-cash
                  employee compensation
              
              
              1.07
              
              
              -
              
              
              1.07Redemption
                  accretion on convertible notes
              
              
              4.98
              
              
              -
              
              
              4.98**Total**
              
              $
              7.94
              
              $
              0.19Non-cash
                  items per share - basicDepreciation
                  and amortization
              
              $
              0.06
              
              $
              0.01
              
              
              0.05Non-cash
                  employee compensation
              
              
              0.03
              
              
              -
              
              
              0.03Redemption
                  accretion on convertible notes
              
              
              0.14
              
              
              -
              
              
              0.14**Total
                  non-cash items per share - basic**
              
              $
              0.23
              
              $
              0.01Non-cash
                  items per share - dilutedDepreciation
                  and amortization
              
              $
              0.05
              
              $
              0.01
              
              
              0.04Non-cash
                  employee compensation
              
              
              0.03
              
              
              -
              
              
              0.03Redemption
                  accretion on convertible notes
              
              
              0.14
              
              
              -
              
              
              0.14**Total
                  non-cash items per share - diluted**
              
              $
              0.22
              
              $
              0.01**Net
                  income per share - basic**
              
              $
              0.26
              
              $
              0.26**Net
                  income per share - diluted**
              
              $
              0.24
              
              $
              0.26**Weighted
                  average number of shares outstanding**Basic
              
              
              34,429,780
              
              
              23,046,766Diluted
              
              
              36,492,123
              
              
              23,139,542




***Results
      of Operations***




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





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





**Three
                months ended**
            **Six
                months ended****June
                30**
            **June
                30****2007**
            **2006**
            **2007**
            **2006**Revenues
            $52.1
            100%
            $8.0
            100%
            $90.6
            100%
            $22.6
            100%Cost
                of goods sold
            37.2
            71.4%
            5.0
            62.5%
            65.6
            72.4%
            15.2
            67.3%Gross
                profit
            14.9
            28.6%
            3.0
            37.5%
            25.0
            27.6%
            7.4
            32.7%ExpensesSelling
                and marketing
            0.9
            1.7%
            0.2
            2.5%
            1.5
            1.6%
            0.2
            0.9%General
                and administrative
            2.5
            4.8%
            0.3
            3.8%
            4.4
            4.9%
            0.7
            3.1%Non-cash
                employee compensation
            0.8
            1.5%
            -
            -
            1.1
            1.2%
            -
            -Depreciation
                and amortization
            1.1
            2.1%
            0.1
            1.3%
            1.9
            2.1%
            0.2
            0.9%Income
                from Operations
            9.6
            18.4%
            2.4
            30.0%
            16.1
            17.8%
            6.3
            27.9%




30




Other
                income, net
            0.6
            1.2%
            0.4
            5.0%
            1.2
            1.3%
            0.7
            3.0%Redemption
                accretion on convertible notes
            (3.8)
            7.3%
            -
            -
            (5.0)
            5.5%
            -
            -Interest
                expense
            (0.3)
            0.6%
            -
            -
            (0.4)
            0.4%
            -
            -Income
                before income taxes and minority interest
            6.1
            11.7%
            2.8
            35.0%
            11.9
            13.1%
            7.0
            31.0%Income
                taxes
            (1.8)
            3.5%
            (0.3)
            3.8%
            (3.1)
            3.4%
            (1.0)
            4.4%Net
                income
            $
                  4.3
            8.3%
            $
                2.5
            31.3%
            $
                8.8
            9.7%
            $
                6.0
            26.5%








**Comparison
      of Three Months Ended June 30, 2007 and June 30, 2006**





***Revenues*** .
      Our
      revenues are generated from the supply and installation of security and
      surveillance packaged products. During the three months ended June 30, 2007,
      we
      experienced solid growth in revenues. Revenues increased $44.1 million, or
      551.3%, to $52.1 million for the three months ended June 30, 2007 from $8.0
      million for the three months ended June 30, 2006. The increase in revenues
      was
      mainly attributable to growth in the security and surveillance market in China,
      the increased market demand for our products and our increased brand
      recognition. Our strategic efforts to increase our distribution channels during
      2005 and 2006 and sufficient working capital from our recent fundraising
      activities also allowed us to successfully take advantage of the growth in
      market demand in the second quarter of 2007. After Hongtianzhi, HiEasy and
      Minking became our wholly owned subsidiaries, we consolidated the financial
      results of these three companies in the second quarter of 2007, which
      contributed $5.3 million, $0.7 million and $1.9 million to revenues in the
      second quarter of 2007, respectively. We consolidated the financial results
      of
      Cheng Feng starting from the third quarter of 2006. Cheng Feng had revenues
      of
      $3.6 million in the second quarter of 2007. Management expects revenue growth
      to
      remain strong due to (i) continued growth in the security and surveillance
      market both within the corporate and government sectors, (ii) better
      capitalization of the Company to fuel our growth, (iii) continued enhancement
      of
      our branding and profiling in China, and (iv) our acquisition strategy intended
      to boost our market share and competitiveness.





