U.S.
        SECURITIES AND EXCHANGE COMMISSION


Washington,
      D.C. 20549







FORM
      10-QSB




(Mark
      one)




x
            Quarterly
                Report Under Section 13 or 15(d) of the Securities Exchange Act of
                1934




For
      the
      Quarterly Period Ended June 30, 2007


or




o
            Transition
                Report Under Section 13 or 15(d) of the Securities Exchange Act of
                1934




Commission
      File Number 000-50491







China
      Fire & Security Group, Inc.


(Name
      of
      small business issuer in its charter)




Florida
            65-1193022(State
                or other jurisdiction
              of
                incorporation or organization)
            (I.R.S.
                Employer
              Identification
                No.)South
                Banbidian Industrial Park
              Liqiao
                Township, Shunyi District
              Beijing
                101304
              People’s
                Republic of China
            101304(Address
                of principal executive offices)
            (Zip
                Code)




Issuer's
      telephone number:  (86-10) 8416 3816.







Check
      whether the issuer (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 an accelerated filer (as defined in
      Rule
      12b-2 of the Act). Yes  o   No x




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




As
      of
      June 30, 2007, the Registrant had 26,461,678 shares of common stock
      outstanding.









China
      Fire & Security Group, Inc.




Table
      of
      Contents




PagePART
                I -
            FINANCIAL
                INFORMATIONItem
                1.
            Financial
                Statements (Unaudited):Consolidated
                Balance Sheets as of June 30, 2007 and December 31, 2005
            F-1Consolidated
                Statements of Income and Other Comprehensive IncomeThree
                Months and Six Months Ended June 30, 2007 and 2006.
            F-2Consolidated
                Statements of  Shareholders' EquitySix
                Months Ended June 30, 2007 and 2006
            F-3Consolidated
                Statements of Cash FlowsSix
                Months Ended June 30, 2007 and 2006.
            F-4Notes
                to Financial Statements (Unaudited)
            F-5Item
                2.
            Management's
                Discussion and Analysis or Plan of Operation
            1Item
                3.
            Controls
                and Procedures
            10PART
                II -
            OTHER
                INFORMATIONItem
                1.
            Legal
                Proceedings
            11Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            11Item
                3.
            Defaults
                Upon Senior Securities
            11Item
                4.
            Submission
                of Matters to a Vote of Security Holders.
            11Item
                5.
            Other
                Information
            11Item
                6.
            Exhibits
                and Reports on Form 8-K
            12







PART
      I -
      FINANCIAL INFORMATION




Item
      1. Financial Statements.




CHINA
        FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES (FORMERLY
          KNOWN AS UNIPRO FINANCIAL SERVICES, INC.)
  CONSOLIDATED
            BALANCE SHEETS AS
              OF JUNE 30, 2007 AND DECEMBER 31, 2006


June
                  30,
              
              December
                  31,2007
              
              2006UnauditedASSETSCURRENT
                  ASSETS:Cash
              
              $
              8,487,318
              
              $
              9,426,091Restricted
                  cash
              
              
              894,494
              
              
              1,622,833Accounts
                  receivable, net of allowance for doubtful accounts of $1,496,398
                  and$1,252,947
                  as of June 30, 2007 and December 31, 2006,
                  respectively
              
              
              14,377,790
              
              
              12,878,665Accounts
                  receivable - related party
              
              
              -
              
              
              333,056Notes
                  receivable
              
              
              1,550,911
              
              
              903,425Other
                  receivables
              
              
              1,993,014
              
              
              785,111Other
                  receivables - related party
              
              
              -
              
              
              90,008Inventories
              
              
              4,741,890
              
              
              4,190,830Costs
                  and estimated earnings in excess of billings
              
              
              12,258,012
              
              
              9,020,122Employee
                  advances
              
              
              2,186,930
              
              
              1,648,560Prepayments
                  and deferred expenses
              
              
              2,557,245
              
              
              2,396,571Total
                  current assets
              
              
              49,047,604
              
              
              43,295,272PLANT
                  AND EQUIPMENT, net
              
              
              3,929,627
              
              
              3,529,808OTHER
                  ASSETS:Accounts
                  receivable - retentions
              
              
              667,103
              
              
              383,375Deferred
                  expenses - non current
              
              
              -
              
              
              40,830Advances
                  on building purchases
              
              
              896,865
              
              
              -Investment
                  in joint ventures
              
              
              149,910
              
              
              501,288Land
                  use rights, net of accumulated amortization
              
              
              565,797
              
              
              558,255Technology
                  rights, net of accumulated amortization
              
              
              598,599
              
              
              -Total
                  other assets
              
              
              2,878,274
              
              
              1,483,748Total
                  assets
              
              $
              55,855,505
              
              $
              48,308,828LIABILITIES
                  AND SHAREHOLDERS' EQUITYCURRENT
                  LIABILITIES:Accounts
                  payable
              
              $
              5,553,119
              
              $
              5,796,979Accounts
                  payable - related party
              
              
              -
              
              
              320,754Customer
                  deposits
              
              
              8,335,538
              
              
              2,713,451Billings
                  in excess of costs and estimated earnings
              
              
              2,331,174
              
              
              8,867,624Other
                  payables
              
              
              826,569
              
              
              388,434Other
                  payables - related party
              
              
              -
              
              
              50,523Accrued
                  liabilities
              
              
              2,898,232
              
              
              1,891,628Taxes
                  payable
              
              
              162,204
              
              
              619,949Total
                  current liabilities
              
              
              20,106,836
              
              
              20,649,342DERIVATIVE
                  INSTRUMENT LIABILITIES
              
              
              -
              
              
              2,680,811COMMITMENTS
                  AND CONTINGENCIES
              
              
              -
              
              
              -SHAREHOLDERS'
                  EQUITY:Common
                  stock, $0.001 par value, 65,000,000 shares authorized,26,461,678
                  shares issued and outstanding
              
              
              26,462
              
              
              26,462Additional
                  paid-in-capital
              
              
              14,980,191
              
              
              13,393,171Statutory
                  reserves
              
              
              3,123,127
              
              
              3,728,127Retained
                  earnings
              
              
              15,743,033
              
              
              6,765,393Accumulated
                  other comprehensive income
              
              
              1,875,856
              
              
              1,065,522Total
                  shareholders' equity
              
              
              35,748,669
              
              
              24,978,675Total
                  liabilities and shareholders' equity
              
              $
              55,855,505
              
              $
              48,308,828





The
      accompanying notes are an integral part of these consolidated financial
      statements.  F-1




CHINA
        FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES (FORMERLY
          KNOWN AS UNIPRO FINANCIAL SERVICES, INC.)
  CONSOLIDATED
            STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME FOR
              THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2007 AND 2006 (Unaudited)




Three
                  months endedJune 30,
              
              Six
                  months ended June 30,2007
              
              2006
              
              2007
              
              2006REVENUESSystem
                  contracting projects
              
              $
              9,887,878
              
              $
              4,100,476
              
              $
              17,164,386
              
              $
              8,322,758Products
              
              
              1,538,049
              
              
              4,138,369
              
              
              3,639,805
              
              
              6,507,601Maintenance
                  services
              
              
              121,258
              
              
              132,888
              
              
              242,456
              
              
              195,724Total
                  revenues
              
              
              11,547,185
              
              
              8,371,733
              
              
              21,046,647
              
              
              15,026,083COST
                  OF REVENUESSystem
                  contracting projects
              
              
              4,379,902
              
              
              2,092,985
              
              
              8,024,570
              
              
              4,748,617Products
              
              
              811,081
              
              
              1,474,627
              
              
              1,639,783
              
              
              1,940,888Maintenance
                  services
              
              
              46,689
              
              
              19,014
              
              
              56,874
              
              
              35,495Total
                  cost of revenues
              
              
              5,237,672
              
              
              3,586,626
              
              
              9,721,227
              
              
              6,725,000GROSS
                  PROFIT
              
              
              6,309,513
              
              
              4,785,107
              
              
              11,325,420
              
              
              8,301,083OPERATING
                  EXPENSESelling
                  and marketing
              
              
              1,210,100
              
              
              267,180
              
              
              1,761,509
              
              
              849,080General
                  and administrative
              
              
              1,174,309
              
              
              590,685
              
              
              2,185,353
              
              
              1,092,414Depreciation
                  and amortization
              
              
              133,056
              
              
              132,889
              
              
              259,539
              
              
              269,778Research
                  and development
              
              
              267,626
              
              
              226,548
              
              
              317,921
              
              
              403,520Total
                  operating expense
              
              
              2,785,091
              
              
              1,217,302
              
              
              4,524,322
              
              
              2,614,792INCOME
                  FROM OPERATIONS
              
              
              3,524,422
              
              
              3,567,805
              
              
              6,801,098
              
              
              5,686,291OTHER
                  INCOME (EXPENSE)Other
                  income
              
              
              323,702
              
              
              128,091
              
              
              327,998
              
              
              225,484Other
                  expense
              
              
              (2,146
              )
              
              -
              
              
              (6,417
              )
              
              -Interest
                  income
              
              
              24,915
              
              
              4,372
              
              
              44,170
              
              
              6,080Interest
                  expense
              
              
              -
              
              
              (43,019
              )
              
              -
              
              
              (43,019
              )Change
                  in fair value of derivative instruments
              
              
              371,628
              
              
              -
              
              
              1,205,791
              
              
              -Total
                  other income (expense)
              
              
              718,099
              
              
              89,444
              
              
              1,571,542
              
              
              188,545INCOME
                  BEFORE PROVISION FOR INCOMETAXES
                  AND MINORITY INTEREST
              
              
              4,242,521
              
              
              3,657,249
              
              
              8,372,640
              
              
              5,874,836PROVISION
                  FOR INCOME TAXES
              
              
              -
              
              
              43,144
              
              
              -
              
              
              56,800NET
                  INCOME BEFORE MINORITY INTEREST
              
              
              4,242,521
              
              
              3,614,105
              
              
              8,372,640
              
              
              5,818,036MINORITY
                  INTEREST
              
              
              -
              
              
              (18,890
              )
              
              -
              
              
              -NET
                  INCOME
              
              
              4,242,521
              
              
              3,632,995
              
              
              8,372,640
              
              
              5,818,036OTHER
                  COMPREHENSIVE INCOMEForeign
                  currency translation adjustment
              
              
              514,775
              
              
              32,993
              
              
              810,334
              
              
              120,677COMPREHENSIVE
                  INCOME
              
              $
              4,757,296
              
              $
              3,665,988
              
              $
              9,182,974
              
              $
              5,938,713WEIGHTED
                  AVERAGE NUMBER OF SHARES - BASIC
              
              
              26,461,678
              
              
              24,000,000
              
              
              26,461,678
              
              
              24,000,000WEIGHTED
                  AVERAGE NUMBER OF SHARES - DILUTED
              
              
              27,164,207
              
              
              24,000,000
              
              
              27,085,807
              
              
              24,000,000EARNING
                  PER SHARE - BASIC
              
              $
              0.16
              
              $
              0.15
              
              $
              0.32
              
              $
              0.24EARNING
                  PER SHARE - DILUTED
              
              $
              0.16
              
              $
              0.15
              
              $
              0.31
              
              $
              0.24


The
      accompanying notes are an integral part of these consolidated financial
      statements.




F-2


CHINA
        FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES (FORMERLY
          KNOWN AS UNIPRO FINANCIAL SERVICES, INC.)
  CONSOLIDATED
            STATEMENTS OF SHAREHOLDERS' EQUITY FOR
              THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006
 Additional
                  
                  Retained
                      Earnings
                  
                  Owner
                  
                  Accumulated
                      otherCommon
                      Stock
                  
                  paid-in-
                  
                  Statutory
                  
                  
                  
                  contribution
                  
                  comprehensiveShares
                  
                  Par
                      value
                  
                  capital
                  
                  reserves
                  
                  Unrestricted
                  
                  receivable
                  
                  income
                  
                  TotalsBALANCE,
                      December 31, 2005
                  
                  
                  24,000,000
                  
                  $
                  24,000
                  
                  $
                  6,056,058
                  
                  $
                  3,458,325
                  
                  $
                  65,554
                  
                  $
                  (10,087,527
                  )
                  $
                  483,590
                  
                  $
                  -Net
                      income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  5,818,036
                  
                  
                  
                  
                  
                  
                  
                  
                  5,818,036Cash
                      proceeds from investment inSureland
                      Equipment Co., Ltd
                  
                  
                  
                  
                  
                  
                  
                  
                  165,000
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  165,000Foreign
                      currency translation adjustment
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  120,677
                  
                  
                  120,677BALANCE,
                      June 30, 2006 (Unaudited)
                  
                  
                  24,000,000
                  
                  $
                  24,000
                  
                  $
                  6,221,058
                  
                  $
                  3,458,325
                  
                  $
                  5,883,590
                  
                  $
                  (10,087,527
                  )
                  $
                  604,267
                  
                  $
                  6,103,713Net
                      income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,151,605
                  
                  
                  
                  
                  
                  
                  
                  
                  1,151,605Adjustment
                      to statutory reserves
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  269,802
                  
                  
                  (269,802
                  )
                  
                  
                  
                  
                  
                  
                  
                  -Collection
                      of contribution receivable
                  
                  
                  
                  
                  
