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 September 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 xNo o




Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      Rule
      12b-2 of the Act). Yes oNo
x




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




As
      of
      November 10, 2007, the Registrant had 27,556,893 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 September 30, 2007 and December 31,
                2006
            
            1Consolidated
                Statements of Income and Other Comprehensive IncomeFor
                the Three Months and Nine Months Ended September 30, 2007 and
                2006
            
            2Consolidated
                Statements of Stockholders' Equity
            
            3Consolidated
                Statements of Cash FlowsFor
                the Nine Months Ended September 30, 2007 and 2006
            
            4Notes
                to Consolidated Financial Statements (Unaudited)
            
            5Item
                2.
            
            Management's
                Discussion and Analysis or Plan of Operation
            
            22Item
                3.
            
            Controls
                and Procedures
            
            32PART
                II -
            
            OTHER
                INFORMATIONItem
                1.
            
            Legal
                Proceedings
            
            33Item
                2.
            
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            33Item
                3.
            
            Defaults
                Upon Senior Securities
            
            33Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders.
            
            33Item
                5.
            
            Other
                Information
            
            33Item
                6.
            
            Exhibits
                and Reports on Form 8-K
            
            33








PART
      I -
      FINANCIAL INFORMATION




Item
      1. Financial Statements.




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


September
                    30,
                
                December
                    31,2007
                
                2006UnauditedASSETSCURRENT
                    ASSETS:Cash
                
                $
                12,978,897
                
                $
                9,426,091Restricted
                    cash
                
                
                829,534
                
                
                1,622,833Accounts
                    receivable, net of allowance for doubtful accounts of $1,779,084
                    and$1,252,947
                    as of September 30, 2007 and December 31, 2006,
                    respectively
                
                
                17,129,943
                
                
                13,211,721Notes
                    receivable
                
                
                1,284,242
                
                
                903,425Other
                    receivables
                
                
                1,381,321
                
                
                875,119Inventories
                
                
                4,334,244
                
                
                4,190,830Costs
                    and estimated earnings in excess of billings
                
                
                11,576,823
                
                
                9,020,122Employee
                    advances
                
                
                2,539,279
                
                
                1,641,138Employee
                    advances - officers and directors
                
                
                18,067
                
                
                7,422Prepayments
                    and deferred expenses
                
                
                3,066,828
                
                
                2,396,571Total
                    current assets
                
                
                55,139,178
                
                
                43,295,272PLANT
                    AND EQUIPMENT, net
                
                
                4,057,117
                
                
                3,529,808OTHER
                    ASSETS:Accounts
                    receivable - retentions
                
                
                564,834
                
                
                383,375Deferred
                    expenses - non current
                
                
                19,257
                
                
                40,830Advances
                    on building purchases
                
                
                2,395,369
                
                
                -Investment
                    in joint ventures
                
                
                1,152,077
                
                
                501,288Intangible
                    assets, net of accumulated amortization
                
                
                1,153,888
                
                
                558,255Total
                    other assets
                
                
                5,285,425
                
                
                1,483,748Total
                    assets
                
                $
                64,481,720
                
                $
                48,308,828LIABILITIES
                    AND SHAREHOLDERS' EQUITYCURRENT
                    LIABILITIES:Accounts
                    payable
                
                $
                6,893,026
                
                $
                6,117,733Customer
                    deposits
                
                
                4,937,818
                
                
                2,713,451Billings
                    in excess of costs and estimated earnings
                
                
                4,443,456
                
                
                8,867,624Other
                    payables
                
                
                615,571
                
                
                438,957Accrued
                    liabilities
                
                
                2,502,714
                
                
                1,891,628Taxes
                    payable
                
                
                627,072
                
                
                619,949Total
                    current liabilities
                
                
                20,019,657
                
                
                20,649,342FAIR
                    VALUE OF DERIVATIVE INSTRUMENTS
                
                
                -
                
                
                2,680,811COMMITMENTS
                    AND CONTINGENCIES
                
                
                -
                
                
                -SHAREHOLDERS'
                    EQUITY:Common
                    stock, $0.001 par value, 65,000,000 shares authorized,27,428,810
                    shares and 26,461,678 issued and outstanding as of
                  September
                    30, 2007and
                    December 31, 2006, respectively
                