During
      the second quarter of 2007, we signed 59 new contracts with a total contract
      value of approximately $45.5 million, of which we recognized $17.3 million
      in
      revenues. Of the 59 projects, 27 were finished as of June 30, 2007, and,
      accordingly, approximately $0.8 million of revenue related to warranty
      requirements was deferred to the third quarter of 2007. The remaining 32
      projects had not been started as of June 30, 2007, and the value of these
      backlog projects was approximately $28.2 million. During the second quarter
      of
      2007, the Company also completed implementation of 23 contracts signed in first
      quarter of 2007 (representing all of the contracts that had been signed, but
      not
      yet implemented, during first quarter of 2007), and recognized the revenue
      of
      $21.9 million related to those contracts. The following table shows the revenues
      recognized in the second quarter of 2007:





(In
      millions of U.S. dollars)


Revenue
                recognized from contracts signed before the second quarter of
                2007
            
            $
            21.9Revenue
                recognized from contracts signed in the second quarter
                2007
            
            $
            17.3Other
                revenue from second quarter 2007
            
            $
            1.4Revenue
                recognized from Cheng Feng
            
            $
            3.6Revenue
                recognized from Hongtianzhi
            
            $
            5.3Revenue
                recognized from HiEasy
            
            $
            0.7Revenue
                recognized from Minking
            
            $
            1.9Total
                revenue recognized in the second quarter 2007
            
            $
            52.1Revenue
                deferred
            
            $
            0.8Backlog
                of contracts signed before June 30, 2007
            
            $
            28.2




31


***Components
      of Revenues*** .
      The
      following table shows the different components comprising our total revenues
      over the three months ended June 30, 2007 and 2006.





All
      amounts in millions of U.S. dollars


Three
                    months ended
                  June
                    30,2007
                
                2006Security
                    systems and installation
                
                $
                39.2
                
                $
                6.5Sales
                    of parts
                
                
                12.9
                
                
                1.5Total
                
                $
                52.1
                
                $
                8.0





Income
      from installation projects contributed 75.2% of our revenues for the three
      months ended June 30, 2007, as compared to 81.3% for the same period last year.
      Management believes that revenues from the installation projects will continue
      to be the Company’s major revenue source in the next a few years. With the
      acquisitions of Cheng Feng, Hongtianzhi, Minking, HiEasy and other planned
      acquisitions, management believes that the percentage of revenues from the
      sale
      of products will increase in the future.





***Cost
      of goods sold*** .
      Our
      cost of goods sold is primarily comprised of the costs our raw materials, labor
      and overhead. Our cost of goods sold increased $32.2 million, or 644.0%, to
      $37.2 million for the three months ended June 30, 2007 from $5.0 million during
      the same period in 2006. This dollar increase was primarily attributable to
      the
      increase of our revenues in the second quarter of 2007. Components of cost
      of
      goods sold in the three months ended June 30, 2007 and 2006 are as
      follows:





All
      amounts in millions of U.S. dollars


Three
                  months ended June 30,2007
              
              2006Purchases
                  of raw material (for installation)
              
              $
              26.8
              
              $
              3.3Installation
                  labor
              
              
              0.5
              
              
              0.1Sales
                  of parts
              
              
              7.8
              
              
              1.4Other
              
              
              2.1
              
              
              0.2Total
              
              $
              37.2
              
              $
              5.0





Installation
      labor and costs for raw materials for installation accounted for 1.3% and 72.0%
      of the total cost of goods sold for the three months ended June 30, 2007,
      respectively, as compared to 2.0% and 66.0% for the same period in 2006. The
      percentage of cost of goods sold related to the sales of products represented
      approximately 21.0% of the total cost of goods sold in the second quarter of
      2007 as compared to 28% for the same period in 2006.





***Gross
      profit*** *.* Our
      gross
      profit is equal to the difference between our revenues and our cost of goods
      sold. Our gross profit increased $11.9 million, or 396.7%, to $14.9 million
      for
      the three months ended June 30, 2007 from $3.0 million for the same period
      last
      year. Gross margin for the three months ended June 30, 2007 was 28.6%, as
      compared to 37.5% for the same period of 2006. The decrease in gross margin
      in
      the three months ended June 30, 2007 was primarily due to a decrease in our
      sales prices. During the three months ended June 30, 2007, approximately 40%
      of
      the project contracts executed was for projects in the western part of China
      where economic development is not as advanced as in the coastal cities.





***Selling
      and marketing expenses*** *.* Our
      selling and marketing expenses are comprised primarily of sales commissions,
      the
      cost of advertising and promotional materials, salaries and fringe benefits
      of
      sales personnel, after-sale support services and other sales related costs.
      Our
      selling and marketing expenses increased $0.7 million, or 350%, to $0.9 million
      for the three months ended June 30, 2007 from $0.2 million for the same period
      in 2006. This dollar increase was primarily attributable to the consolidation
      of
      the financial results of Cheng Feng, Hongtianzhi, HiEasy and Minking, which
      incurred selling and marketing expenses associated with sales of their products.
      As a percentage of revenues, our selling and marketing expenses decreased to
      1.7% for the three months ended June 30, 2007 from 2.5% for the same period
      in
      2006. The percentage decrease was mainly due to the effectiveness of our sales
      and marketing strategy.