                  
                  
                  
                  4,973
                  
                  
                  
                  
                  
                  
                  
                  
                  10,087,527
                  
                  
                  
                  
                  
                  10,092,500Cash
                      proceeds from investment inSureland
                      Equipment Co., Ltd
                  
                  
                  
                  
                  
                  
                  
                  
                  495,000
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  495,000Issuance
                      of common stock
                  
                  
                  2,461,678
                  
                  
                  2,462
                  
                  
                  6,028,140
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  6,030,602Options
                      issued to employees
                  
                  
                  
                  
                  
                  
                  
                  
                  644,000
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  644,000Foreign
                      currency translation adjustment
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  461,255
                  
                  
                  461,255BALANCE,
                      December 31, 2006
                  
                  
                  26,461,678
                  
                  $
                  26,462
                  
                  $
                  13,393,171
                  
                  $
                  3,728,127
                  
                  $
                  6,765,393
                  
                  $
                  -
                  
                  $
                  1,065,522
                  
                  $
                  24,978,675Net
                      income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  8,372,640
                  
                  
                  
                  
                  
                  
                  
                  
                  8,372,640Warrants
                      transferred to additional paid-in capital
                  
                  
                  
                  
                  
                  
                  
                  
                  1,475,020
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,475,020Options
                      issued to employees
                  
                  
                  
                  
                  
                  
                  
                  
                  112,000
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  112,000Adjustment
                      from statutory reserves
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (605,000
                  )
                  
                  605,000
                  
                  
                  
                  
                  
                  
                  
                  
                  -Foreign
                      currency translation adjustment
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  810,334
                  
                  
                  810,334BALANCE,
                      June 30, 2007 (Unaudited)
                  
                  
                  26,461,678
                  
                  $
                  26,462
                  
                  $
                  14,980,191
                  
                  $
                  3,123,127
                  
                  $
                  15,743,033
                  
                  $
                  -
                  
                  $
                  1,875,856
                  
                  $
                  35,748,669
  The
            accompanying notes are an integral part of these consolidated financial
            statements.


F-3




CHINA
        FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES (FORMERLY
          KNOWN AS UNIPRO FINANCIAL SERVICES, INC.)
  CONSOLIDATED
            STATEMENTS OF CASH FLOWS FOR
              THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006 (Unaudited)


2007
              
              2006CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  income
              
              $
              8,372,640
              
              $
              5,818,036Adjustments
                  to reconcile net income to cash(used
                  in) provided by operating activities:Depreciation
              
              
              268,868
              
              
              266,542Amortization
              
              
              16,881
              
              
              3,236Provision
                  for doubtful accounts
              
              
              208,324
              
              
              113,497Loss
                  on disposal of equipment
              
              
              -
              
              
              38,119Compensation
                  expense for options issued to employees
              
              
              112,000
              
              
              -Change
                  in fair value of derivative instruments
              
              
              (1,205,791
              )
              
              -(Increase)
                  decrease in assets:Accounts
                  receivable
              
              
              (1,632,577
              )
              
              (1,110,952
              )Accounts
                  receivable - related party
              
              
              336,979
              
              
              -Notes
                  receivable
              
              
              (615,734
              )
              
              790,091Other
                  receivables
              
              
              (1,169,318
              )
              
              (187,291
              )Other
                  receivables - related party
              
              
              91,068
              
              
              -Inventories
              
              
              (437,151
              )
              
              (896,631
              )Costs
                  and estimated earnings in excess of billings
              
              
              (2,964,789
              )
              
              (3,719,964
              )Employee
                  advances
              
              
              (489,184
              )
              
              (271,697
              )Prepayments
                  and deferred expenses
              
              
              (73,909
              )
              
              (215,405
              )Increase
                  (decrease) in liabilities:Accounts
                  payable
              
              
              (287,314
              )
              
              677,407Accounts
                  payable - related party
              
              
              (324,532
              )
              
              -Customer
                  deposits
              
              
              5,476,662
              
              
              3,089,873Billings
                  in excess of costs and estimated earnings
              
              
              (6,672,629
              )
              
              (890,310
              )Other
                  payables
              
              
              423,280
              
              
              158,765Other
                  payables - related party
              
              
              (51,118
              )
              
              -Accrued
                  liabilities
              
              
              1,008,098
              
              
              1,592,848Taxes
                  payable
              
              
              (453,113
              )
              
              203,585Net
                  cash (used in) provided by operating activities
              
              
              (62,359
              )
              
              5,459,749CASH
                  FLOWS FROM INVESTING ACTIVITIES:Purchase
                  of equipment
              
              
              (709,403
              )
              
              (182,373
              )Advances
                  on building purchases
              
              
              (884,657
              )
              
              (231,510
              )Purchase
                  of intangible assets
              
              
              (608,745
              )
              
              -Proceeds
                  from sale of equipment
              
              
              7,183
              
              
              8,392Proceeds
                  from sale of investment in Tianjin Fire Safety Equipment Co.
                  Ltd.
              
              
              507,192
              
              
              -Payments
                  for investment in Tianjin Fire Safety Equipment Co. Ltd.
              
              
              -
              
              
              (299,711
              )Payments
                  for investment in Hubei Sureland Changjiang Fire SafetyTechnology
                  Co., Ltd.
              
              
              (147,869
              )
              
              -Proceeds
                  from sale of Beijing Zhong Xiao Fire Safety Technology Co.,
                  Ltd
              
              
              1,052,986
              
              
              -Net
                  cash used in investing activities
              
              
              (783,313
              )
              
              (705,202
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Decrease
                  in restricted cash
              
              
              759,629
              
              
              32,914Dividend
                  distributions to original shareholders and minority interest
                  shareholders
              
              
              -
              
              
              (7,836,040
              )Proceeds
                  from note payables
              
              
              -
              
              
              2,496,000Proceeds
                  from increase in paid-in capital
              
              
              -
              
              
              165,000Payments
                  to Beijing Zhong Xiao Fire Safety Technology Co., Ltd
              
              
              (2,429,681
              )
              
              -Proceeds
                  from Beijing Zhong Xiao Fire Safety Technology Co., Ltd
              
              
              1,344,316
              
              
              -Net
                  cash used in financing activities
              
              
              (325,736
              )
              
              (5,142,126
              )EFFECTS
                  OF EXCHANGE RATE CHANGE IN CASH
              
              
              232,635
              
              
              63,623DECREASE
                  IN CASH
              
              
              (938,773
              )
              
              (323,956
              )CASH,
                  beginning of period
              
              
              9,426,091
              
              
              2,357,399CASH,
                  end of period
              
              $
              8,487,318
              
              $
              2,033,443




The
      accompanying notes are an integral part of these consolidated financial
      statements.


F-4


CHINA
        FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES
 (FORMERLY
        KNOWN AS UNIPRO FINANCIAL SERVICE, INC.)
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 June
        30,
        2007
 (Unaudited)




**Note
      1 - Background**





**China
      Fire & Security Group Inc.** (the
      “Company”, formerly known as Unipro Financial Services, Inc. “Unipro”), is a
      Florida corporation. The Company, through its subsidiaries, is engaged in the
      design, development, manufacturing and sales of fire protection products and
      services for industrial customers in China.





On
      September 1, 2006, the Company signed a Securities Exchange Agreement (the
      “Agreement”) with China Fire Protection Group, Inc. (“CFPG”). Based on the
      agreement, each CFPG Shareholder agreed to sell, assign, transfer and deliver
      to
      Unipro all of the CFPG’s ordinary shares of capital stock, par value US $0.01
      each (the “CFPG Shares”), in exchange for the issuance by Unipro to each such
      CFPG Shareholder a pro rata share of 701,538.46 Unipro shares of Series A
      Convertible Preferred Stock, no par value (“Unipro Preferred”). Each CFPG
      Shareholder’s pro rata share of the Unipro Preferred was determined by
      multiplying 701,538.46 Unipro Preferred by a fraction, the numerator equaled
      the
      total number of CFPG Shares owned by the CFPG Shareholder at the Closing and
      the
      denominator was is the total number of CFPG Shares issued and outstanding at
      the
      closing. The transaction was completed on October 27, 2006. Prior to closing,
      CFPG had outstanding options to purchase CFPG shares. The options were converted
      into 750,000 options to purchase Unipro Common Stock, $0.001 par value (“Common
      Stock”) on the same terms and conditions as the outstanding options. Fractional
      shares of Unipro Preferred were issued as necessary.





For
      accounting purpose this transaction was treated as a recapitalization of the
      CFPG where the CFPG is considered the accounting acquirer. As a result of the
      reverse acquisition and recapitalization under common control. CFPG’s financial
      statements are presented as the continuing accounting entity. Thus, the
      historical financial statements of CFPG were recapitalized with the historical
      equity shares of the Company.





**China
      Fire Protection Group, Inc. (“CFPG”)** was
      incorporated in the British Virgin Islands as a limited liability company on
      June 2, 2006. On June 19, 2006, CFPG entered a sales and purchase agreement
      with
      the existing five shareholders (“Original Shareholders”) of Sureland Industrial
      Fire Safety Limited (“Sureland Industrial”) who agreed to transfer their 100%
      ownership in Sureland Industrial to the CFPG. The total purchase consideration
      was $10,087,527 which was determined based upon the net asset value of Sureland
      Industrial as of December 31, 2005. On July 18, 2006, this transfer was approved
      by the Beijing Bureau of Commerce, and the registration was completed with
      the
      Beijing State Administration for Industry and Commerce of the People’s Republic
      of China, (“PRC”). As a result of this transfer, CFPG became the 100%
      shareholder of Sureland Industrial. On October 30, 2006, CFPG to transferred
      25%
      ownership in Sureland Industrial to Sureland Industrial Fire Equipment Co.,
      Ltd.





In
      accordance with laws governing foreign acquisitions of a Chinese registered
      company, the transfer of $10,087,527 is required to be made within 1 year from
      the date of issuance of the business license and the transfer were completed
      in
      December 2006.





During
      June and July 2006, the CFPG issued 33,500 shares of common stock to the
      Original Shareholders in consideration of a promissory note receivable totaling
      $10,752,500 and the total number of shares outstanding in the Company is 33,500.
      As a result of this transaction, the Original Shareholders exercised control
      over the Company.





The
      purchase of Sureland Industrial and the issuance of CFPG’s common stock has been
      accounted for as a reverse acquisition and recapitalization under common
      control. The assets and liabilities transferred have been accounted for at
      historical cost. The consolidated financial statements have been presented
      as if
      the acquisition of the subsidiary occurred at the beginning of 2006.





**Sureland
      Industrial Fire Safety Limited (“Sureland Industrial”)** was
      established as a Sino-foreign equity joint venture in Beijing, PRC on February
      22, 1995. Sureland Industrial and its subsidiaries in China principally engage
      in the design, development, manufacturing and sale of fire protection products
      and services for industrial customers in China.




F-5




CHINA
        FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES
 (FORMERLY
        KNOWN AS UNIPRO FINANCIAL SERVICE, INC.)
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 June
        30,
        2007
 (Unaudited)




On
      June
      12, 2006, the Beijing Administration for Industry and Commerce approved the
      conversion of Sureland Industrial into a limited liability company with
      registered capital at RMB 50,000,000. On May 17, 2007, the Beijing Shunyi
      District Business Administration approved the Company to increase registered
      capital from RMB 50,000,000 to RMB 100,000,000. The Company obtained a new
      business license on July 2, 2007 which was issued by the Beijing Administration
      for Industry and Commerce.





**Beijing
      Hua An Times Fire Safety Technology Co., Ltd. (“Beijing Hua
      An”)** is a
      subsidiary of Sureland Industrial established in the PRC as a limited liability
      company on September 22, 2005 upon its establishment, 80% and 20% of its
      registered capital were contributed, in cash, by Sureland Industrial and
      Sureland Creation, respectively. On October 8, 2006, Sureland Industrial and
      Sureland Creation agreed to transfer the 20% ownership in Beijing Hua An from
      Sureland Creation to Sureland Industrial, and Sureland Industrial became 100%
      shareholder of Beijing Hua An.





**Sureland
      Industrial Fire Equipment Co., Ltd. (“Sureland Equipment”)** was
      established as a Sino-foreign equity joint venture in Beijing, the People’s
      Republic of China (the PRC) on April 12, 2006 with a registered capital
      $660,000. Upon its establishment, 75% and 25% of its registered capital were
      contributed, in cash, by Sureland Industrial and Vyle Investment Inc.,
      respectively. On June 22, 2006, CFPG signed a sales and purchase agreement
      with
      the existing two shareholders, Sureland Industrial and Vyle Investment Inc.,
      to
      become 100% shareholder of Sureland Equipment. The purchase price was based
      on
      the registered capital of Sureland Equipment. On August 4, 2006, this
      transaction was approved by the Beijing Bureau of Commerce, and the registration
      with the Beijing State Administration for Industry and Commerce of the People’s
      Republic of China, (“PRC”) was completed on August 15, 2006.





**Tianjin
      Tianxiao Fire Safety Equipment Co., Ltd. (“Tianxiao Equipment”)** was
      established as a limited liability company in Tianjin, PRC on April 11, 2007
      with a registered capital RMB 10,000,000. 100% of its registered capital was
      contributed, in cash, by Sureland Industrial. Tianxiao Equipment principally
      engages in the manufacturing and sale of fire protection products and services
      for industrial customers in China.