                
                27,429
                
                
                26,462Additional
                    paid-in-capital
                
                
                18,760,431
                
                
                13,393,171Statutory
                    reserves
                
                
                3,123,127
                
                
                3,728,127Retained
                    earnings
                
                
                20,135,068
                
                
                6,765,393Accumulated
                    other comprehensive income
                
                
                2,416,008
                
                
                1,065,522Total
                    shareholders' equity
                
                
                44,462,063
                
                
                24,978,675Total
                    liabilities and shareholders' equity
                
                $
                64,481,720
                
                $
                48,308,828





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


1


CHINA
                FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES(FORMERLY
                KNOWN AS UNIPRO FINANCIAL SERVICES, INC.)CONSOLIDATED
                STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOMEFOR
                THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND
                2006(Unaudited)Three
                months ended September 30,
            
            Nine
                months ended September 30,2007
            
            2006
            
            2007
            
            2006REVENUESSystem
                contracting projects
            
            $
            6,105,899
            
            $
            5,664,761
            
            $
            23,270,285
            
            $
            17,353,668Products
            
            
            5,188,117
            
            
            2,225,380
            
            
            8,827,922
            
            
            5,366,832Maintenance
                services
            
            
            302,954
            
            
            152,059
            
            
            545,410
            
            
            347,783Total
                revenues
            
            
            11,596,970
            
            
            8,042,200
            
            
            32,643,617
            
            
            23,068,283COST
                OF REVENUESSystem
                contracting projects
            
            
            2,539,812
            
            
            2,676,347
            
            
            10,564,382
            
            
            8,679,358Products
            
            
            2,065,515
            
            
            1,516,652
            
            
            3,705,298
            
            
            2,203,146Maintenance
                services
            
            
            124,211
            
            
            25,006
            
            
            181,085
            
            
            60,501Total
                cost of revenues
            
            
            4,729,538
            
            
            4,218,005
            
            
            14,450,765
            
            
            10,943,005GROSS
                PROFIT
            
            
            6,867,432
            
            
            3,824,195
            
            
            18,192,852
            
            
            12,125,278OPERATING
                EXPENSESelling
                and marketing
            
            
            1,082,176
            
            
            1,184,060
            
            
            2,843,685
            
            
            2,033,140General
                and administrative
            
            
            1,420,221
            
            
            1,103,316
            
            
            3,605,574
            
            
            2,195,730Depreciation
                and amortization
            
            
            128,394
            
            
            106,581
            
            
            387,933
            
            
            376,359Research
                and development
            
            
            139,205
            
            
            269,389
            
            
            457,126
            
            
            672,909Total
                operating expense
            
            
            2,769,996
            
            
            2,663,346
            
            
            7,294,318
            
            
            5,278,138INCOME
                FROM OPERATIONS
            
            
            4,097,436
            
            
            1,160,849
            
            
            10,898,534
            
            
            6,847,140OTHER
                INCOME (EXPENSE)Other
                income
            
            
            249,537
            
            
            371,747
            
            
            577,535
            
            
            597,231Other
                expense
            
            
            (1,400
            )
            
            -
            
            
            (7,817
            )
            
            -Interest
                income
            
            
            46,462
            
            
            13,566
            
            
            90,632
            
            
            19,646Interest
                expense
            
            
            -
            
            
            (32,456
            )
            
            -
            
            
            (75,475
            )Change
                in fair value of derivative instruments
            
            
            -
            
            
            -
            
            
            1,205,791
            
            
            -Total
                other income (expense)
            
            
            294,599
            
            
            352,857
            
            
            1,866,141
            
            
            541,402INCOME
                    BEFORE PROVISION FOR INCOME TAXES AND MINORITY
                    INTEREST
            
            
            4,392,035
            
            
            1,513,706
            
            
            12,764,675
            
            
            7,388,542PROVISION
                FOR INCOME TAXES
            
            
            -
            
            
            (17,619
            )
            