32




***General
      and administrative expenses*** *.* Our
      general and administrative expenses consist of the costs associated with staff
      and support personnel who manage our business activities and professional fees
      paid to third parties. Our general and administrative expenses increased $2.2
      million, or 525%, to $2.5 million for the three months ended June 30, 2007
      from
      $0.3 million of the same period in 2006. As a percentage of revenues, general
      and administrative expenses increased to 4.8% for the three months ended June
      30, 2007 from 3.8% for the same period in 2006. The dollar and percentage
      increase was mainly due to the consolidation of the financial results of Cheng
      Feng, Hongtianzhi, HiEasy and Minking, the hiring of additional staff, the
      increased costs in connection with improving our internal controls and
      professional expenses related to the costs of being a public reporting company.





***Non-cash
      employee compensation*** *.* Non-cash
      employee compensation for the three months ended June 30, 2007 increased by
      $0.8
      million from $0 of the same period in 2006, primarily as a result of the
      adoption of the equity incentive plan in February 2007 and grants to senior
      management and other staff made under the equity incentive plan after its
      adoption.





***Depreciation
      and amortization*** *.* Our
      depreciation and amortization costs increased $1.0 million, or 1,000%, to $1.1
      million for the three months ended June 30, 2007 from $0.1 million for the
      same
      period in 2006. As a percentage of revenues, depreciation and amortization
      expenses increased to 2.1% for the three months ended June 30, 2007 from 1.3%
      for the same period in 2006. Such dollar and percentage increase was primarily
      due to the amortization of intangible assets from the acquisition of Cheng
      Feng,
      Hongtianzhi, HiEasy and Minking.





***Income
      from Operations*** *.* Our
      income from operations increased $7.2 million, or 300%, to $9.6 million for
      the
      three months ended June 30, 2007 from $2.4 million for the same period in 2006.
      As a percentage of revenues, income from operations decreased to 18.4% for
      the
      three months ended June 30, 2007 from 30.0% for the same period in 2006. Such
      percentage decrease was primarily due to our strategic decision to reduce our
      sales prices to expand our markets as discussed above.





***Redemption
      accretion on convertible notes.*** Redemption
      accretion on convertible notes for the three months ended June 30, 2007 was
      $3.8
      million, as compared to $0 for the same period in 2006. We raised $110 million
      from issuance of convertible notes in February and April 2007 to finance our
      acquisitions. The redemption accretion on convertible notes will not be paid
      if
      the convertible notes are converted into shares of our common stock before
      their
      maturities.





***Interest
      expense.*** Interest
      expense for the three months ended June 30, 2007 was $0.3 million, as compared
      to $0 of the same period in 2006. Such interest expenses increase was primarily
      due to borrowings under bank loans for our operations.





***Income
      before taxes and minority interest.*** Our
      income before taxes and minority interest increased $3.3 million, or 117.9%,
      to
      $6.1 million for the three months ended June 30, 2007 from $2.8 million for
      the
      same period in 2006. As a percentage of revenues, income before taxes and
      minority interest decreased to 11.7% for the three months ended June 30, 2007
      from 35.0% for the same period in 2006. Such percentage decrease was primarily
      due to increased non-cash expenses such as redemption accretion on convertible
      notes, depreciation and amortization and non-cash employee
      compensation.





***Income
      taxes*** .
      Foreign
      invested Enterprises (“FIEs”) established in the PRC are generally subject to an
      enterprise income tax (“EIT”). FIEs established in Shenzhen Special Economic
      Zone, such as our Chinese subsidiaries Golden and Hongtianzhi, are subject
      to an
      EIT rate of 15% for the fiscal year 2007. Our subsidiaries Cheng Feng and HiEasy
      are subject to an EIT rate of 7.5% for fiscal year 2007 due to their software
      and high technology company status. Minking is subject to an EIT rate of 33%
      for
      fiscal year 2007. We anticipate that our effective tax rate will change from
      the
      current 29.5% in the three months ended June 30, 2007 because the companies
      we
      acquired and intend to acquire are located in different cities and may have
      different tax rates.


33




On
      March 16, 2007, the National People’s Congress of China passed the new EIT
      Law, which will take effect as of January 1, 2008. Under the new EIT Law,
      an enterprise established outside of China with “de facto management bodies”
within China is considered a resident enterprise and will normally be subject
      to
      EIT at the rate of 25.0% on its global income. The new EIT Law, however, does
      not define the term “de facto management bodies.” If the PRC tax authorities
      subsequently determine that we should be classified as a resident enterprise,
      then our global income will be subject to PRC income tax at a tax rate of 25.0%.
      In addition, under the new EIT Law, dividends from our PRC subsidiaries to
      us
      will be subject to a withholding tax. The rate of the withholding tax has not
      yet been finalized, pending promulgation of implementing regulations.
      Furthermore, the ultimate tax rate will be determined by treaty between China
      and the tax residence of the holder of the PRC subsidiaries. We are actively
      monitoring the proposed withholding tax and are evaluating appropriate
      organizational changes to minimize the corresponding tax impact. The new EIT
      Law
      imposes a unified income tax rate of 25.0% on all domestic-invested enterprises
      and FIEs, such as our PRC operating subsidiaries, unless they qualify under
      certain limited exceptions, but the EIT Law permits companies to continue to
      enjoy their existing preferential tax treatments until such treatments expire
      in
      accordance with their current terms. We expect details of the transitional
      arrangement for the five-year period from January 1, 2008 to
      December 31, 2012 applicable to enterprises approved for establishment
      prior to March 16, 2007 to be set out in more detailed implementing rules
      to be adopted in the future. Any increase in our effective tax rate as a result
      of the above may adversely affect our operating results. However, details
      regarding implementation of this new law are expected to be provided in the
      form
      of one or more implementing regulations to be promulgated by the PRC government,
      and the timing of the issuance of such implementing regulations is currently
      unclear.