**Note
      2 - Summary of significant accounting policies**





The
      reporting entity





The
      consolidated financial statements of China Fire & Security Group Inc. and
      subsidiaries reflect its wholly-owned subsidiaries CFPG, Sureland Industrial,
      Beijing Hua An, Sureland Equipment, and Tianxiao Equipment.





Basis
      of presentation





The
      accompanying consolidated financial statements have been prepared in accordance
      with accounting principles generally accepted in the United States of America.
      All material intercompany transactions and balances have been eliminated in
      consolidation.





Shipping
      and handling





Costs
      related to shipping and handlings are included in cost of revenue. The Company
      accounts for shipping and handling fees and costs in accordance with Emerging
      Issues Task Force (“EITF”) Issue No. 00-10 “Accounting for Shipping and Handling
      Fees and Costs.”





Revenue
      recognition





Revenue
      is recognized when it is probable that the economic benefits will flow to the
      Company as follows:





1.
            Revenue
                from system contracting projects are recognized using the
                percentage-of-completion method of accounting and, therefore, take
                into
                account the costs, estimated earnings and revenue to date on contracts
                not
                yet completed. Revenue recognized is that percentage of the total
                contract
                price that cost expended to date bears to anticipated final total
                cost,
                based on current estimates of costs to complete. Contract costs include
                all direct material and labor costs and those indirect costs related
                to
                contract performance, such as indirect labor, supplies, tools, repairs,
                and depreciation costs. Selling, general, and administrative costs
                are
                charged to expense as incurred. At the time a loss on a contract
                becomes
                known, the entire amount of the estimated ultimate loss is recognized
                in
                the consolidated financial statements. Claims for additional contract
                costs are recognized upon a signed change order from the customer
                or in
                accordance with paragraphs 62 and 65 of the AICPA’S Statement of Position
                ("SOP") 81-1, "Accounting for Performance of Construction - Type
                and
                Certain Production - Type Contracts" ("SOP
                81-1").


F-6




CHINA
        FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES
 (FORMERLY
        KNOWN AS UNIPRO FINANCIAL SERVICE, INC.)
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 June
        30,
        2007
 (Unaudited)


2.
            Revenue
                from products sales is recognized when the goods are delivered and
                title
                has passed. Products sales revenue are presented net of a value-added
                tax
                (VAT). All of the Company’s products that are sold in the PRC are subject
                to a Chinese value-added tax at a rate of 17% of the gross sales
                price.
                This VAT may be offset by VAT paid by the Company on raw materials
                and
                other materials included in the cost of producing their finished
                product.





3.
            Revenue
                from the rendering of Maintenance Services is recognized over the
                service
                period on a straight line basis.





In
      accordance with SFAS 48, “Revenue Recognition when Right of Return Exists,”
revenue is recorded net of an estimate of markdowns, price concessions and
      warranty costs. Such reserve is based on management’s evaluation of historical
      experience, current industry trends and estimated costs.





Almost
      all of our products (fire detecting products, fire alarm control device, and
      water mist/sprinkler systems) are sold via system contracting projects or as
      part of the integrated products sales. The composition of our three types of
      products varies significantly from project to project, both in quantity and
      in
      dollar amounts. Although we could provide a breakdown of sales contribution
      for
      our own products for each project, it is almost impossible to provide revenues
      for each of our products when the revenue from each project is recognized based
      on percentage of completion. More importantly, the revenues from our own
      products do not accurately reflect our overall financial performance. The
      Company is a system contracting projects provider rather than product vendors
      who sell their own products directly or through channels. Therefore, it is
      not
      practical to separately disclose the revenues from external customers for each
      of our products.





Foreign
      currency translation




The
      reporting currency of the Company is the US dollar. The Company uses their
      local
      currency, Renminbi (RMB), as their functional currency. Results of operations
      and cash flow are translated at average exchange rates during the period, and
      assets and liabilities are translated at the unified exchange rate as quoted
      by
      the People’s Bank of China at the end of the period. Translation adjustments
      resulting from this process are included in accumulated other comprehensive
      income in the statement of shareholders’ equity.




Translation
      adjustments amounted to $1,875,856 and $1,065,522 as of June 30, 2007 and
      December 31, 2006, respectively. Asset and liability accounts at June 30, 2007
      were translated at 7.60 RMB to $1.00 USD as compared to 7.80 RMB at December
      31,
      2006. Equity accounts were stated at their historical rate. The average
      translation rates applied to income statements accounts for the six months
      ended
      June 30, 2007 and 2006 were 7.71 RMB and 8.02 RMB, respectively. Cash flows
      are
      also translated at average translation rates for the period, therefore, amounts
      reported on the statement of cash flows will not necessarily agree with changes
      in the corresponding balances on the balance sheet.





Transaction
      gains and losses that arise from exchange rate fluctuations on transactions
      denominated in a currency other than the functional currency are included in
      the
      results of operations as incurred. Historically, the Company has not entered
      any
      currency trading or hedging transactions, although there is no assurance that
      the Company will not enter into such transactions in the future.




F-7




CHINA
        FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES
 (FORMERLY
        KNOWN AS UNIPRO FINANCIAL SERVICE, INC.)
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 June
        30,
        2007
 (Unaudited)


Plant
      and equipment





Plant
      and
      equipment are stated at cost less accumulated depreciation. Depreciation is
      computed using the straight-line method over the estimated useful lives of
      the
      assets with 5% residual value. Depreciation expense amount to $145,734 and
      $132,879 for the three months ended June 30, 2007 and 2006, respectively and
      $268,868 and $266,542 for the six months ended June 30, 2007 and 2006,
      respectively.





Estimated
      useful lives of the assets are as follows:




Useful
                  LifeBuildings
                  and improvements
              
              
              40
                  yearsTransportation
                  equipment
              
              
              5
                  yearsMachinery
              
              
              10
                  yearsOffice
                  equipment
              
              
              5
                  yearsFurniture
              
              
              5
                  years


Construction
      in progress represents the costs incurred in connection with the construction
      of
      buildings or additions to the Company’s plant facilities. No depreciation is
      provided for construction in progress until such time as the assets are
      completed and placed into service.





The
      cost
      and related accumulated depreciation of assets sold or otherwise retired are
      eliminated from the accounts and any gain or loss is included in the statements
      of income. Maintenance, repairs and minor renewals are charged directly to
      expense as incurred. Major additions and betterment to buildings and equipment
      are capitalized.





Long-term
      assets of the Company are reviewed annually or more often if circumstances
      dictate, to determine whether their carrying value has become impaired. The
      Company considers assets to be impaired if the carrying value exceeds the future
      projected cash flows from related operations. The Company evaluates the periods
      of depreciation and amortization to determine whether subsequent events and
      circumstances warrant revised estimates of useful lives. As of June 30, 2007,
      the Company expects these assets to be fully recoverable.





Plant
      and
      equipment consist of the following:




June
                  30,
              
              December
                  31,2007
              
              2006UnauditedBuildings
                  and improvements
              
              $
              2,448,732
              
              $
              2,393,171Transportation
                  equipment
              
              
              1,971,941
              
              
              1,678,678Machinery
              
              
              860,818
              
              
              579,708Office
                  equipment
              
              
              1,017,744
              
              
              968,213Furniture
              
              
              51,580
              
              
              33,637Totals
              
              
              6,350,815
              
              
              5,653,407Less
                  accumulated depreciation
              
              
              2,421,188
              
              
              2,123,599Totals
              
              $
              3,929,627
              
              $
              3,529,808


Use
      of
      estimates





The
      preparation of financial statements in conformity with generally accepted
      accounting principles of the United States of America requires management to
      make estimates and assumptions that affect the amounts reported in the combined
      financial statements and accompanying notes. Management believes that the
      estimates utilized in preparing its financial statements are reasonable and
      prudent. Actual results could differ from these estimates.


F-8




CHINA
        FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES
 (FORMERLY
        KNOWN AS UNIPRO FINANCIAL SERVICE, INC.)
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 June
        30,
        2007
 (Unaudited)


Certain
      of the Company’s accounting policies require higher degrees of judgment than
      others in their application. These include the recognition of revenue and
      earnings from system contracting projects under the percentage of completion
      method and the allowance of doubtful accounts. Management evaluates all of
      its
      estimates and judgments on an on-going basis.





Cash
      and concentration of risk





Cash
      includes cash on hand and demand deposits in accounts maintained with
      state **** owned
      banks within the People’s Republic of China and Singapore. Total cash (including
      restricted cash balances) in these banks at June 30, 2007 and December 31,
      2006,
      amounted to $9,379,420 and $11,037,830, respectively of which no deposits are
      covered by insurance. The Company has not experienced any losses in such
      accounts and believes it is not exposed to any risks on its cash in bank
      accounts.





Restricted
      cash





Restricted
      cash represents cash required to be deposited in a separate bank account subject
      to withdrawal restrictions by its system contracting projects and product sales
      customers to guarantee its contracts will be performed. The deposit cannot
      be
      drawn or transferred by the Company until the restriction period has expired.
      The amounts are $894,494 and $1,622,833 as of June 30, 2007 and December 31,
      2006, respectively.




June
                  30,
              
              December
                  31,2007
              
              2006UnauditedRestricted
                  CashProducts
                  sales
              
              $
              353,000
              
              $
              1,210,727System
                  contracting projects
              
              
              541,494
              
              
              412,106Total
                  Restricted Cash
              
              $
              894,494
              
              $
              1,622,833




Inventories





Inventories
      are stated at the lower of cost or market, using weighted average method.
      Inventories consisted of the followings at:





June
                  30,
              
              December
                  31,2007
              
              2006UnauditedRaw
                  materials
              
              $
              297,982
              
              $
              150,546Finished
                  goods
              
              
              3,791,453
              
              
              3,770,626Work
                  in progress
              
              
              652,455
              
              
              269,658Totals
              
              $
              4,741,890
              
              $
              4,190,830


Raw
      materials consist primarily of materials used in production. Finished goods
      consist primarily of equipment used in project contracts. The costs of finished
      goods include direct costs of raw materials as well as direct labor used in
      production. Indirect production costs such as utilities and indirect labor
      related to production such as assembling, shipping and handling costs are also
      included in the cost of inventory. The Company reviews its inventories
      periodically for possible obsolete goods and to determine if any reserves are
      necessary for potential obsolescence. As of June 30, 2007 and December 31,
      2006,
      the Company determined that no reserves are necessary.




F-9




CHINA
        FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES
 (FORMERLY
        KNOWN AS UNIPRO FINANCIAL SERVICE, INC.)
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 June
        30,
        2007
 (Unaudited)


Accounts
      receivable





Accounts
      receivable represents amounts due from customers for products sales, maintenance
      services and system contracting projects. Overdue balances are reviewed
      regularly by senior management. Reserves are recorded when collection of amounts
      due are in doubt.





Accounts
      receivable consists of the following:




June
                  30,
              
              December
                  31,2007
              
              2006UnauditedAccounts
                  receivable:Products
                  sales
              
              $
              7,239,240
              
              $
              6,149,185Maintenance
                  services
              
              
              595,717
              
              
              781,902System
                  contracting projects
              
              
              8,706,334
              
              
              7,583,900Total
                  accounts receivable
              
              
              16,541,291
              
              
              14,514,987Allowance
                  for bad debts
              
              
              (1,496,398
              )
              
              (1,252,947
              )Accounts
                  receivable, net
              
              
              15,044,893
              
              
              13,262,040Accounts
                  receivable - non-current retentions
              
              
              (667,103
              )
              
              (383,375
              )Accounts
                  receivable - currents assets
              
              $
              14,377,790
              
              $
              12,878,665




Costs
      and estimated earnings in excess of billings





The
      current asset, “Costs and estimated earnings in excess of billings” on
      contracts, represents revenues recognized in excess of amounts
      billed.





June
                  30,
              
              December
                  31,2007
              
              2006UnauditedContracts
                  costs incurred plus recognized profits less
              
              $
              36,475,002
              
              $
              25,378,764recognized
                  losses to dateLess
                  progress billings
              
              
              24,216,990
              
              
              16,358,642Costs
                  and estimated earnings in excess of billings
              
              $
              12,258,012
              
              $
              9,020,122


Billings
      in excess of costs and estimated earnings





The
      current liability, “Billings in excess of costs and estimated earnings” on
      contracts, represents billings in excess of revenues recognized.





June
                  30,
              
              December
                  31,2007
              
              2006UnauditedProgress
                  billings
              
              $
              14,356,452
              
              $
              23,129,942Contracts
                  costs incurred plus recognized profits less recognized losses to
                  date
              
              
              12,025,278
              
              
              14,262,318Billings
                  in excess of costs and estimated earnings
              
              $
              2,331,174
              
              $
              8,867,624


At
      June
      30, 2007 and December 31, 2006, retentions held by customers of system
      contracting projects included in the Company’s accounts receivable amounted to
      $2,288,075 and $2,519,128, respectively. These balances represent portions
      of
      billings made by the Company but held for payment by the customer pending
      satisfactory completion of the project. Retention payments are generally
      collected within one year of the completion of the project.