            -
            
            
            39,181NET
                INCOME
            
            
            4,392,035
            
            
            1,531,325
            
            
            12,764,675
            
            
            7,349,361OTHER
                COMPREHENSIVE INCOMEForeign
                currency translation adjustment
            
            
            540,152
            
            
            210,268
            
            
            1,350,486
            
            
            330,945COMPREHENSIVE
                INCOME
            
            $
            4,932,187
            
            $
            1,741,593
            
            $
            14,115,161
            
            $
            7,680,306BASICWeighted
                average number of shares
            
            
            27,026,221
            
            
            24,000,000
            
            
            26,649,859
            
            
            24,000,000Earning
                per share
            
            $
            0.16
            
            $
            0.06
            
            $
            0.48
            
            $
            0.31DILUTEDWeighted
                average number of shares
            
            
            27,825,442
            
            
            24,000,000
            
            
            27,436,695
            
            
            24,000,000Earning
                  per share
            
            $
            0.16
            
            $
            0.06
            
            $
            0.47
            
            $
            0.31




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




2




CHINA
                  FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES(FORMERLY
                  KNOWN AS UNIPRO FINANCIAL SERVICES,
                  INC.)
  CONSOLIDATED
                  STATEMENTS OF SHAREHOLDERS' EQUITYAccumulatedCommon
                  Stock
              
              Additional
              
              Retained
                  Earnings
              
              Owner
              
              otherShares
              
              Par
                  value
              
              paid-in-capital
              
              Statutory
                    reserves
              
              Unrestricted
              
              contribution
                    receivable
              
              comprehensive
                    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
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              6,775,212
              
              
              
              
              
              
              
              
              6,775,212Cash
                      proceeds from investment in Sureland Equipment Co.,
                      Ltd
              
              
              
              
              
              
              
              
              165,000
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              165,000Option
                  issued to employees
              
              
              
              
              
              
              
              
              553,000
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              553,000Foreign
                  currency translation adjustment
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              330,945
              
              
              330,945BALANCE,
                  Septemper 30, 2006 (Unaudited)
              
              
              24,000,000
              
              $
              24,000
              
              $
              6,774,058
              
              $
              3,458,325
              
              $
              6,840,766
              
              $
              (10,087,527
              )
              $
              814,535
              
              $
              7,824,157Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              194,429
              
              
              
              
              
              
              
              
              194,429Adjustment
                  to statutory reserves
              
              
              
              
              
              
              
              
              
              
              
              269,802
              
              
              (269,802
              )
              
              
              
              
              
              
              
              -Collection
                  of contribution receivable
              
              
              
              
              
              
              
              
              4,973
              
              
              
              
              
              
              
              
              10,087,527
              
              
              
              
              
              10,092,500Cash
                      proceeds from investment in Sureland Equipment Co.,
                      Ltd
              
              
              
              
              
              
              
              
              495,000
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              495,000Issuance
                  of common stock
              
              
              2,461,678
              
              
              2,462
              
              
              6,028,140
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              6,030,602Options
                  issued to employees
              
              
              
              
              
              
              
              
              91,000
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              91,000Foreign
                  currency translation adjustment
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              250,987
              
              
              250,987BALANCE,
                  December 31, 2006
              
              
              26,461,678
              
              $
              26,462
              
              $
              13,393,171
              
              $
              3,728,127
              
              $
              6,765,393
              
              $
              -
              
              $
              1,065,522
              
              $
              24,978,675Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              12,764,675
              
              
              
              
              
              
              
              
              12,764,675Warrants
                  reclassified from liabilities
              
              
              
              
              
              
              
              
              1,475,020
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,475,020Issuance
                  of common stock
              
              
              876,985
              
              
              877
              
              
              3,638,768
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              3,639,645Warrants
                  exercised
              
              
              90,147
              
              
              90
              
              
              (90
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Warrants
                  issued for services
              
              
              
              
              
              
              
              
              94,274
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              94,274Options
                  issued to employees
              
              
              
              
              
              
              
              
              159,288
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              159,288Adjustment
                  from statutory reserves
              
              
              
              
              
              
              