Our
      income taxes increased $1.5 million to $1.8 million for the three months ended
      June 30, 2007 from $0.3 million for the same period of 2006. We incurred more
      taxes during three months ended June 30, 2007 as a result of increased income
      before income taxes during that period.




***Net
      income*** *.* Net
      income increased $1.8 million, or 72%, to $4.3 million for the three months
      ended June 30, 2007 from the same period in 2006. As a percentage of revenues,
      net income decreased to 8.3% for the three months ended June 30, 2007 from
      31.3%
      for the same period in 2006. This percentage decrease was mainly due to the
      non-cash expenses such as redemption
      accretion on convertible notes, depreciation and amortization and non-cash
      employee compensation .





***Comparison
      of Six Months Ended June 30, 2007 and June 30, 2006***




***Revenues*** **.** During
      the six months ended June 30, 2007, we experienced solid growth in revenues.
      Revenues increased $68.0 million, or 300.9%, to $90.6 million for the six months
      ended June 30, 2007 from $22.6 millions for the six months ended June 30, 2006.
      The increase in revenues was primarily attributable to growth in the security
      and surveillance market in China, the increased market demand for our products
      and our increased brand recognition. Our strategic efforts to increase our
      distribution channels during 2005 and 2006 and sufficient working capital from
      our recent fundraising activities also allowed us to successfully take advantage
      of the growth in market demand in the first half of 2007. After Hongtianzhi,
      HiEasy and Minking became our wholly owned subsidiaries, we consolidated the
      financial results of these three companies in the second quarter of 2007, which
      contributed $5.3 million, $0.7 million and $1.9 million to revenues in the
      second quarter of 2007, respectively. In addition, Cheng Feng also contributed
      $5.9 million to revenues in the first six months of 2007.





***Components
      of Revenue*** ***s***.
      The following table shows the different components comprising our total revenues
      over the six months ended June 30, 2007 and 2006.





All
      amounts in millions of U.S. dollars


Six
                  months ended
                June
                  30,2007
              
              2006Security
                  systems and installation
              
              $
              73.3
              
              $
              19.6Sales
                  of parts
              
              
              17.3
              
              
              3.0$
              90.6
              
              $
              22.6





34





Income
      from installation projects constituted 80.9% of our total revenues for the
      six
      months ended June 30, 2007, as compared to 86.7% for the same period last year.
      Income from sales of parts constituted 19.1% of our total revenues for the
      six
      months ended June 30, 2007, as compared to 13.3% for the same period last year.





***Cost
      of goods sold*** .
      Our
      cost of goods sold increased $50.4 million, or 331.6%, to $65.6 million for
      the
      six months ended June 30, 2007 from $15.2 million during the same period in
      2006. This dollar increase was mainly attributable to the increase in our
      revenues in the first six months of 2007. Components of cost of goods sold
      in
      the six months ended June 30, 2007 and 2006 are as follows:





All
      amounts in millions of U.S. dollars


Six
                  months ended June 30,2007
              
              2006Purchases
                  of raw material (for installation)
              
              $
              54.8
              
              $
              11.6Installation
                  labor
              
              
              0.8
              
              
              0.3Sales
                  of parts
              
              
              7.8
              
              
              2.7Other
              
              
              2.2
              
              
              0.6$
              65.6
              
              $
              15.2




Installation
      labor and security system purchase cost represented 1.2% and 83.5% of our total
      cost of goods sold for the six months ended June 30, 2007, respectively, as
      compared to 2.0% and 76.3% for the same period in 2006. The percentage of cost
      of goods sold related to the sales of parts represented about 11.9% of our
      total
      revenues as compared to 17.8% for the same period in 2006.





***Gross
      profit*** *.* Our
      gross
      profit increased $17.6 million, or 237.8%, to $25.0 million for the six months
      ended June 30, 2007 from $7.4 million for the same period last year. Gross
      margin for the six months ended June 30, 2007 was 27.6%, as compared to 32.7%
      for the same period of 2006. The decrease in gross margin in the six months
      ended June 30, 2007 was mainly due to a decrease in our sales prices. We
      decreased our prices as a strategic move to increase our market penetration
      into
      new markets. During the six months ended June 30, 2007, about 40% of the
      contracts we executed were for projects in the western part of China where
      economic development is not as advanced as the coastal cities. We reduced the
      prices to gain market penetration in these cities. Despite the decrease of
      the
      gross margin in the first six months of 2007, we believe the gross margin for
      the six months ended June 30, 2007 was within the range of the average gross
      margin recorded by the Company.