F-10




CHINA
        FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES
 (FORMERLY
        KNOWN AS UNIPRO FINANCIAL SERVICE, INC.)
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 June
        30,
        2007
 (Unaudited)


Research
      and development





Research
      and development expenses include salaries, consultant fees, supplies and
      materials, as well as costs related to other overhead such as depreciation,
      facilities, utilities and other departmental expenses. The costs we incur with
      respect to internally developed technology and engineering services are included
      in research and development expenses as incurred as they do not directly relate
      to any particular licensee, license agreement or licenses fee.





Warranties





Generally,
      our products are not covered by specific warranty terms. However, our policy
      is
      to replace parts if they become defective within one year after deployment
      at no
      additional charge. Historically, failure of product parts due to materials
      or
      workmanship is rare. Therefore, at June 30, 2007 and December 31, 2006, we
      made
      no provision for warranty claims for our products. We continuously evaluate
      our
      potential warranty obligation. We will record the expenses related to the
      warranty obligation when the estimated amount become material at the time
      revenue is recorded.





Financial
      instruments





Statement
      of Financial Accounting Standards No. 107 (SFAS 107), “Disclosures about Fair
      Value of Financial Instruments” requires disclosure of the fair value of
      financial instruments held by the Company. SFAS 107 defines the fair value
      of
      financial instruments as the amount at which the instrument could be exchanged
      in a current transaction between willing parties. The Company considers the
      carrying amount of cash, accounts receivable, other **** receivables,
      accounts payable, accrued liabilities and other payables to approximate their
      fair values because of the short period of time between the origination of
      such
      instruments and their expected realization and their current market rate of
      interest. Derivative instruments are carried at fair value, estimated using
      the
      Black-Scholes option model.





Intangible
      assets





Land
      use
      rights - All land in the People’s Republic of China is owned by the government
      and cannot be sold to any individual or company. However, the government grants
      the user “land use rights” to use the land. The Company acquired land use rights
      in 2001 for a total amount of $635,757. The land use rights expire in 2051.
      The
      costs of these rights are being amortized over
      fifty years using
      the straight-line method. As of June 30, 2007 and December 31, 2006, accumulated
      amortization amounted to $125,129 and $115,332, respectively. Amortization expense amounted to $3,386 and $10 for the three months ended
      June
      30, 2007 and 2006, respectively and $6,735 and $3,236 for the six months ended
      June 30, 2007 and 2006, respectively.





Technology
      rights - On May 2007, the Company acquired two technology rights to
      manufacturing fire protection products for $608,745. The costs of these rights
      are being amortized over
      ten years using
      the straight-line method. As of June 30, 2007, accumulated
      amortization amounted to $10,146. A mortization
      expense amounted to $10,146 for the three months ended June 30, 2007 and $10,146
      for the six months ended June 30, 2007.





Intangible
      assets of the Company are reviewed annually to determine whether their carrying
      value has become impaired. The Company considers assets to be impaired if the
      carrying value exceeds the future projected cash flows from related operations.
      The Company also evaluates the periods of amortization to determine whether
      subsequent events and circumstances warrant revised estimates of useful lives.
      As of June 30, 2007, the Company expects these assets to be fully recoverable.





Income
      taxes





The
      Company adopted Statement of Financial Accounting Standards No. 109, “Accounting
      for Income Taxes” (SFAS 109). SFAS 109 requires the recognition of deferred
      income tax liabilities and assets for the expected future tax consequences
      of
      temporary differences between income tax basis and financial reporting basis
      of
      assets and liabilities. Provision for income taxes consist of taxes currently
      due plus deferred taxes. There are no deferred tax amounts at June 30, 2007
      and
      December 31, 2006.




F-11




CHINA
        FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES
 (FORMERLY
        KNOWN AS UNIPRO FINANCIAL SERVICE, INC.)
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 June
        30,
        2007
 (Unaudited)


The
      charge for taxation is based on the results for the year as adjusted for items,
      which are non-assessable or disallowed. It is calculated using tax rates that
      have been enacted or substantively enacted by the balance sheet
      date.





Deferred
      tax is accounted for using the balance sheet liability method in respect of
      temporary differences arising from differences between the carrying amount
      of
      assets and liabilities in the financial statements and the corresponding tax
      basis used in the computation of assessable tax profit.





In
      principle, deferred tax liabilities are recognized for all taxable temporary
      differences, and deferred tax assets are recognized to the extent that it is
      probably that taxable profit will be available against which deductible
      temporary differences can be utilized. Deferred tax is calculated using tax
      rates that are expected to apply to the period when the asset is realized or
      the
      liability is settled. Deferred tax is charged or credited in the income
      statement, except when it is related to items credited or charged directly
      to
      equity, in which case the deferred tax is also dealt with in equity. Deferred
      tax assets and liabilities are offset when they relate to income taxes levied
      by
      the same taxation authority and the Company intends to settle its current tax
      assets and liabilities on a net basis.





The
      Company adopted FASB Interpretation 48, “Accounting for Uncertainty in Income
      Taxes” (“FIN 48”), as of January 1, 2007. A tax position is recognized as a
      benefit only if it is “more likely than not” that the tax position would be
      sustained in a tax examination, with a tax examination being presumed to occur.
      The amount recognized is the largest amount of tax benefit that is greater
      than
      50% likely of being realized on examination. For tax positions not meeting
      the
“more likely than not” test, no tax benefit is recorded. The adoption had no
      affect on the Company’s financial statements.





Value
      Added Tax





Enterprises
      or individuals who sell products, engage in repair and maintenance or import
      and
      export goods in the PRC are subject to a value added tax in accordance with
      Chinese laws. The value added tax standard rate is 17% of the gross sales price.
      A credit is available whereby VAT paid on the purchases of semi-finished
      products or raw materials used in the contract and production of the Company’s
      finished products can be used to offset the VAT due on sales of the finished
      product.





VAT
      on
      sales and VAT on purchases amounted to $2,626,243 and $2,426,434 for the six
      months ended June 30, 2007 and $1,985,995 and $1,557,889 for the six months
      ended June 30, 2006, respectively. Sales and purchases are recorded net of
      VAT
      collected and paid as the Company acts as an agent for the government. VAT
      taxes
      are not impacted by the income tax holiday.





Stock
      based compensation





The
      Company has adopted Statement of Financial Accounting Standards No. 123R
“Accounting for Stock-Based Compensation” (“SFAS 123R”), which defines a
      fair-value-based method of accounting for stock based employee compensation
      and
      transactions in which an entity issues its equity instruments to acquire goods
      and services from non-employees. Stock compensation for stock granted to
      non-employees has been determined in accordance with SFAS 123R and the Emerging
      Issues Task Force consensus Issue No. 96-18, "Accounting for Equity Instruments
      that are issued to Other than Employees for Acquiring, or in Conjunction with
      Selling Goods or Services" ("EITF 96-18"), as the fair value of the
      consideration received or the fair value of equity instruments issued, whichever
      is more reliably measured.





Recently
      issued accounting pronouncements





In
      June
      2006, the Emerging Issues Task Force (EITF) reached a consensus on EITF No.
      06-3, How Taxes Collected from Customers and Remitted to Governmental
      Authorities Should Be Presented in the Income Statement (EITF No. 06-3). EITF
      No. 06-3 permits that such taxes may be presented on either a gross basis or
      a
      net basis as long as that presentation is used consistently. The adoption of
      EITF No. 06-3 on January 1, 2007 did not impact our consolidated financial
      statements. We present the taxes within the scope of EITF No. 06-3 on a net
      basis.




F-12




CHINA
        FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES
 (FORMERLY
        KNOWN AS UNIPRO FINANCIAL SERVICE, INC.)
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 June
        30,
        2007
 (Unaudited)


In
      July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for
      Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109”
(“FIN 48”). The Company adopted Interpretation No. 48 on January 1, 2007. (See
      Note 2)





In
      September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," which
      addresses the measurement of fair value by companies when they are required
      to
      use a fair value measure for recognition or disclosure purposes under GAAP.
      SFAS
      No. 157 provides a common definition of fair value to be used throughout GAAP
      which is intended to make the measurement of fair value more consistent and
      comparable and improve disclosures about those measures. SFAS No. 157 will
      be
      effective for an entity's financial statements issued for fiscal years beginning
      after November 15, 2007. The Company is currently evaluating the effect SFAS
      No.
      157 will have on its consolidated financial position, liquidity, or results
      of
      operations.





In
      February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
      Assets and Financial Liabilities—Including an amendment of FASB Statement No.
      115 (“SFAS 159”). SFAS 159 permits companies to choose to measure many financial
      instruments and certain other items at fair value that  are
      not currently required to be measured at fair value. The objective of SFAS
      159
      is to provide opportunities to mitigate volatility in reported earnings caused
      by  measuring
      related assets and liabilities differently without having to apply hedge
      accounting provisions. SFAS 159 also establishes presentation and
      disclosure  requirements
      designed to facilitate comparisons between companies that choose different
      measurement attributes for similar types of assets and liabilities.
      SFAS  159
      will be effective in the first quarter of fiscal 2009. The Company is evaluating
      the impact that this statement will have on its consolidated
      financial  statements.





In
      June 2007, the
      FASB
      issued FASB Staff Position No. EITF 07-3, “Accounting for Nonrefundable Advance
      Payments for Goods or Services Received for use in Future Research and
      Development Activities” (“FSP EITF 07-3”), which addresses whether nonrefundable
      advance payments for goods or services that used or rendered for research and
      development activities should be expensed when the advance payment is made
      or
      when the research and development activity has been performed. The Company
      is
      currently evaluating the effect of this pronouncement on financial
      statements.





Reclassifications





Certain
      prior period amounts have been reclassified to conform to the current period
      presentation. These reclassifications have no effect on net income or cash
      flows.





**Note
      3 - Earnings per share**





The
      Company reports earnings per share in accordance with the provisions of SFAS
      No.
      128, “Earnings per Share.” SFAS No. 128 requires presentation of basic and
      diluted earnings per share in conjunction with the disclosure of the methodology
      used in computing such earnings per share. Basic earnings per share is computed
      by dividing income available to common stockholders by the weighted average
      common shares outstanding during the period. Diluted earnings per share takes
      into account the potential dilution that could occur if securities or other
      contracts to issue common stock were exercised and converted into common
      stock.




F-13




CHINA
        FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES
 (FORMERLY
        KNOWN AS UNIPRO FINANCIAL SERVICE, INC.)
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 June
        30,
        2007
 (Unaudited)


The
      following is a reconciliation of the basic and diluted earnings per share
      computation for the three months ended June 30, 2007 and 2006:


2007
              
              2006Unaudited
              
              UnauditedNet
                  income for earnings per share
              
              $
              4,242,521
              
              $
              3,632,995Weighted
                  average shares used in basic computation
              
              
              26,461,678
              
              
              24,000,000Diluted
                  effect of stock options and warrants
              
              
              702,529
              
              
              -Weighted
                  average shares used in diluted computation
              
              
              27,164,207
              
              
              24,000,000Earnings
                  per share:Basic
              
              $
              0.16
              
              $
              0.15Diluted
              
              $
              0.16
              
              $
              0.15


At
      June
      30, 2007, all stock options outstanding and warrants were included in the three
      months ended June 30, 2007 calculation of diluted earnings per
      share.





The
      following is a reconciliation of the basic and diluted earnings per share
      computation for the six months ended June 30, 2007 and 2006:




2007
              
              2006Unaudited
              
              UnauditedNet
                  income for earnings per share
              
              $
              8,372,640
              
              $
              5,818,036Weighted
                  average shares used in basic computation
              
              
              26,461,678
              
              
              24,000,000Diluted
                  effect of stock options and warrants
              
              
              624,129
              
              
              -Weighted
                  average shares used in diluted computation
              
              
              27,085,807
              
              
              24,000,000Earnings
                  per share:Basic
              
              $
              0.32
              
              $
              0.24Diluted
              
              $
              0.31
              
              $
              0.24


At
      June
      30, 2007, all stock options outstanding and warrants were included in the six
      months ended June 30, 2007 calculation of diluted earnings per
      share.




F-14


CHINA
        FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES
 (FORMERLY
        KNOWN AS UNIPRO FINANCIAL SERVICE, INC.)
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 June
        30,
        2007
 (Unaudited)


**Note
      4 - Supplemental disclosure of cash flow information**




Six
                  months ended June 30,2006
              
              2005Unaudited
              
              UnauditedInterest
                  paid
              
              $
              -
              
              $
              43,019Income
                  tax paid
              
              $
              -
              
              $
              124,030Non-cash
                  transactions investing and financing activities:Reclassification
                  of warrants liability to paid-in capitalupon
                  modification of warrants agreement
              
              $
              1,475,020
              
              $
              -




**Note
      5 - Notes receivable**





Notes
      receivable represents trade accounts receivable due from various customers
      where
      the customers’ bank has guaranteed the payment of the receivable. This amount is
      non-interest bearing and is normally paid within three to six months. The
      Company has the ability to submit their request for payment to the customer’s
      bank earlier than the scheduled payment date. However, the Company will incur
      an
      interest charge and a processing fee when they submit the payment request early.
      The Company‘s notes receivable totaled $1,550,911 and $903,425 as of June 30,
      2007 and December 31, 2006, respectively.