              
              
              
              
              (605,000
              )
              
              605,000
              
              
              
              
              
              
              
              
              -Foreign
                  currency translation adjustment
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,350,486
              
              
              1,350,486BALANCE,
                  September 30, 2007 (Unaudited)
              
              
              27,428,810
              
              $
              27,429
              
              $
              18,760,431
              
              $
              3,123,127
              
              $
              20,135,068
              
              $
              -
              
              $
              2,416,008
              
              $
              44,462,063




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




3




CHINA
                  FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES(FORMERLY
                  KNOWN AS UNIPRO FINANCIAL SERVICES, INC.)CONSOLIDATED
                  STATEMENTS OF CASH FLOWSFOR
                  THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006(Unaudited)2007
              
              2006CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  income
              
              $
              12,764,675
              
              $
              7,349,361Adjustments
                  to reconcile net income to cashprovided
                  by operating activities:Depreciation
              
              
              409,261
              
              
              406,387Amortization
              
              
              35,539
              
              
              9,734Provision
                  for doubtful accounts
              
              
              465,482
              
              
              553,000Gain
                  on disposal of equipment
              
              
              (9,136
              )
              
              -Compensation
                  expense for options issued to employees
              
              
              159,288
              
              
              -Issuance
                  of warrants for services
              
              
              94,274
              
              
              -Change
                  in fair value of derivative instruments
              
              
              (1,205,791
              )
              
              -Change
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (3,389,580
              )
              
              (1,930,261
              )Notes
                  receivable
              
              
              (337,052
              )
              
              624,138Other
                  receivables
              
              
              (458,743
              )
              
              (199,443
              )Inventories
              
              
              26,023
              
              
              (1,850,652
              )Costs
                  and estimated earnings in excess of billings
              
              
              (2,145,503
              )
              
              (3,948,092
              )Employee
                  advances
              
              
              (814,369
              )
              
              (482,133
              )Employee
                  advance from officers and directors
              
              
              (10,130
              )
              
              -Prepayments
                  and deferred expenses
              
              
              (1,090,443
              )
              
              (751,797
              )Accounts
                  payable
              
              
              617,376
              
              
              1,419,996Customer
                  deposits
              
              
              2,070,561
              
              
              1,599,483Billings
                  in excess of costs and estimated earnings
              
              
              (4,684,877
              )
              
              3,816,044Other
                  payables
              
              
              156,501
              
              
              (72,300
              )Accrued
                  liabilities
              
              
              586,981
              
              
              1,789,923Taxes
                  payable
              
              
              (3,407
              )
              
              34,945Net
                  cash provided by operating activities
              
              
              3,236,930
              
              
              8,368,333CASH
                  FLOWS FROM INVESTING ACTIVITIES:Purchase
                  of equipment
              
              
              (971,743
              )
              
              (202,732
              )Advances
                  on building purchases
              
              
              (2,345,809
              )
              
              -Additions
                  to construction in progress
              
              
              -
              
              
              (235,188
              )Purchase
                  of intangible assets
              
              
              (608,782
              )
              
              -Proceeds
                  from sale of equipment
              
              
              19,646
              
              
              16,405Proceeds
                  from sale of investment in Tianjin Fire Safety Equipment Co.
                  Ltd.
              
              
              510,829
              
              
              -Proceeds
                  from sale of Beijing Zhong Xiao Fire Safety Technology Co.,
                  Ltd
              
              
              1,060,535
              
              
              -Payments
                  for investment in Tianjin Fire Safety Equipment Co., Ltd.
              
              
              -
              
              
              (310,008
              )Payments
                  for investment in King Galaxy Investments Limited
              
              
              (1,000,000
              )
              
              -Payments
                  for investment in Hubei Sureland Changjiang Fire SafetyTechnology
                  Co., Ltd.
              