***Selling
      and marketing expenses*** *.* Our
      selling and marketing expenses increased $1.3 million, or 650%, to $1.5 million
      for the six months ended June 30, 2007 from $0.2 million for the same period
      in
      2006. This dollar increase was primarily attributable to the consolidation
      of
      the financial results of Cheng Feng, Hongtianzhi, HiEasy and Minking, which
      incurred selling and marketing expenses associated with sales of their products.
      As a percentage of revenues, our selling and marketing expenses increased to
      1.6% for the six months ended June 30, 2007 from 0.9% for the same period in
      2006. The percentage increase was mainly due to the hiring of additional sales
      staff and promotion cost of new products and services.




***General
      and administrative expenses*** *.* Our
      general and administrative expenses increased $3.7 million, or 528.6%, to $4.4
      million for the six months ended June 30, 2007 from $0.7 million of the same
      period in 2006. As a percentage of revenues, general and administrative expenses
      increased to 4.9% for the six months ended June 30, 2007 from 3.1% for the
      same
      period in 2006. The dollar and percentage increase was mainly due to the
      consolidation of the financial results of Cheng Feng, Hongtianzhi, HiEasy and
      Minking, the hiring of additional staff, the increased costs in connection
      with
      improving our internal controls and professional expenses related to the costs
      of being a public reporting company.





***Non-cash
      employee compensation*** *.* Non-cash
      employee compensation for the six months ended June 30, 2007 increased by $1.1
      million from $0 of the same period in 2006 primarily as a result of the adoption
      of the equity incentive plan in February 2007 and grants to senior management
      and other staff made under the equity incentive plan after its adoption.


35





***Depreciation
      and amortization*** *.* Our
      depreciation and amortization costs increased $1.7 million, or 850%, to $1.9
      million for the six months ended June 30, 2007 from $0.2 million for the same
      period in 2006. As a percentage of revenues, depreciation and amortization
      expenses increased to 2.1% for the six months ended June 30, 2007 from 0.9%
      for
      the same period in 2006. Such dollar and percentage increase was primarily
      due
      to the amortization of intangible assets from the acquisition of Cheng Feng,
      Hongtianzhi, HiEasy and Minking.





***Income
      from Operations*** *.* Our
      income from operations increased $9.8 million, or 155.6%, to $16.1 million
      for
      the six months ended June 30, 2007 from $6.3 million for the same period in
      2006. As a percentage of revenues, income from operations decreased to 17.8%
      for
      the six months ended June 30, 2007 from 27.9% for the same period in 2006.
      Such
      percentage increase was primarily due to our strategic decision to reduce our
      sales prices to expand our markets as discussed above.





***Redemption
      accretion on convertible notes.*** Redemption
      accretion on convertible notes for the six months ended June 30, 2007 was $5.0
      million, as compared to $0 of the same period in 2006. We raised $110 million
      from the issuance of convertible notes in February and April 2007 to finance
      our
      acquisitions. The redemption accretion on convertible notes will not be paid
      if
      the convertible notes are converted into shares of our common stock before
      their
      maturities.





***Interest
      expense.*** Interest
      expense for the six months ended June 30, 2007 was $0.4 million, as compared
      to
      $0 of the same period in 2006. Such interest expenses increase was primarily
      due
      to borrowing under bank loans for our operations.





***Income
      before taxes and minority interest.*** Our
      income before taxes and minority interest increased $4.9 million, or 117.9%,
      to
      $11.9 million for the six months ended June 30, 2007 from $7.0 million for
      the
      same period in 2006. As a percentage of revenues, income before taxes and
      minority interest decreased to 13.1% for the six months ended June 30, 2007
      from
      31% for the same period in 2006. Such percentage decrease was primarily due
      to increased non-cash expenses such as redemption accretion on convertible
      notes, depreciation and amortization and non-cash employee compensation.





***Income
      taxes*** .
      Our
      income taxes increased $2.1 million to $3.1 million for the six months ended
      June 30, 2007 from $1.0 million for the same period of 2006. We paid more taxes
      during the first six months of 2007 as a result of increased income during
      that
      period.




***Net
      income*** *.* Net
      income increased $2.8 million, or 46.7%, to $8.8 million for the six months
      ended June 30, 2007 from the same period in 2006. As a percentage of revenues,
      net income decreased to 9.7% for the six months ended June 30, 2007 from 26.5%
      for the same period in 2006. This percentage decrease was mainly due to the
      non-cash expenses such as redemption
      accretion on convertible notes, depreciation and amortization and non-cash
      employee compensation .





***Liquidity
      and Capital Resources*** ****





*General*





As
      of June 30, 2007, we had cash and cash equivalents (including restricted cash)
      of $91.8 million. The following table sets forth a summary of our net cash
      flows
      for the periods indicated.


36


**Cash
                  Flow (in millions)****Six
                  Months Ended June 30,****2007**
              
              **2006**Net
                  cash used in operating activities
              
              $
              (3.8
              )
              $
              (0.1
              )Net
                  cash used in investing activities
              
              $
              (52.4
              )
              $
              -Net
                  cash provided by financing activities
              
              $
              116.5
              
              $
              7.4Effect
                  of exchange rate changes on cash
              
              $
              0.5
              
              $
              0.1Net
                  cash flow
              
              $
              60.3
              
              $
              7.3




*Operating
      Activities*





Net
      cash
      used in operating activities was $3.8 million for the six months period ended
      June 30, 2007, which is an increase of $3.9 million from $0.1 million net cash
      used in operating activities for the same period of 2006. The increase of net
      cash used in operating activities in the six months ended June 30, 2007 was
      primarily due to increases in inventories and accounts receivable.