**Note
      6 - Prepayments and deferred expenses**





Prepayments
      and deferred expenses are monies deposited with or advanced to subcontractors
      to
      perform services on System Contracting Projects. Some subcontractors require
      a
      certain amount of money to be deposited as a guarantee payment in order for
      them
      start performing the services. Prepayments and deferred expenses also include
      monies deposited or advanced to vendors on future inventory purchases to ensure
      timely delivery. The total outstanding amount was $2,557,245 and $2,396,571
      as
      of June 30, 2007 and December 31, 2006, respectively.




**Note
      7 - Customer deposits**





Customer
      deposits represent amounts advanced by customers on products orders, maintenance
      services deposits and system contracting projects deposits. The product or
      service normally is shipped or performed within six months after receipt of
      the
      advance payment and the related sale is recognized in accordance with the
      Company’s revenue recognition policy. As of June 30, 2007 and December 31, 2006,
      customer deposits amounted to $8,335,538 and $2,713,451,
      respectively.




**Note
      8 - Accrued liabilities**





Accrued
      liabilities represent subcontractors’ expenses incurred as of period end for
      system contracting projects. As of June 30, 2007 and December 31, 2006, accrued
      liabilities amounted to $2,898,232 and $1,891,628, respectively.





**Note
      9 - Income taxes**





Under
      the
      Income Tax Laws of PRC, the Company’s subsidiaries are generally subject to an
      income tax at an effective rate of 33% (30% state income taxes plus 3% local
      income taxes) on income reported in the statutory financial statements after
      appropriate tax adjustments, unless the enterprise is located in a specially
      designated region where it allows enterprises a three-year income tax exemption
      and a 50% income tax reduction for the following three years or the enterprise
      is a manufacturing related joint venture with a foreign enterprise or a wholly
      owned subsidiary of a foreign enterprise, where it allows enterprises a two-year
      income tax exemption and a 50% income tax reduction for the following three
      years.




F-15




CHINA
        FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES
 (FORMERLY
        KNOWN AS UNIPRO FINANCIAL SERVICE, INC.)
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 June
        30,
        2007
 (Unaudited)


In
      November 2000, with the foreign shareholder transferring all of its ownership
      in
      Sureland Industrial to certain PRC nationals and upon the approval of the
      Beijing Foreign Economic and Trade Commission, Sureland Industrial was converted
      from a Sino-foreign equity joint venture into a domestic limited liability
      company. Sureland Industrial itself had been subject to an income tax at an
      effective rate of 33%.





Under
      the
      Income Tax Laws of Beijing State Administration Taxation of PRC, any enterprise
      with manufacturing operations in the City of Beijing who is a wholly owned
      subsidiary of a foreign enterprise is subject to income tax rate of
      24%.





On
      July
      19, 2006, Sureland Industrial became a wholly owned subsidiary of the Company,
      a
      foreign enterprise, and will start enjoying the exemption from January 1, 2007
      to December 31, 2008, and is entitled to a 50% deduction of the special income
      tax rate of 24%, which is a rate of 12% from January 2009 to December 31,
      2011.





On
      August
      4, 2006, Sureland Equipment became a wholly owned subsidiary of the Company,
      a
      foreign enterprise, and was granted income tax exemption from April 2006 to
      December 31, 2007, and is entitled to a 50% deduction of the special income
      tax
      rate of 24%, which is a rate of 12% from January 2008 to December 31,
      2010.





Beijing
      Hua An were established and registered in the New Technology Enterprise
      Development Zone, Beijing, PRC and are subject to the rate of 15% and have
      been
      certified by the relevant PRC authorities high technology enterprises. However
      pursuant to approval documents issued by the relevant tax bureau, Beijing Hua
      An
      obtained additional tax benefits. Beijing Hua An is exempt from income taxes
      from January 2006 to December 31, 2008 and is entitled to a 50% deduction of
      the
      special income tax rate of 15% which is a rate of 7.5% from January 2009 to
      December 31, 2011.





Tianxiao
      Equipment has no income taxes exemption and it has an income tax rate of 33%
      from its establishment.





Beginning
      January 1, 2008, the new Enterprise Income Tax (“EIT”) law will replace the
      existing laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises
      (“FIEs”).





The
      key
      changes are:





a.
            The
                new standard EIT rate of 25% will replace the 33% rate currently
                applicable to both DES and FIEs, except for High Tech companies who
                pays a
                reduced rate of 15%;


b.
            Companies
                established before March 16, 2007 will continue to enjoy tax holiday
                treatment approved by local government for a grace period of the
                next 5
                years or until the tax holiday term is completed, whichever is sooner.
                These companies will pay the standard tax rate as defined in point
                a above
                during the grace period.





The
      Company and its subsidiaries were established before March 16, 2007 and
      therefore are qualified to continue enjoying the reduced tax rate as described
      above. Since the detailed guidelines of the new tax law is not publicized yet,
      the Company can not determined what the new tax rate (15% or 25%) will be
      applicable to the Company and its subsidiaries after the end of their respective
      tax holiday terms.




F-16




CHINA
        FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES
 (FORMERLY
        KNOWN AS UNIPRO FINANCIAL SERVICE, INC.)
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 June
        30,
        2007
 (Unaudited)




The
      provision for income taxes for the three months ended June 30 consisted of
      the
      following:


2007
              
              2006Unaudited
              
              UnauditedProvision
                  for China Income Tax
              
              $
              -
              
              $
              39,221Provision
                  for China Local Tax
              
              
              -
              
              
              3,923Total
                  provision for income taxes
              
              $
              -
              
              $
              43,144


The
      following table reconciles the U.S. statutory rates to the Company’s effective
      tax rate for the three months ended June 30:





2007
              
              2006Unaudited
              
              UnauditedU.S.
                  Statutory rates
              
              
              34.0
              %
              
              34.0
              %Foreign
                  income not recoginized in USA
              
              
              (34.0
              )
              
              (34.0
              )China
                  income taxes
              
              
              33.0
              
              
              33.0China
                  income tax exemption
              
              
              (33.0
              )
              
              (32.0
              )Total
                  provision for income taxes
              
              
              -
              %
              
              1.0
              %


The
      estimated tax savings for the three months ended June 30, 2007 and 2006 amounted
      to $1,300,563 and $802,519, respectively. The net effect on basic earnings
      per
      share if the income tax had been applied would decrease basic earnings per
      share
      for the three months ended June 30, 2007 and 2006 by $0.11 and $0.12,
      respectively.





The
      provision for income taxes for the six months ended June 30 consisted of the
      following:




2007
              
              2006Unaudited
              
              UnauditedProvision
                  for China Income Tax
              
              $
              -
              
              $
              51,636Provision
                  for China Local Tax
              
              
              -
              
              
              5,164Total
                  provision for income taxes
              
              $
              -
              
              $
              56,800


The
      following table reconciles the U.S. statutory rates to the Company’s effective
      tax rate for the six months ended June 30:




2007
              
              2006Unaudited
              
              UnauditedU.S.
                  Statutory rates
              
              
              34.0
              %
              
              34.0
              %Foreign
                  income not recoginized in USA
              
              
              (34.0
              )
              
              (34.0
              )China
                  income taxes
              
              
              33.0
              
              
              33.0China
                  income tax exemption
              
              
              (33.0
              )
              
              (32.0
              )Total
                  provision for income taxes
              
              
              -
              %
              
              1.0
              %


The
      estimated tax savings for the six months ended June 30, 2007 and 2006 amounted
      to $2,486,028 and $1,538,088, respectively. The net effect on basic earnings
      per
      share if the income tax had been applied would decrease basic earnings per
      share
      for the six months ended June 30, 2007 and 2006 by $0.22 and $0.18,
      respectively.





China
      Fire & Security Group, Inc. was incorporated in the United States and has
      incurred net operating losses of $47,945 for income tax purposes for the six
      months ended June 30, 2007. The net operating loss carry forwards for United
      States income taxes amounted to $1,004,413 which may be available to reduce
      future years’ taxable income. These carry forwards will expire, if not utilize,
      through 2025, 2026 and 2027. Management believes that the realization of the
      benefits from these losses appears uncertain due to the Company’s limited
      operating history and continuing losses for United States income tax purposes.
      Accordingly, the Company has provided a 100% valuation allowance on the deferred
      tax asset benefit to reduce the asset to zero. The net change in the valuation
      allowance for the six month period ended June 30, 2007 was increase of $16,301
      and the accumulated valuation allowance as of June 30, 2007 amounted to
      $341,500. Management will review this valuation allowance periodically and
      make
      adjustments as warranted.




F-17


CHINA
        FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES
 (FORMERLY
        KNOWN AS UNIPRO FINANCIAL SERVICE, INC.)
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 June
        30,
        2007
 (Unaudited)


Taxes
      payable





Taxes
      payable as of June 30, 2007 and December 31, 2006 consisted of the
      following:




June
                  30,
              
              December
                  31,2007
              
              2006UnauditedVAT
                  taxes payable (credit)
              
              $
              (734,049
              )
              $
              47,211Income
                  taxes payable (refund)
              
              
              
              
              
              (13,317
              )Sales
                  taxes
              
              
              861,494
              
              
              541,486Other
                  taxes payable
              
              
              34,760
              
              
              44,569Total
              
              $
              162,204
              
              $
              619,949


**Note
      10 - Related party transactions and contingencies**





The
      Company owed $10,087,527 to Sureland Industrial’s original shareholders. The
      amount was paid in December 2006. (See Note 1)





In
      2006,
      Sureland Industrial invested $501,288 into Tianjin Fire Safety Equipment Co.,
      Ltd. (“Tianjin Fire”), for a 19% ownership in Tianjin Fire. On April 2, 2007,
      Sureland Industrial signed a “sales and purchase agreement” with Beijing
      Shijihuazhong Company Limited (“Beijing Shijihuazhong”) and sold its 19%
      ownership interest to Beijing Shijihuazhong at the original investment
      cost.





For
      the
      six months ended June 30, 2007 and 2006, Tianjin Fire purchased $106,334 and
      $0,
      respectively, of equipment, raw materials, and finished goods from the Sureland
      Industrial. As of December 31, 2006, the accounts receivable due from Tianjin
      Fire was $333,056 and other receivable due from Tianjin Fire was $90,008. As
      of
      June 30, 2007, Tianjin Fire is no longer a related party to the Company due
      to
      the above transaction. Accounts receivable of $536,726 and other receivable
      of
      $335,325 due from Tianjin Fire were classified as regular accounts receivable
      and other receivable in the consolidated financial statements.





Sureland
      Industrial purchased a total of $527,223 and $0 of raw materials from Tianjin
      Fire for the six months ended June 30, 2007 and 2006, respectively. As of June
      30, 2007 and December 31, 2006, the accounts payable due to Tianjin Fire was
      $0
      and $320,754, respectively. As of June 30, 2007 and December 31, 2006, the
      other
      payable due to related parties amounted to $0 and $50,523, respectively. Those
      amounts were generated from making cash advances by the shareholders for
      ordinary business expenses. These amounts are unsecured, non interest bearing,
      and have no fixed terms of repayment.





**Note
      11 - Current vulnerability due to certain concentrations**





The
      Company's operations are carried out in the PRC. Accordingly, the Company's
      business, financial condition and results of operations may be influenced by
      the
      political, economic and legal environments in the PRC, and by the general state
      of the PRC's economy. The Company's operations in the PRC are subject to
      specific considerations and significant risks not typically associated with
      companies in the North America and Western Europe. These include risks
      associated with, among others, the political, economic and legal environments
      and foreign currency exchange. The Company's results may be adversely affected
      by changes in governmental policies with respect to laws and regulations,
      anti-inflationary measures, currency conversion and remittance abroad, and
      rates
      and methods of taxation, among other things.




F-18




CHINA
        FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES
 (FORMERLY
        KNOWN AS UNIPRO FINANCIAL SERVICE, INC.)
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 June
        30,
        2007
 (Unaudited)


The
      Company has one major customer which represents approximately 23% of the
      Company’s sales for the six months
      ended June 30, 2007 and 0% of accounts receivable as of June 30, 2007. The Company has two major
      customers which represents approximately 31% of the Company’s sales for the six
      months ended June 30, 2006.





**Note
      12 - Retirement plan**





The
      Compan y
      and its
      subsidiaries are required to participate in a central pension scheme operated
      by
      the local municipal government. The Company is required to contribute 20% of
      its
      payroll costs to the central pension scheme in 2006 and 2005. The contributions
      are charged to the income statement of the Company as they become payable in
      accordance with the rules of the scheme. The aggregate contributions of the Company to retirement benefit schemes
      amounted to $75,687 and $36,397 for
      the
      six months ended June 30, 2007 and
      2006, respectively.




**Note
      13 - Statutory reserves**





The
      laws and regulations of the People’s Republic of China require that before an
      enterprise distributes profits to its partners, it must first satisfy all tax
      liabilities, provide for losses in previous years, and make allocations, in
      proportions determined at the discretion of the board of directors, after the
      statutory reserve. The statutory reserves include surplus reserve fund and
      the
      enterprise fund. These
      statutory reserves represent restricted retained earnings.





Surplus
      reserve fund





The
      Company is required to transfer 10% of its net income, as determined in
      accordance with the PRC accounting rules and regulations, to a statutory surplus
      reserve fund until such reserve balance reaches 50% of the Company’s registered
      capital.