              
              (148,930
              )
              
              -Net
                  cash used in investing activities
              
              
              (3,484,254
              )
              
              (731,523
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Decrease
                  (increase) in restricted cash
              
              
              841,349
              
              
              (220,605
              )Dividend
                  distributions to original shareholders and minority interest
                  shareholders
              
              
              -
              
              
              (7,836,040
              )Proceeds
                  from note payables
              
              
              -
              
              
              2,496,000Payments
                  on notes payables
              
              
              -
              
              
              (2,532,000
              )Proceeds
                  from increase in paid-in capital
              
              
              -
              
              
              165,000Payments
                  to Beijing Zhong Xiao Fire Safety Technology Co., Ltd
              
              
              (2,447,101
              )
              
              -Proceeds
                  from Beijing Zhong Xiao Fire Safety Technology Co., Ltd
              
              
              1,353,955
              
              
              -Proceeds
                  from issuance of common stock
              
              
              3,639,645
              
              
              -Net
                  cash provided by (used in) financing activities
              
              
              3,387,848
              
              
              (7,927,645
              )EFFECTS
                  OF EXCHANGE RATE CHANGE IN CASH
              
              
              412,282
              
              
              108,216INCREASE
                  (DECREASE) IN CASH
              
              
              3,552,806
              
              
              (182,619
              )CASH,
                  beginning of period
              
              
              9,426,091
              
              
              2,357,399CASH,
                  end of period
              
              $
              12,978,897
              
              $
              2,174,780




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




4


**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 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 transferred 25%
      ownership in Sureland Industrial to Sureland Industrial Fire Equipment Co.,
      Ltd.
      The $10,087,527 payment was made 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.





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 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.




5





**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 was 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 was
      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.





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.





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.




6





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 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.





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.”





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 $2,416,008 and $1,065,522 as of September 30, 2007
      and
      December 31, 2006, respectively. Asset and liability accounts at September
      30,
      2007 were translated at 7.50 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 nine
      months ended September 30, 2007 and 2006 were 7.65 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.




7





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.





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 $140,393 and
      $139,845 for the three months ended September 30, 2007 and 2006, respectively
      and $409,261 and $406,387 for the nine months ended September 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 periodically 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 September 30,
      2007, the Company expects these assets to be fully recoverable.





Plant
      and
      equipment consist of the following:





September
                30, 2007
            
            December
                31, 2006UnauditedBuildings
                and improvements
            
            $
            2,479,961
            
            $
            2,393,171Transportation
                equipment
            
            
            2,092,400
            
            
            1,678,678Machinery
            
            
            936,396
            
            
            579,708Office
                equipment
            
            
            1,064,067
            
            
            968,213Furniture
            
            
            52,326
            
            
            33,637Totals
            
            
            6,625,150
            
            
            5,653,407Less
                accumulated depreciation
            
            
            2,568,033
            
            
            2,123,599Totals
            
            $
            4,057,117
            
            $
            3,529,808




8




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 September 30, 2007 and December
      31,
      2006, amounted to $13,817,176 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.





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.





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





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 $829,534 and $1,622,833 as of September 30, 2007 and December
      31, 2006, respectively.





September
                30, 2007
            
            December
                31, 2006UnauditedRestricted
                CashProducts
                sales
            
            $
            494,914
            
            $
            1,210,727System
                contracting projects
            
            
            334,620
            
            
            412,106Total
                Restricted Cash
            
            $
            829,534
            
            $
            1,622,833





Inventories





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





September
                30, 2007
            
            December
                31, 2006UnauditedRaw
                materials
            
            $
            326,186
            
            $
            150,546Finished
                goods
            
            
            3,198,531
            
            
            3,770,626Work
                in progress
            
            
            809,527
            
            
            269,658Total
            
            $
            4,334,244
            
            $
            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 to determine if any reserves are necessary for potential
      obsolescence. As of September 30, 2007 and December 31, 2006, the Company
      determined no reserves are necessary.




9





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:




September
                30, 2007
            
            December
                31, 2006UnauditedAccounts
                receivable:Products
                sales
            
            $
            10,251,974
            
            $
            6,482,241Maintenance
                services
            
            
            670,357
            
            
            781,902System
                contracting projects
            
            
            8,551,530
            
            
            7,583,900Total
                accounts receivable
            
            
            19,473,861
            
            
            14,848,043Allowance
                for bad debts
            
            
            (1,779,084
            )
            
            (1,252,947
            )Accounts
                receivable, net
            
            
            17,694,777
            
            
            13,595,096Accounts
                receivable - non-current retentions
            
            
            (564,834
            )
            
            (383,375
            )Accounts
                receivable - currents
            
            $
            17,129,943
            
            $
            13,211,721





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.