*Investing
      Activities*




Our
      main
      uses of cash for investing activities during the first six months of 2007
      were deposits for the acquisition of subsidiaries and acquisitions of
      subsidiaries and properties .




Net
      cash
      used in investing activities for the six months ended June 30, 2007 was $52.4
      million. Our net cash used in investing activities for the six months ended
      June
      30, 2006 was minimal. Such increase of net cash used in investing activities
      was
      mainly due to acquisition for subsidiaries and properties and deposits for
      the
      acquisition of our subsidiaries.




*Financing
      Activities*




Net
      cash
      provided by financing activities for the six months ended June 30, 2007 was
      $116.5 million, which is an increase of $109.1 million from $7.4 million net
      cash provided by financing activities during the same period of 2006. The
      increase of the cash provided by financing activities was mainly attributable
      to
      funds received from the two convertible notes issued to Citadel Equity Fund,
      Ltd. (“Citadel”).




*Loan
      Facilities*




As
      of
      June 30, 2007, the amount, maturity date and term of each of our bank loans
      were
      as follows:




(all
      amounts, other than percentages, in millions of U.S. dollars)




**Bank**
            
            **Amount**
            
            **Maturity
                Date**
            
            **Duration**China
                Construction Bank
            
            
            **-**
            
            
            September
                2016
            
            
            10
                yearsShanghai
                PuDong Development Bank
            
            $
            1.32
            
            
            February
                2008
            
            
            1
                yearShanghai
                PuDong Development Bank
            
            $
            3.94
            
            
            February
                2008
            
            
            1
                yearShanghai
                PuDong Development Bank
            
            $
            0.78
            
            
            November
                2007
            
            
            2
                yearsShanghai
                PuDong Development Bank
            
            $
            2.63
            
            
            May
                2008
            
            
            1
                yearShenzhen
                Commercial Bank
            
            $
            1.05
            
            
            November
                2007
            
            
            1
                yearShenzhen
                Commercial Bank
            
            $
            1.38
            
            
            January
                2009
            
            
            3 yearsTotal
            
            $
            11.10





37


In
      April
      2007, we completed a financing with Citadel pursuant to which we issued to
      Citadel $50 million aggregate principal amount of guaranteed senior unsecured
      convertible notes due 2012 (the “April Convertible Notes”). The April
      Convertible Notes bear an annual interest of 1% and carry an initial conversion
      price of $23.60 per share. If the April Convertible Notes are not converted
      before their maturity, they will be redeemed by us on the maturity date at
      a
      redemption price equal to 100% of the principal amount of the April Convertible
      Notes then outstanding plus an additional amount of 15.0% per annum, calculated
      on a quarterly compounded basis, plus any accrued and unpaid interest. The
      net
      proceeds of approximately $50 million are and will be used for working capital
      and our acquisition plan.




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





***Obligations
      Under Material Contracts***





Below
      is a table setting forth our material contractual obligations as of June 30,
      2007:




All
      amounts in millions of U.S. dollars


Payments
                  due by periodTotal
              
              Less
                  than 1 year
              
              1-3
                  years
              
              3-5
                  years
              
              More
                  than 5 yearsLong-Term
                  Debt Obligations
              
              $
              111.30
              
              $
              0.20
              
              $
              1.10
              
              $
              110.00
              
              $
              -Operating
                  Lease Obligations
              
              
              0.47
              
              
              0.24
              
              
              0.18
              
              
              0.05
              
              
              -Total
              
              $
              111.77
              
              $
              0.44
              
              $
              1.28
              
              $
              110.05
              
              $
              -


****


***Critical
      Accounting Policies***





This
      “Management’s Discussion and Analysis of Financial Condition and Results of
      Operations” is based on our condensed consolidated financial statements, which
      have been prepared using accounting principles generally accepted in the United
      States of America. The preparation of 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 more significant judgments
      and
      estimates in the preparation of financial statements, including basis of
      consolidation, intangible assets, goodwill, inventories, revenue recognition,
      foreign currency translation, use of estimates and income taxes. Except for
      the
      implementation of Financial Accounting Standards Board (“FASB”) Interpretation
      No. 48 (“FIN 48”), as described below, management believes there have been
      no material changes during the six months ended June 30, 2007 to the critical
      accounting policies discussed in the Management’s Discussion and Analysis of
      Financial Condition and Results of Operations section of our Annual Report
      on
      Form 10-K for the year ended December 31, 2006, as filed with the SEC on
      March 21, 2007, as amended on March 23.




We
      adopted the provisions of FIN 48, “Accounting for Uncertainty in Income Taxes -
      an Interpretation of FASB Statement No. 109” on January 1, 2007. We
      did not have any material unrecognized tax benefits and there was no effect
      on
      our financial condition or results of operations as a result of implementing
      FIN
      48.





We
      file
      income tax returns in the U.S. federal jurisdiction and PRC jurisdictions.
      We
      were not subject to U.S. federal tax examinations for years before 2006. We
      do
      not believe there will be any material changes in our 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. As of the date of adoption of
      FIN
      48, we did not have any accrued interest or penalties associated with any
      unrecognized tax benefits, nor were any interest expenses recognized during
      the
      quarter. Our effective tax rate differs from the federal statutory rate
      primarily due to non-deductible expenses, temporary differences, and
      preferential tax treatment.