The
      transfer to this reserve must be made before distribution of any dividend to
      shareholders. The company did not make any contribution to this fund for the
      six
      months ended June 30, 2007 and 2006. The surplus reserve fund is
      non-distributable other than during liquidation and can be used to fund previous
      years’ losses, if any, and may be utilized for business expansion or converted
      into share capital by issuing new shares to existing shareholders in proportion
      to their shareholding or by increasing the par value of the shares currently
      held by them, provided that the remaining reserve balance after such issue
      is
      not less than 25% of the registered capital.





On
      May
      17, 2007, the Beijing Shunyi District Business Administration approved the
      Company to increase registered capital from RMB 50,000,000 to RMB 100,000,000.
      $605,000 or RMB 5,000,000 was approved by the Beijing Shunyi District Business
      Administration to be transferred out from this surplus reserve fund as an
      increase of registered capital.





Enterprise
      fund





The
      enterprise fund may be used to acquire plant and equipment or to increase the
      working capital to expend on production and operation of the business. No
      minimum contribution is required and the Company did not make any contribution
      to this fund for the six months ended June 30, 2007.





**Note
      14** **-** **Commitments and contingencies**





The
      Company’s office lease is under a one year term expiring in December 15, 2007.
      It is cancelable with three months prior notice. At June 30, 2007, total future
      minimum lease payments under these operating leases were as follows:




Year
                  Ended December 31,
              
              Amount2007
              
              $
              13,413Thereafter
              
              
              -
  F-19
  CHINA
          FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES
 (FORMERLY
          KNOWN AS UNIPRO FINANCIAL SERVICE, INC.)
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 June
          30,
          2007
 (Unaudited)


Rent
      expense amounted to $39,950 and $34,302 for the three months ended June 30,
      2007
      and 2006, respectively and amounted to $79,899 and $77,889 for the six months
      ended 30, 2007 and 2006, respectively.





**Note
      15 - Shareholders’ equity**





On
      October 27, 2006, pursuant to a Securities Purchase Agreement dated October
      27,
      2006 (“SPA”), the Company issued 1,538,600 units of common stock at $3.25 per
      share, Series A warrants expiring on October 27, 2011 to acquire 307,723 shares
      at $3.58 per share and Series B warrants expiring on October 27, 2011 to acquire
      307,723 shares at $4.88 per share.





On
      December 5, 2006, under the SPA, the Company issued 923,078 units of common
      stock at $3.25 per share, Series A
      warrants expiring on December 5, 2011 to acquire 184,617 shares at $3.58 per
      share and Series B warrants expiring on December 5, 2011 to acquire 184,617
      shares at $4.88 per share.





Warrants





In
      order
      for the warrants to be accounted for as equity, the warrants must comply with
      FAS 133 and EITF 00-19. The Series A and Series B warrant agreements permit
      the
      warrant holders under certain circumstances, at their option, to elect to
      receive an amount in cash equal to the fair value of the warrant calculated
      in
      accordance with the Black-Scholes formula. Thus, the warrant holders have rights
      to a cash payment that are not available to other common stockholders, which
      fails the test in paragraph 27 of EITF 00-19. The failure of this test therefore
      results in classification of the warrants to be accounted for as derivative
      instrument liabilities, rather than as equity instruments. The Company allocates
      the proceeds received between the issuance of common stock and warrants based
      upon the fair values on the dates the proceeds were received. The value of
      the
      warrants was determined using the Cox-Ross-Rubinstein binomial model using
      the
      following assumptions: volatility 75%; risk free interest rate 4.64%; dividend
      yield of 0% and expected term of 5 years. Net proceeds were allocated as the
      follows:




Warrants
              
              $
              1,110,236Common
                  stock
              
              
              6,030,602Total
                  Net Proceeds
              
              $
              7,140,838


Subsequent
      to the initial recording, the change in the fair value of the warrants,
      determined under the Cox-Ross-Rubinstein binomial model, at each reporting
      date
      will result in either an increase or decrease the amount recorded as liability,
      based on the fluctuations with the Company’s stock price with a corresponding
      adjustment to other income (or expense).





On
      April
      26, 2007, the Company amended its Series A Warrants and Series B Warrants issued
      to certain investors on October 27 and December 5, 2006 pursuant to the
      Securities Purchase Agreement in connection with a private placement (the
“Amendment”). The Amendment eliminates the right of the warrant holders to be
      paid in cash in the event of a merger or other types of reorganization. The
      warrants no longer need to be accounted for as derivative instrument
      liabilities.  The fair value of the warrants should be transferred to
      equity on the signing date and no further accounting (i.e., no mark-to-market)
      is required going forward. As of December 31, 2006, the fair value of the
      derivative instrument totaled $2,680,811. At April 26, 2007, the Company
      determined the fair value of the warrants was $1,475,020 using the
      Cox-Ross-Rubinstein binomial model with the following assumptions: volatility
      25%; risk free interest rate 4.59%; dividend yield of 0% and expected term
      of
      4.5 years. A gain of $1,205,791 was recognized in the accompanying income
      statement based on the decrease in fair value since prior period ended December
      31, 2006. On April 26, 2007, the fair value of the warrants was transferred
      to
      additional paid-in capital.




F-20




CHINA
        FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES
 (FORMERLY
        KNOWN AS UNIPRO FINANCIAL SERVICE, INC.)
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 June
        30,
        2007
 (Unaudited)


**Note
      16 - Options issued to employees**





On
      July
      1, 2006, CFPG issued 750,000 options to the employees of Sureland Industrial.
      Fifty percent of the options vest immediately, with the balance vesting evenly
      each quarter over the following two years.





The
      Company used the Cox-Ross-Rubinstein binomial model to value the options at
      the
      time they were issued, based on the stated exercise prices and expiration dates
      of the instruments and using a risk-free rate of 5.11%. Because the Company
      does
      not have a history of employee stock options, the estimated life is based on
      one
      half of the sum of the vesting period and the contractual life of the option.
      This is the same as assuming that the options are exercised at the mid-point
      between the vesting date and expiration date.





The
      Company’s stock was not traded when the options were granted. Therefore, the
      Company had to estimate the market value of its shares. There was no significant
      change in the business between July and October 2006, therefore, the company
      used the fair value from the October 27 transaction (discussed in Note 15)
      of
      $2.26 and took a discount of 30%, to estimate a market price of $1.58. At that
      market price, the 750,000 employee options had a fair value of approximately
      $834,000. Because 50% of the options vested immediately, the related
      compensation expense was recognized as the options vest, rather than on a
      straight-line basis over the total vesting period, as the amount recognized
      at
      any point in time must be at least equal to the portion vested. The expense
      recognized for the three months and six months ended June 30, 2007 was $47,000
      and $112,000, respectively.




**Note
      17** ** **-** ** **Restructuring
      of subsidiaries**




On
      April
      2, 2007, the Company evaluated the operations of its subsidiary, Beijing Zhong
      Xiao Fire Safety Technology Co., Ltd. (“Beijing Zhong Xiao”) and noted
      efficiencies could be obtained by consolidating the operations of Beijing Zhong
      Xiao into Sureland Equipment.





Beijing
      Zhong Xiao was a subsidiary of Sureland Industrial established in the PRC as
      a
      limited liability company on March 18, 2003. On April 3, 2007, Sureland
      Industrial signed an agreement to transfer 100% ownership in Beijing Zhong
      Xiao
      to Gong Gang Qiang, a Chinese individual, for consideration price of the net
      assets of Beijing Zhong Xiao as of March 31, 2007 and received 100% ownership
      of
      Beijing Zhong Xiao.




After
      the
      restructuring of Beijing Zhong Xiao, the Company still has significant
      continuing involvement in the historical operations of the manufacturing of
      fire
      safety and protection products through Sureland Equipment, which fail the test
      in paragraph 42 of FAS 144 “Accounting for the Impairment or Disposal of
      Long-Lived Assets”. The failure of this test therefore does not require the
      classification of the restructuring of Beijing Zhong Xiao as discontinued
      operations .




**Note
      18** **-** **Subsequent event**





On
      July
      18, 2007, the Company invested $1,000,000 for a minority interest in Wan Sent
      (China) Technology Co., Ltd. (“Wan Sent”), an emerging Chinese fire emergency
      remote-monitoring system provider based in Beijing.


F-21


**Item
      2. Management's Discussion and Analysis or Plan of
      Operation**




The
      following discussion and analysis provides information which the management
      of
      China Fire & Security Group, Inc., (the "Company" or "CFSG") believes to be
      relevant to an assessment and understanding of the Company's results of
      operations and financial condition. This discussion should be read together
      with
      the Company's financial statements and the notes to financial statements, which
      are included in this report.





**Overview**





We
      are
      engaged in the design, development, manufacturing and sale of fire protection
      products and services for large industrial consumers in China. We have developed
      a proprietary product line that addresses all aspects of industrial fire safety
      from fire detection to fire system control and extinguishing. The Company is
      the
      first in China to leverage high technology for fire protection and safety to
      clients such as iron and steel companies, power plants, petrochemical plants,
      as
      well as, special purpose construction in China.





**Reorganization**





We
      were
      organized as a Florida corporation on June 17, 2003.




On
      September 1, 2006, we entered into a share exchange agreement, pursuant to
      which
      we acquired all of the outstanding capital shares of China Fire Protection
      Group
      Inc. in exchange for a controlling interest in our common shares. The
      transaction was completed on Oct 27, 2006.





China
      Fire Protection Group was organized on June 2, 2006 for the purpose of acquiring
      all of the capital shares of Sureland Industrial Fire Safety Limited (Sureland
      Industrial), a Chinese corporation, and, Sureland Industrial Fire Equipment
      Co.,
      Ltd. (Sureland Equipment), a Chinese corporation, which collectively engage
      in
      the design, development, manufacturing and sale of fire protection products
      and
      services for large industrial consumers in China. As a result of the
      transactions described above, both Sureland Industrial Fire Safety Limited
      and
      Sureland Industrial Fire Equipment Co., Ltd became wholly-owned subsidiaries
      of
      China Fire Protection Group Limited, and China Fire Protection Group Limited
      is
      a wholly-owned subsidiary of Unipro.





On
      February 9, 2007, Unipro changed its name to China Fire & Security Group,
      Inc. (CFSG) and started trading on OTC Bulletin Board under its new ticker
      symbol CFSG.




CFSG
      owns, through its wholly owned subsidiary China Fire Protection Group, Inc.,
      Sureland Industrial and Sureland Equipment (jointly “Sureland”). Sureland is
      engaged primarily in the design, development, manufacture and sale in China
      of a
      variety of fire safety products for the industrial fire safety market and of
      design and installation of industrial fire safety systems in which it uses
      its
      own fire safety products. To a minor extent, it provides maintenance services
      for customers of its industrial fire safety systems. Its business is primarily
      in China, but it has recently begun contract manufacturing products for the
      export market and it has begun to provide a fire safety system for a Chinese
      company operating abroad.




Sureland
      markets its industrial fire safety products and systems primarily to major
      companies in the iron and steel, power and petrochemical industries in China.
      It
      has also completed projects for highway and railway tunnels, wine distilleries,
      tobacco warehouses and a nuclear reactor. It is developing its business in
      the
      transportation, wine and tobacco, vessels, nuclear energy, and public space
      markets. Its products can be readily adapted for use on vessels and in
      exhibition halls and theatres. It plans to expand its marketing efforts to
      secure business in these industries.




1




Sureland
      has internal research and development facilities engaged primarily in furthering
      fire safety technologies. It believes that its technologies allow it to offer
      cost-effective and high-quality fire safety products and systems. It has
      developed products for industrial fire detecting and extinguishing. It believes
      that it is the only manufacturer in China which has successfully developed
      a
      comprehensive line of linear heat detectors.




Sureland
      operates sales and liaison offices in more than 20 cities in China.




Sureland
      has been ranked as the leading Chinese industrial fire safety company two times
      by the China Association for Fire Prevention based on six major factors
      including total revenue, growth rate, net profit, return on assets, investment
      in research and development and intellectual property. Its key products include
      linear heat detectors and water mist extinguishers, whose sales volumes are
      the
      largest in China. Its products have been used by its customers in more than
      20
      provinces throughout China.




**Critical
      Accounting Policies and Estimates**




While
      our
      significant accounting policies are more fully described in Note 2 to our
      consolidated financial statements appearing at the end of this form, we believe
      that the following accounting policies are the most critical to aid you in
      fully
      understanding and evaluating our reported financial results.




Revenue
      recognition




Revenue
      is recognized when it is probable that the economic benefits will flow to the
      Company as follows:




1.
            Revenue
                from system contracting projects are recognized using the
                percentage-of-completion method of accounting and, therefore, take
                into
                account the costs, estimated earnings and revenue to date on contracts
                not
                yet completed. Revenue recognized is that percentage of the total
                contract
                price that cost expended to date bears to anticipated final total
                cost,
                based on current estimates of costs to complete. Contract costs include
                all direct material and labor costs and those indirect costs related
                to
                contract performance, such as indirect labor, supplies, tools, repairs,
                and depreciation costs. Selling, general, and administrative costs
                are
                charged to expense as incurred. At the time a loss on a contract
                becomes
                known, the entire amount of the estimated ultimate loss is recognized
                in
                the consolidated financial statements. Claims for additional contract
                costs are recognized upon a signed change order from the customer
                or in
                accordance with paragraphs 62 and 65 of the AICPA’S Statement of Position
                ("SOP") 81-1, "Accounting for Performance of Construction - Type
                and
                Certain Production - Type Contracts" ("SOP
                81-1")




2.
            Revenue
                from product sales is recognized when the goods are delivered and
                title
                has passed. Product sales revenue represents the invoiced value of
                goods,
                net of a value-added tax (VAT). All of the Company’s products that are
                sold in the PRC are subject to a Chinese value-added tax at a rate
                of 17
                percent of the gross sales price. This VAT may be offset by VAT paid
                by
                the Company on raw materials and other materials included in the
                cost of
                producing their finished product.