September
                30, 2007
            
            December
                31, 2006UnauditedContracts
                  costs incurred plus recognizedprofits
                  less recognized losses to date
            
            $
            48,915,397
            
            $
            25,378,764Less
                progress billings
            
            
            37,338,574
            
            
            16,358,642Costs
                  and estimated earnings in excess of billings
            
            $
            11,576,823
            
            $
            9,020,122





10




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.





September
                30, 2007
            
            December
                31, 2006UnauditedProgress
                billings
            
            $
            10,189,678
            
            $
            23,129,942Contracts
                costs incurred plus recognizedprofits
                estimated less recognized losses
            
            
            5,746,222
            
            
            14,262,318Billings
                in excess of costs and estimatedearnings
            
            $
            4,443,456
            
            $
            8,867,624





At
      September 30, 2007 and December 31, 2006, retentions held by customers of system
      contracting projects included in the Company’s accounts receivable as
      following:




September
                30, 2007
            
            December
                31, 2006UnauditedRetentionsCurrent
            
            $
            1,752,017
            
            $
            2,135,753Non-current
            
            
            564,834
            
            
            383,375Total
                retentions
            
            $
            2,316,851
            
            $
            2,519,128





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.





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 September 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.




11





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 September 30, 2007 and December 31, 2006, accumulated
      amortization amounted to $130,400 and $115,332, respectively. Amortization expense amounted to $3,392 and $3,254 for the three months ended
      September 30, 2007 and 2006, respectively and $10,174 and $6,490 for the nine
      months ended September 30, 2007 and 2006, respectively.





Technology
      rights - In 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 September 30, 2007, accumulated
      amortization amounted to $25,365. A mortization
      expense amounted to $15,219 for the three months ended September 30, 2007 and
      $25,365 for the nine months ended September 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 September 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 September 30,
      2007
      and December 31, 2006.





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. FIN 48 also provides
      guidance on derecognition, classification, interest and penalties, accounting
      in
      interim periods, disclosures, and transition. The adoption had no affect on
      the
      Company’s financial statements.





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.




12





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 $4,313,715 and $3,397,843 for the nine
      months ended September 30, 2007 and $2,501,949 and $3,258,567 for the nine
      months ended September 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 adopted Statement of Financial Accounting Standards No. 123R “Accounting
      for Stock-Based Compensation” (“SFAS 123R”) at the beginning of 2006, 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.





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
      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. FSP EITF 07-3
      will be effective for an entity’s financial statements issued for fiscal years
      beginning after than December 15, 2007. 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.




13





**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.





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





2007
            
            2006Unaudited
            
            UnauditedNet
                income for earnings per share
            
            $
            4,392,035
            
            $
            1,531,325Weighted
                average shares used in basic computation
            
            
            27,026,221
            
            
            24,000,000Diluted
                effect of stock options and warrants
            
            
            799,221
            
            
            -Weighted
                average shares used in diluted computation
            
            
            27,825,442
            
            
            24,000,000Earnings
                per share:Basic
            
            $
            0.16
            
            $
            0.06Diluted
            
            $
            0.16
            
            $
            0.06





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




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





2007
            
            2006Unaudited
            
            UnauditedNet
                income for earnings per share
            
            $
            12,764,675
            
            $
            7,349,361Weighted
                average shares used in basic computation
            
            
            26,649,859
            
            
            24,000,000Diluted
                effect of stock options and warrants
            
            
            786,836
            
            
            -Weighted
                average shares used in diluted computation
            
            
            27,436,695
            
            
            24,000,000Earnings
                per share:Basic
            
            $
            0.48
            
            $
            0.31Diluted
            
            $
            0.47
            
            $
            0.31




14




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





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





For
      the
      nine months ended September 30, 2007 and December 31, 2006, the Company has
      disclosed cash flow information as following:





2007
            
            2006Unaudited
            
            UnauditedInterest
                paid
            
            $
            -
            
            $
            79,025Income
                tax paid
            
            $
            -
            
            $
            137,439Non-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 $1,284,242 and $903,425 as of September
      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 $3,066,828 and $2,396,571
      as
      of September 30, 2007 and December 31, 2006, respectively.