38





***Seasonality***





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





***Off-Balance
      Sheet Arrangements***





We
      do not
      have any off-balance sheet arrangements.





**ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
      RISK**





***Interest
      Rate Risk***





The
      Company deposits surplus funds with Chinese banks earning daily interest. The
      Company does not invest in any instruments for trading purposes. All of the
      Company’s outstanding debt instruments carry fixed rates of interest. The
      Company’s operations generally are not directly sensitive to fluctuations in
      interest rates.





***Foreign
      Exchange Risk***





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





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





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





***Inflation***





Inflationary
      factors such as increases in the cost of our products 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 may
      increase our 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
      4T. CONTROLS AND PROCEDURES**





*Evaluation
      of Disclosure Controls and Procedures.* We
      maintain a system of disclosure controls and procedures. The term “disclosure
      controls and procedures,” as defined by regulations of the SEC, means controls
      and other procedures that are designed to ensure that information required
      to be
      disclosed in the reports that we file or submit to the SEC under the Exchange
      Act, is recorded, processed, summarized and reported, within the time periods
      specified in the SEC’s rules and forms. Disclosure controls and procedures
      include, without limitation, controls and procedures designed to ensure that
      information required to be disclosed by us in the reports that we file or submit
      to the SEC under the Exchange Act is accumulated and communicated to the 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 President and Chief Executive Officer, and Terence Yap, our Chief
      Financial Officer, has evaluated the design and operating effectiveness of
      our
      disclosure controls and procedures as of June 30, 2007. Based upon their
      evaluation, these executive officers have concluded that our disclosure controls
      and procedures are effective as of June 30, 2007.


39





*Internal
      Control Over Financial Reporting.* We also
      maintain internal control over financial reporting. The term “internal control
      over financial reporting,” as defined by regulations of the SEC, means a process
      designed by, or under the supervision of, our principal executive and principal
      financial officers, or persons performing similar functions, and effected by
      the
      our board of directors, management and other personnel, to provide reasonable
      assurance regarding the reliability of financial reporting and the preparation
      of financial statements for external purposes in accordance with US GAAP, and
      includes those policies and procedures that:





·
            Pertain
                to the maintenance of records that in reasonable detail accurately
                and
                fairly reflect the transactions and dispositions of our assets;
                and


·
            Provide
                reasonable assurance that transactions are recorded as necessary
                to permit
                preparation of financial statements in accordance with US GAAP, and
                that
                our receipts and expenditures are being made only in accordance with
                authorizations of our management and directors; and provide reasonable
                assurance regarding prevention or timely detection of unauthorized
                acquisition, use or disposition of our assets that could have a material
                effect on our consolidated financial
                statements.





*Changes
      in Internal Control Over Financial Reporting.* There
      has been no change to our internal control over financial reporting during
      the
      three months ended June 30, 2007 that has materially affected, or is reasonably
      likely to materially affect, our internal control over financial
      reporting.


40


**PART
      II**


**OTHER
      INFORMATION**





**ITEM
      1. LEGAL PROCEEDINGS**





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





**ITEM
      1A. RISK FACTORS**





There
      are no material changes from the risk factors previously disclosed in Part
      I,
      Item 1A of our Annual Report on Form 10-K for the year ended
      December 31, 2006, filed with the SEC on March 21, 2007, and amended
      on March 23, 2007.





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




On
      April
      2, 2007, pursuant to an Equity Transfer Agreement with Zheng Huang, the sole
      owner of Chain Star Investments Limited, we agreed to issue 2,800,711 shares
      of
      our common stock to Mr. Huang as part of the total consideration for the
      acquisition of 100% of the equity interest of Chain Star Investments Limited.
      The offer and sales of the securities were made in an offshore transaction
      pursuant to Regulation S under the Securities Act.





On
      April
      24, 2007, we entered into a notes purchase agreement with Citadel pursuant
      to
      which we issued and sold to Citadel $50 million 1% Guaranteed Senior Unsecured
      Convertible Notes due 2012. The offer and sales of the securities were made
      in
      an offshore transaction pursuant to Regulation S under the Securities
      Act.





On
      May
      11, 2007, pursuant to an Equity Transfer Agreement with Yi Li, the sole owner
      of
      Link Billion Investment Limited, we agreed to issue 811,804 shares of our common
      stock to Mr. Li as part of the total consideration for the acquisition of 100%
      of the equity interest of Link Billion Investment Limited. The offer and sales
      of the securities were made in an offshore transaction pursuant to Regulation
      S
      under the Securities Act.





On
      June
      4, 2007, pursuant to an Equity Transfer Agreement with Yiu, Siu Fung Jeff,
      the
      sole owner of Allied Rich Limited, we agreed to issue 968,611 shares of our
      common stock to Mr. Yiu as part of the total consideration for the acquisition
      of 100% of the equity interest of Allied Rich Limited. The offer and sales
      of
      the securities were made in an offshore transaction pursuant to Regulation
      S
      under the Securities Act.