3.
            Revenue
                from the rendering of Maintenance Services is recognized when such
                services are provided.




4.
            Interest
                income is recognized on a time proportion basis taking into account
                the
                principal outstanding and the effective interest rate
                applicable.




5.
            Dividend
                income is recognized when the shareholders’ right to receive payment has
                been established.




6.
            Provision
                is made for foreseeable losses as soon as they are anticipated by
                management.




7.
            Where
                contract costs incurred to date plus recognized profits less recognized
                losses exceed progress billings, the surplus is treated as an amount
                due
                from contract consumers. Where progress billings exceed contract
                costs
                incurred to date plus recognized profits less recognized losses,
                the
                surplus is treated as an amount due to contract
                customers.




2





Foreign
      currency translation




The
      reporting currency of the Company is the US dollar. The Company uses their
      local
      currency, Renminbi (RMB), as their functional currency. Results of operations
      and cash flow are translated at average exchange rates during the period, and
      assets and liabilities are translated at the unified exchange rate as quoted
      by
      the People’s Bank of China at the end of the period. Translation adjustments
      resulting from this process are included in accumulated other comprehensive
      income in the statement of shareholders’ equity. Transaction gains and losses
      that arise from exchange rate fluctuations on transactions denominated in a
      currency other than the functional currency are included in the results of
      operations as incurred. Historically, the Company has not entered any currency
      trading or hedging, although there is no assurance that the Company will not
      enter into such activities in the future.




Plant
      and equipment




Plant
      and
      equipment are stated at cost less accumulated depreciation. Depreciation is
      computed using the straight-line method over the estimated useful lives of
      the
      assets with 5 percent residual value.




Estimated
      useful lives of the assets are as follows:




**Useful Life**Buildings
                and improvement
            40 yearsTransportation
                equipment
            5
                yearsMachinery
            10
                yearsOffice
                equipment
            5
                yearsFurniture
            5
                years




Construction
      in progress represents the costs incurred in connection with the construction
      of
      buildings or new additions to the Company’s plant facilities. No depreciation is
      provided for construction in progress until such time as the assets are
      completed and are placed into service.




The
      cost
      and related accumulated depreciation of assets sold or otherwise retired are
      eliminated from the accounts and any gain or loss is included in the statements
      of operations. Maintenance, repairs and minor renewals are charged directly
      to
      expenses as incurred. Major additions and betterment to buildings and equipment
      are capitalized.




Long-term
      assets of the Company are reviewed annually as to whether their carrying value
      has become impaired. The Company considers assets to be impaired if the carrying
      value exceeds the future projected cash flows from related operations. The
      Company also re-evaluates the periods of amortization to determine whether
      subsequent events and circumstances warrant revised estimates of useful
      lives.




Use
      of
      estimates




The
      preparation of financial statements in conformity with generally accepted
      accounting principles of the United States of America requires management to
      make estimates and assumptions that affect the amounts reported in the combined
      financial statements and accompanying notes. Management believes that the
      estimates utilized in preparing its financial statements are reasonable and
      prudent. Actual results could differ from these estimates.




3




Certain
      of the Company’s accounting policies require higher degrees of judgment than
      others in their application. These include the recognition of revenue and
      earnings from system contracting projects under the percentage of completion
      method and the allowance of doubtful accounts. Management evaluates all of
      its
      estimates and judgments on an on-going basis.




Inventories




Inventories
      are stated at the lower of cost or market, using the weighted average method.
      Inventories consist of raw materials, work in progress, finished goods and
      consumables. Raw materials consist primarily of materials used in production.
      Finished goods consist primarily of equipment used in project contracts. The
      cost of finished goods included direct costs of raw materials as well as direct
      labor used in production. Indirect production costs such as utilities and
      indirect labor related to production such as assembling, shipping and handling
      costs are also included in the cost of inventory. The Company reviews its
      inventory annually for possible obsolete goods or to determine if any reserves
      are necessary for potential obsolescence.




Accounts
      receivable




Accounts
      receivable represents the products sales, maintenance services and system
      contracting projects with its customers that were on credit. The credit term
      is
      generally for a period of three months for major customers. Each customer has
      a
      maximum credit limit. The Company seeks to maintain strict control over its
      outstanding receivables. Overdue balances are reviewed regularly by senior
      management.




**Results
      of Operations**





The
      following is a schedule showing results of our business..





**Three
      Months Financial Results**





***Comparison
      of the three months Ended on June 30, 2007 and 2006:***




**Three
                months ended June 30****2007**
            
            **2006**Revenues
            
            $
            11,547,185
            
            $
            8,371,733Cost
                of revenues
            
            
            5,237,672
            
            
            3,586,626Gross
                Profits
            
            
            6,309,513
            
            
            4,785,107Operating
                expenses
            
            
            2,785,091
            
            
            1,217,302Income
                From Operations
            
            
            3,524,422
            
            
            3,567,805Other
                income(expense)
            
            
            346,471
            
            
            89,444Change
                in fair value of derivative instruments
            
            
            371,628
            
            
            -Income
                Before Income Taxes and Minority Interest
            
            
            4,242,521
            
            
            3,657,249Income
                taxes
            
            
            -
            
            
            43,144Minority
                interest
            
            
            -
            
            
            (18,890
            )Net
                profit (Loss)
            
            
            4,242,521
            
            
            3,632,995Foreign
                exchange adjustment
            
            
            514,775
            
            
            32,993Comprehensive
                income
            
            
            4,757,296
            
            
            3,665,988weighted
                average number of shares-basic
            
            
            26,461,678
            
            
            24,000,000weighted
                average number of shares-diluted
            
            
            27,164,207
            
            
            24,000,000earning
                per share-basic
            
            
            0.16
            
            
            0.15earning
                per share-diluted
            
            
            0.16
            
            
            0.15





Total
      revenues were approximately $11.5 million for the three months ended June 30,
      2007 as compared to approximately $8.4 million for the three months ended June
      30, 2006, an increase of approximately $3.2 million or 37.9 percent. This
      increase was mainly attributable to the further penetration of the Company’s
      customer base in the iron and steel, power, and petrochemical industries,
      and the execution of more sales contracts in the period. During the three
      months ended June 30, 2007, the Company fulfilled 106 total solution and product
      sales contracts as compared to 84 contracts for the three months ended June
      30,
      2006. In particular, we have a large increase of revenue from our system
      contract projects which contributes to approximately 85.6 percent of our
      revenue. The three largest customers were MaAnShan Iron and Steel, JiuQuan
      Iron
      and Steel and Hunan HuaRun Power Plant, who collectively contributed
      approximately $4.9 million of revenue, representing 42.6 percent of our total
      revenue for this period.


4





Cost
      of
      revenues for the three months ended June 30, 2007 was approximately $5.2 million
      or 45.4 percent of revenues, as compared to $3.6 million or 42.8 percent of
      revenues for the three months ended June 30, 2006. Gross margin for the three
      months ended June 30, 2007 was 54.6 percent, which is lower than the gross
      margin of 57.2 percent for the same period of 2006. The increase in cost of
      revenue was mainly due to the fact that we used a higher percentage of third
      party products which tend to provide a lower margin




Operating
      expenses were approximately $2.8 million for the three months ended June 30,
      2007 as compared to approximately $1.2 million for the three months ended June
      30, 2006, an increase of approximately $1.6 million or 128.8 percent. During
      the
      second quarter of 2007, the Company increased expenditures in sales-related
      activities and raised the compensation for management teams to be in line with
      other US public companies. This increase is also attributable to the increased
      expenses related to being listed as a public company in the United States.




Operating
      income was approximately $3.5 million for the three months ended June 30, 2007
      as compared to approximately $3.6 million for the three months ended June 30,
      2006. The reason operating income did not increase despite that total revenue
      increased by $3.2 million was that operating expenses increased due to the
      reasons as stated above.





Total
      other income was approximately $0.7 million for the three months ended June
      30,
      2007 as compared to approximately $0.09 million for the three months ended
      June
      30, 2006. This increase in total other income is primarily due to the increase
      from the change in fair value of derivative and the increase in other income,
      which is primarily composed of income from our sales of design service and
      government’s tax rebate for our software revenue. On
      May 3, 2007, the
      Company and warrant holders agreed to make an amendment to their
      Securities Purchase Agreement. As a result, we will not have the entry of
“Change in fair value of derivative” on the income statements for the third
      quarter of 2007 and onwards.





Our
      net
      income was approximately $4.2 million for the three months ended June 30, 2007
      as compared to approximately $3.6 million net income for the three months ended
      June 30, 2006, an increase of $0.6 million or 16.8 percent. Net profit margin
      for the three months ended June 30, 2007 was 36.7 percent, which is lower than
      the net profit margin of 43.4 percent for the same period of 2006. The reason
      for higher net profit margin in the second quarter of 2006 is mainly due to
      much
      lower operating expenses as a private company. Excluding the one-time credit
      of
      approximately $0.4 million from the change
      in fair value of derivatives, our net profit margin is 33.5 percent for
      the
      three months ended June 30, 2007 .





Currency
      translation adjustments resulting from this process amounted to $514,775
      and $32,993 as of the three months ended June 30, 2007 and 2006, respectively . The
      balance sheet amounts with the exception of equity at June 30, 2007 were
      translated at 7.60 RMB to 1.00 USD as compared to 7.80 RMB at December 31,
      2006.
      The equity accounts were stated at their historical rate. The average
      translation rates applied to income statement accounts for the three months
      ended June 30, 2007, and 2006 were 7.71 RMB and 8.02 RMB,
      respectively.





The
      comprehensive income, which adds the currency adjustment to the net income,
      were
      approximately $4.8 million for the three months ended June 30, 2007 as compared
      to approximately $3.7 million comprehensive income for the three months ended
      June 30, 2006, a increase of $ 1.1 million or 29.8 percent.




5




**Six
      Months Financial Results**





***Comparison
      of the six months Ended on June 30, 2007 and 2006***





**Six
                months ended June 30****2007**
            
            **2006**Revenues
            
            $
            21,046,647
            
            $
            15,026,083Cost
                of revenues
            
            
            9,721,227
            
            
            6,725,000Gross
                Profits
            
            
            11,325,420
            
            
            8,301,083Operating
                expenses
            
            
            4,524,322
            
            
            2,614,792Income
                From Operations
            
            
            6,801,098
            
            
            5,686,291Other
                income(expense)
            
            
            365,751
            
            
            188,545Change
                in fair value of derivative instruments
            
            
            1,205,791
            
            
            -Income
                Before Income Taxes and Minority Interest
            
            
            8,372,640
            
            
            5,874,836Income
                taxes
            
            
            -
            
            
            56,800Minority
                interest
            
            
            -
            
            
            -Net
                profit (Loss)
            
            
            8,372,640
            
            
            5,818,036Foreign
                exchange adjustment
            
            
            810,334
            
            
            120,677Comprehensive
                income
            
            
            9,182,974
            
            
            5,938,713weighted
                average number of shares-basic
            
            
            26,461,678
            
            
            24,000,000weighted
                average number of shares-diluted
            
            
            27,085,807
            
            
            24,000,000earning
                per share-basic
            
            
            0.32
            
            
            0.24earning
                per share-diluted
            
            
            0.31
            
            
            0.24





Total
      revenues were approximately $21.0 million for the six months ended June 30,
      2007
      as compared to approximately $15.0 million for the six months ended June 30,
      2006, an increase of approximately $6.0 million or 40.0 percent. This increase
      was mainly attributable to the further penetration of the Company’s customer
      base in the iron and steel, power, and petrochemical industries and the
      execution of more sales contracts in the period. During the six months ended
      June 30, 2007, the Company fulfilled 155 total
      solution and product sales contracts as compared to 114  contracts
      for the six months ended June 30, 2006. In particular, we have a large increase
      of revenue from our system contract projects which contributes to approximately
      81.6 percent of our revenue. The three largest customers were MaAnShan Iron
      and
      Steel, JiuQuan Iron and Steel, and AnShan Iron and Steel, who collectively
      contributed approximately $7.9 million of revenue, representing 37.4 percent
      of
      our total revenue for this period.





Cost
      of
      revenues for the six months ended June 30, 2007 was approximately $9.7 million
      or 46.2 percent of revenues, as compared to $6.7 million or 44.8 percent of
      revenues for the six months ended June 30, 2006. Gross margin for the six months
      ended June 30, 2007 was 53.8 percent, which is lower than the gross margin
      of
      55.2 percent for the same period of 2006. The increase in cost of revenue was
      mainly due to the fact that we used a higher percentage of third party products
      which tend to provide a lower margin





Operating
      expenses were approximately $4.5 million for the six months ended June 30,
      2007
      as compared to approximately $2.6 million for the six months ended June 30,
      2006, an increase of approximately $1.9 million or 73.0 percent. During the
      first half year of 2007, the Company increased expenditures in sales-related
      activities and raised the compensation for management teams to be in line with
      other US public companies. This increase is also attributable to the increased
      expenses related to being listed as a public company in the United
      States.