**Note
      7 - Investment in joint ventures**





During
      the second quarter of 2007, the Company invested $152,076 for a 19% interest
      in
      Hubei Shou An Changjiang Fire Protection Co., Ltd., located in China Hubei,
      PRC.
      Investment is recorded under cost method.





During
      the third quarter of 2007, the Company also invested $1,000,000 for a 5%
      interest in King Galaxy Investments Limited. King Galaxy Investment through
      its
      wholly owned subsidiary, China Alliance Security Holdings Company Limited owns
      100% of Wan Sent (China) Technology Co., Ltd. (“Wan Sent”), an emerging Chinese
      fire emergency remote-monitoring system provider based in Beijing, PRC.
      Investment was recorded under cost method.





The
      Company has not consolidated the financial statements of these two joint
      ventures into its financial statements as the Company does not have the ability
      to exercise significant influence over the joint ventures
      companies.




15





**Note
      8 - 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 September 30, 2007 and December 31,
      2006, customer deposits amounted to $4,937,818 and $2,713,451,
      respectively.





**Note
      9 - Accrued liabilities**





Accrued
      liabilities represent subcontractors’ expenses incurred as of period end for
      system contracting projects. As of September 30, 2007 and December 31, 2006,
      accrued liabilities amounted to $2,502,714 and $1,891,628,
      respectively.





**Note
      10 - 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.





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 tax exemption and therefore 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.




16




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.





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





2007
            
            2006Unaudited
            
            UnauditedProvision
                for China Income Tax
            
            $
            -
            
            $
            (16,376
            )Provision
                for China Local Tax
            
            
            -
            
            
            (1,243
            )Total
                provision for income taxes
            
            $
            -
            
            $
            (17,619
            )




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





2007
            
            2006Unaudited
            
            UnauditedU.S.
                Statutory rates
            
            
            34.0
            %
            
            34.0
            %Foreign
                income not recognized 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 September 30, 2007 and 2006
      amounted to $1,648,501 and $736,491, 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 September 30, 2007 and 2006 by
      $0.06 and $0.03, respectively.





The
      provision for income taxes for the nine months ended September 30 consisted
      of
      the following:





2007
            
            2006Unaudited
            
            UnauditedProvision
                for China Income Tax
            
            $
            -
            
            $
            35,619Provision
                for China Local Tax
            
            
            -
            
            
            3,562Total
                provision for income taxes
            
            $
            -
            
            $
            39,181





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





2007
            
            2006Unaudited
            
            UnauditedU.S.
                Statutory rates
            
            
            34.0
            %
            
            34.0
            %Foreign
                income not recognized 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
            %




17




The
      estimated tax savings for the nine months ended September 30, 2007 and 2006
      amounted to $4,124,617 and $2,239,826, respectively. The net effect on basic
      earnings per share if the income tax had been applied would decrease basic
      earnings per share for the nine months ended September 30, 2007 and 2006 by
      $0.15 and $0.09, 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 nine
      months ended September 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
      utilized, beginning in 2005 and continue through 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
      valuation allowance for the nine month period ended September 30, 2007 was
      increased $16,301 and the accumulated valuation allowance as of September 30,
      2007 amounted to $341,500. Management will review this valuation allowance
      periodically and make adjustments as warranted.





Taxes
      payable





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





September
                30, 2007
            
            December
                31, 2006UnauditedVAT
                taxes payable (credit)
            
            $
            (380,375
            )
            $
            47,211Income
                taxes payable (refund)
            
            
            -
            
            
            (13,317
            )Sales
                taxes
            
            
            974,549
            
            
            541,486Other
                taxes payable
            
            
            32,898
            
            
            44,569Total
            
            $
            627,072
            
            $
            619,949





**Note
      11 - 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 2007 and 2006. 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
      $134,147 and $36,512 for
      the
      nine months ended September 30, 2007 and
      2006,
      respectively.