**ITEM
      3.**  **DEFAULTS
      UPON SENIOR SECURITIES**





There
      were no defaults upon senior securities in the quarter ended June 30, 2007.





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





On
      June 15, 2007, the Company held an annual meeting at which a majority of the
      Company’s shareholders elected five directors and approved the
      ratification of GHP Horwath, P.C. as the Company’s independent accountants for
      fiscal year 2007.





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





**Matter
                Voted Upon**
            
            **Votes
                For**
            
            **Withheld**
            
            **Votes
                Against**
            
            **Abstentions**
            
            **Broker**
              **Non-Votes**Election
                of Guoshen Tu to the Company’s Board of Directors
            
            
            24,081,461
            
            
            62,801
            
            
            -
            
            
            -
            
            
            -Election
                of Terence Yap to the Company’s Board of Directors
            
            
            24,081,761
            
            
            62,501
            
            
            -
            
            
            -
            
            
            -Election
                of Shufang Yang to the Company’s Board of Directors
            
            
            24,078,461
            
            
            62,801
            
            
            -
            
            
            -
            
            
            -Election
                of Jianguo Jiang to the Company’s Board of Directors
            
            
            24,078,761
            
            
            62,501
            
            
            -
            
            
            -
            
            
            -Election
                of Lingfeng Xiong to the Company’s Board of Directors
            
            
            24,078,461
            
            
            62,501
            
            
            -
            
            
            -
            
            
            -Approval
                of GHP Horwath, P.C. as the Company’s independent accountants for fiscal
                year 2007
            
            
            24,054,434
            
            
            -
            
            
            89,753
            
            
            75
            
            
            -





41


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





**ITEM
      5.**  **OTHER
      INFORMATION**




N/A




**ITEM
      6. EXHIBITS**




**Exhibit**
            
            
            
            **Filed**
            
            **To
                be Filed****Index**
            
            **Description
                of Document**
            
            **Herewith**
            
            **by
                Amendment**
            
            **Incorporated
                by Reference To:**10.1
            
            Equity
                Transfer Agreement, dated April 2, 2007, by and among the registrant,
                China Safetech Holdings Limited and Zheng Huang (English
                Translation)
            
            
            
            
            
            Form
                10-Q filed with the Securities and Exchange Commission on May 15,
                200710.2
            
            Equity
                Transfer Agreement, dated May 11, 2007, by and among the registrant,
                China
                Safetech Holding Limited and Yi Li (English Translation)
            
            
            
            
            
            Form
                8-K filed with the Securities and Exchange Commission on May 16,
                200710.3
            
            Equity
                Transfer Agreement, dated June 4, 2007, by and among the registrant,
                China
                Safetech Holding Limited and Yiu, Siu Fung Jeff (English
                Translation)
            
            
            
            
            
            Form
                8-K filed with the Securities and Exchange Commission on June 7,
                200710.4
            
            Equity
                Transfer Agreement, dated July 2, 2007, by and among the registrant,
                China
                Safetech Holding Limited and Yi Li (English Translation)
            
            
            
            
            
            Form
                8-K filed with the Securities and Exchange Commission on July 9,
                200731.1
            
            Certification
                of Principal Executive Officer filed pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002
            
            X31.2
            
            Certification
                of Principal Financial Officer filed pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002
            
            X32.1
            
            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
            
            X32.2
            
            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
            
            X


42




**SIGNATURES**






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




DATED:
      August 13, 2007






**China
              Security & Surveillance Technology, Inc.**By:
            /s/ Guoshen
              TuGuoshen
              TuPrincipal
              Executive Officer


By:
              /s/ Terence
                YapTerence
                YapPrincipal
                Financial Officer




43




**EXHIBIT
      INDEX**




**Exhibit**
            
            
            
            **Filed**
            
            **To
                be Filed****Index**
            
            **Description
                of Document**
            
            **Herewith**
            
            **by
                Amendment**
            
            **Incorporated
                by Reference To:**10.1
            
            Equity
                  Transfer Agreement, dated April 2, 2007, by and among the registrant,
                  China Safetech Holdings Limited and Zheng Huang (English
                  Translation)
            
            
            
            
            
            Form
                10-Q filed with the Securities and Exchange Commission on May 15,
                200710.2
            
            Equity
                Transfer Agreement, dated May 11, 2007, by and among the registrant,
                China
                Safetech Holding Limited and Yi Li (English Translation)
            
            
            
            
            
            Form
                8-K filed with the Securities and Exchange Commission on May 16,
                200710.3
            
            Equity
                Transfer Agreement, dated June 4, 2007, by and among the registrant,
                China
                Safetech Holding Limited and Yiu, Siu Fung Jeff (English
                Translation)
            
            
            
            
            
            Form
                8-K filed with the Securities and Exchange Commission on June 7,
                200710.4
            
            Equity
                Transfer Agreement, dated July 2, 2007, by and among the registrant,
                China
                Safetech Holding Limited and Yi Li (English Translation)
            
            
            
            
            
            Form
                8-K filed with the Securities and Exchange Commission on July 9,
                200731.1
            
            Certification
                of Principal Executive Officer filed pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002
            
            X31.2
            
            Certification
                of Principal Financial Officer filed pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002
            
            X32.1
            
            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
            
            X32.2
            
            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
            
            X


44