Operating
      income was approximately $6.8 million for the three months ended June 30, 2007
      as compared to approximately $5.7 million for the three months ended June 30,
      2006, an increase of $1.1 million or19.6 percent. The increase was mainly due
      to
      the increase in our revenues in this period even though we had a significant
      increase in our operating expenses related to being a public company and related
      to increasing our sales activities.




6





Total
      other income was approximately $1.6 million for the six months ended June 30,
      2007 as compared to approximately $0.2 million for the six months ended June
      30,
      2006. This increase in total other income is primarily due to the increase
      from
      the change in fair value of derivative and the increase in other income, which
      is primarily composed of income from our sales of design service and
      government’s tax rebate for our software revenue. On
      May 3, 2007, the
      Company and warrant holders agreed to make an amendment to the
      Securities Purchase Agreement. As a result, we will not have the entry of
“Change in fair value of derivative” on the income statements for the third
      quarter of 2007 and onwards.





Our
      net
      income was approximately $8.4 million for the six months ended June 30, 2007
      as
      compared to approximately $5.8 million net income for the six months ended June
      30, 2006, an increase of 2.6 million or 43.9 percent. Net profit margin for
      the
      six months ended June 30, 2007 was 39.8 percent, which is higher than the net
      profit margin of 38.7 percent for the same period of 2006. The reason for the
      increase in the Net income was mainly due to the increase in Revenues and the
      non-cash credit of $1.2 million related to the C hange
      in
      fair value of derivative instruments . Excluding the one-time credit of approximately $1.2 million from the change
      in fair value of derivatives, our net profit margin is 34.1 percent for
      the
      six months ended June 30, 2007 .





Currency
      translation adjustments resulting from this process amounted to $810,334 and
      $120,677 as of the six months ended June 30, 2007 and 2006, respectively.





The
      comprehensive income, which adds the currency adjustment to the net income,
      were
      approximately $9.2 million for the six months ended June 30, 2007 as compared
      to
      approximately $5.9 million comprehensive income for the six months ended June
      30, 2006, a increase of $3.2 million or 54.6 percent.





**Income
      Taxes**




We
      are
      not paying any United States and the British Virgin Islands income taxes as
      we
      do not have any taxable activities in the United States and the British Virgin
      Islands. Under the Income Tax Laws of PRC, a company is generally subject to
      an
      income tax at an effective rate of 33 percent (30 percent state income taxes
      plus 3 percent local income taxes) on income reported in the statutory financial
      statements after appropriate tax adjustments with the following “tax
      holidays”:





1.
            If
                the enterprise is located in a specially designated region (New Technology
                Enterprise Development Zone), it enjoys a three-year income tax exemption
                and a 50 percent income tax reduction for the following three
                years.2.
            If
                the enterprise is a manufacturing related joint venture with a foreign
                enterprises or a wholly owned subsidiary of a foreign enterprise,
                it
                enjoys a two-year income tax exemption from the year that it is profitable
                and a 50 percent income tax reduction for the following three
                years.





Sureland
      Industrial has been a domestic limited liability company since November 2000
      and
      has been subject to an income tax at an effective rate of 33 percent. However,
      since July 19, 2006, Sureland Industrial becomes a wholly owned subsidiary
      of
      China Fire Protection Group Limited, a foreign enterprise, and will start
      enjoying the special income tax rate of 24 percent from 2006, and tax exemption
      from 2007 to 2008, and is entitled to a 50 percent deduction of the special
      income tax rate of 24 percent which is a rate of 12 percent from January 2009
      to
      December 31, 2011. Sureland Equipment started enjoying the special income tax
      rate of 24 percent from 2006 and was granted income tax exempt in the period
      between April 2006 and December 31, 2007 and is entitled to a 50 percent
      deduction of the special income tax rate of 24 percent which is a rate of 12
      percent from January 2008 to December 31, 2010.




The
      following subsidiaries of Sureland Industrial were established and registered
      in
      the New Technology Enterprise Development Zone, Beijing, PRC and are subject
      to
      the rate of 15 percent and have been certified by the relevant PRC authorities
      high technology enterprises. However pursuant to approval documents issued
      by
      the relevant tax bureau, all the subsidiaries have obtained the following
      additional tax benefits:





·
            Beijing
                HuaAn was granted income tax exempt in the period between January
                2006 and
                December 31, 2008 and is entitled to a 50 percent deduction of the
                special
                income tax rate of 15 percent which is a rate of 7.5 percent from
                January
                2009 to December 31, 2011.




7





Beginning
      January 1, 2008, the new Enterprise Income Tax (“EIT”) law will replace the
      existing laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises
      (“FIEs”).





The
      key
      changes are:





·
            The
                new standard EIT rate of 25% will replace the 33% rate currently
                applicable to both DES and FIEs, except for High Tech companies who
                pays a
                reduced rate of 15%;·
            Companies
                established before March 16, 2007 will continue to enjoy tax holiday
                treatment approved by local government for a grace period of either
                for
                the next 5 years or until the tax holiday term is completed, whichever
                is
                sooner. These companies will pay the standard tax rate as defined
                in point
                a above when the grace period.





The
      Company and its subsidiaries were established before March 16, 2007 and
      therefore are qualified to continue enjoying the reduced tax rate as described
      before. Since the detailed guidelines of the new tax law is not publicized
      yet,
      the Company can not determined what the new tax rate will be applicable to
      the
      Company and its subsidiaries after the end of their respective tax holiday
      terms.





The
      provision for income taxes for the three months ended June 30 consisted of
      the
      following:




2007
            
            2006Provision
                for China Income Tax
            
            $
            -
            
            $
            39,221Provision
                for China Local Tax
            
            
            -
            
            
            3,923Total
                provision for income taxes
            
            $
            -
            
            $
            43,144





The
      provision for income taxes for the six months ended June 30 consisted of the
      following:





2007
            
            2006Provision
                for China Income Tax
            
            $
            -
            
            $
            51,636Provision
                for China Local Tax
            
            
            -
            
            
            5,164Total
                provision for income taxes
            
            $
            -
            
            $
            56,800




**Liquidity
      and Capital Resources**




As
      of
      June 30, 2007, we had working capital of $28.9 million including cash and cash
      equivalents of $8.5 million. The following table sets forth a summary of our
      cash flows for the periods indicated:




8





**Statement
      of Cash Flow**




**Six
                Months Ended**
              June
                30,**2007**
            
            **2006**Net
                cash provided by (used in) operating activities
            
            $
            (62,359
            )
            $
            5,459,749Net
                cash (used in) investing activities
            
            
            (783,313
            )
            
            (705,202
            )Net
                cash provided by financing activities
            
            
            (325,736
            )
            
            (5,142,126
            )Effect
                of foreign currency translation on cash and cash
                equivalents
            
            
            232,635
            
            
            63,623Net
                cash flow
            
            $
            (938,773
            )
            $
            (323,956
            )




***Operating
      Activities***




Net
      cash
      used in operating activities was approximately $0.1 million for the six months
      ended June 30, 2007 as compared to approximately $5.5 million net cash provided
      by operating activities for the same period in 2006. Net cash used by operating
      activities in the six months ended June 30, 2007 was mainly due to net income
      of
      $8.4 million, a $5.5 million increase in customer deposits and a $1.0 million
      increase in accrued liabilities offset by a $1.6 million increase in account
      receivable, a $1.2 million increase in other receivables, a $3.0 million
      increase in costs and estimated earnings in excess of billings and $6.7 million
      decrease in billings in excess of costs and estimated earnings. The increase
      of
      $3.0 million in costs and estimated earnings in excess of billings is mainly
      due
      to the increased number of projects where we have billed the customers more
      than
      we have recognized revenues for these projects, while the decrease of $6.7
      million in billings in excess of costs and estimated earnings is mainly due
      to
      the decreased number of projects where we have billed the customers less than
      we
      have recognized revenues for these projects.





On
      a
      quarterly basis, the operating cash flow for the second quarter of 2007 is
      approximately positive $0.2 million as compared to approximately negative $0.3
      million for the first quarter of 2007, which is the result of better management
      of our working capital during the period.




***Investing
      Activities***




Net
      cash
      used in investing activities in the six months ended June 30, 2007 was
      $0.8 million, which is an increase of $0.1 million from net cash used in
      investing activities of $0.7 million in the same period of 2006. Net cash used
      in investing activities was mainly attributable to $0.7 million used to purchase
      equipment, $0.9 million used to purchase office buildings, $0.6 million used
      to
      purchase intellectual properties offset by $0.5 million proceeds from the sale
      of investment in Tianjin Fire Safety Equipment Co. Ltd. and $1.1 million
      proceeds from the restructure in Beijing Zhong Xiao.





***Financing
      Activities***




Net
      cash
      used in financing activities in the six months ended June 30, 2007 totaled
      $0.3
      million as compared to $5.1 million used by financing activities in the same
      period of 2006. The increase of the cash used in financing activities was
      attributable to $2.4 million payment to Beijing Zhong Xiao to clear the balance
      between our Company and Beijing Zhong Xiao offset by a $0.8 million decrease
      in
      restricted cash, which represents the cash required to be deposited in the
      bank
      to guarantee the execution of signed contracts, and $1.3 million payment from
      Beijing Zhong Xiao to clear the balance between Beijing Hua An and Beijing
      Zhong
      Xiao.





As
      a result of the total cash activities, net cash decreased $0.9 million from
      December 31, 2006 to June 30, 2007.  We believe that our currently
      available working capital of $28.9 million including cash and cash equivalents
      of $8.5 million should be adequate to sustain our operations at our current
      levels and our anticipated expansion through at least the next twelve
      months.




9





**Off-Balance
      Sheet Arrangements**





We
      do not
      have any off-balance sheet financing arrangements.





**Item
      3. Controls and Procedures.**





a)  *Evaluation
      of Disclosure Controls.* Brian
      Lin, who is our Chief Executive Officer and Principal Accounting Officer
      evaluated the effectiveness of our disclosure controls and procedures as of
      the
      end of our second fiscal quarter 2007 pursuant to Rule 13a-15(b) of the
      Securities and Exchange Act. Disclosure controls and procedures are controls
      and
      other procedures that are designed to ensure that information required to be
      disclosed by us in the reports that we file or submit 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 under the Exchange
      Act is accumulated and communicated to our management, as appropriate to allow
      timely decisions regarding required disclosure. Based on his evaluation, Mr.
      Lin
      concluded that our disclosure controls and procedures were effective as of
      June
      30, 2007.





It
      should
      be noted that any system of controls, however well designed and operated, can
      provide only reasonable, and not absolute, assurance that the objectives of
      the
      system are met. In addition, the design of any control system is based in part
      upon certain assumptions about the likelihood of future events. Because of
      these
      and other inherent limitations of control systems, there can be no assurance
      that any design will succeed in achieving its stated goals under all potential
      future conditions.





** (b)  *Changes
      in internal control over financial reporting.* There
      have been no changes in our internal control over financial reporting that
      occurred during the last fiscal quarter that has materially affected, or is
      reasonably likely to materially affect, our internal control over financial
      reporting. Our management team will continue to evaluate our internal control
      over financial reporting in 2007 as we implement our Sarbanes Oxley
      testing.


10


PART
      II -
      OTHER INFORMATION




Item
      1. Legal Proceedings





None




Item
      2. Unregistered Sales of Equity Securities and Use of Proceeds





None





Item
      3. Defaults Upon Senior Securities





None





Item
      4. Submission of Matters to a Vote of Security Holders.





None





Item
      5. Other Information.





On
      April
      18, 2007, the board of directors of the Company adopted and approved an increase
      of the base annual salaries for its senior executives to be more in line with
      other US listed companies of comparable market capitalization and industries,
      retroactive as of January 1, 2007, as set forth below:





Brian
      Lin, Chief Executive Officer, US$120,000;


Gangjin
      Li, Chairman of the board, US$80,000


Tieying
      Guo, President, Sureland Industrial Fire Safety Limited, US$80,000


11


Item
      6.  Exhibits




The
      following exhibits are hereby filed as part of this Quarterly Report on Form
      10-QSB.




Exhibit
              Number:
            
            Description31.1
            
            Certification
                of Chief Executive Officer under Section 302 of the Sarbanes-Oxley
                Act of
                2002.31.2
            
            Certification
                of Principal Accounting Officer under Section 302 of the Sarbanes-Oxley
                Act of 2002.32.1
            
            Certifications
                Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
                Section 135033.2
            
            Certification
                Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
                Section 1350




12





**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the Registrant certifies that it has duly caused this Annual Report on
      Form 10-QSB to be signed on its behalf by the undersigned, thereunto duly
      authorized, in Beijing, on August 14, 2007.




**CHINA
                FIRE & SECURITY GROUP, INC.**By:
            /s/Brian
                LinBrian
                LinChief
                Executive Officer, Principal Accounting
                Officer




13