**Note
      12 - 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.




18





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
      nine months ended September 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 nine months ended September 30, 2007.





**Note
      13** **-** **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 September 30, 2007, total
      future minimum lease payments under these operating leases were as follows:





Year
                Ended December 31,
            
            Amount2007
            
            $
            6,707Thereafter
            
            
            -





Rent
      expense amounted to $22,200 and $22,072 for the three months ended September
      30,
      2007 and 2006, respectively and amounted to $102,099 and $99,961 for the nine
      months ended September 30, 2007 and 2006, respectively.





**Note
      14 - 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.




19





Warrants





In
      order
      for the warrants to be accounted for as equity, the warrants must comply with
      FAS 133 and EITF 00-19. Under the original terms, the Series A and Series B
      warrant agreements, the warrant holders under certain circumstances, at their
      option, could 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 had rights to a cash payment that are not available to other
      common stockholders, which failed the test in paragraph 27 of EITF 00-19. The
      failure of this test therefore resulted in classification of the warrants as
      derivative instrument liabilities, rather than as equity instruments. The
      Company allocated the proceeds received between the 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
      was recorded as a gain or loss on derivative instruments.





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.





During
      the third quarter of 2007, a total of 492,340 warrants exercised at $3.58 and
      384,645 warrants exercised at $4.88 for a total of 876,985 shares of common
      stock. The Company received a total of $3,639,645 from various warrant holders.





On
      February 1, 2007, CFPG issued 50,000 warrants to Hayden Communication, the
      Company’s investor relations consultant, as part of its compensation. These
      warrants meet the conditions for equity classification pursuant to FAS 133
      and
      EITF 00-19. Therefore, the warrants were classified as equity and accounted
      as
      compensation expenses. The warrants vest one year from the grant date. The
      Company used the Black Sholes model to value the options at the time they were
      issued, based on the exercise price of $4.25 and expiration dates of the
      instruments and using a risk-free rate of 4.84% and the volatility at 50% that
      was estimated by analyzing the trading history of the Company’s stock. At that
      market price, the 50,000 warrants had a fair value of approximately $94,274.
      The
      service that the investor relation consultant provides started from the second
      quarter of 2007; the related compensation expense is recognized on a
      straight-line basis over the total service period. The compensation expense
      for
      the three months and nine months ended September 30, 2007 are $94,274 and
      $94,274, respectively.





20




As
      of
      September 30, 2007, the Company has warrants as following:





Weighted
            
            AverageWarrants
            
            Warrants
            
            AverageExercise
            
            Remaining
                ContractualOutstanding
            
            Exercisable
            
            Price
            
            LifeOutstanding,
                December 31, 2005
            
            
            -
            
            
            -
            
            $
            -
            
            
            -Granted
            
            
            1,169,306
            
            
            1,169,306
            
            $
            4.08
            
            
            5.00Forfeited
            
            
            -
            
            
            -
            
            $
            -
            
            
            -Exercised
            
            
            -
            
            
            -
            
            $
            -
            
            
            -Outstanding,
                December 31, 2006
            
            
            1,169,306
            
            
            1,169,306
            
            $
            4.08
            
            
            4.58Granted
            
            
            50,000
            
            
            -
            
            $
            4.25
            
            
            -Forfeited
            
            
            -
            
            
            -
            
            $
            -
            
            
            -Exercised
            
            
            (1,030,813
            )
            
            (1,030,813
            )
            $
            4.02
            
            
            -Outstanding,
                September 30, 2007
            
            
            188,493
            
            
            138,493
            
            $
            4.45
            
            
            3.58





**Note
      15 - 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 14)
      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 nine months ended September 30, 2007 was
      $34,000 and $146,000, respectively.





On
      April
      20, 2007, CFPG issued 9,500 options to the Company’s four independent directors
      as part of their compensation. The options will vest immediately after one
      year
      from the issuance date. The fair value of these warrants was determined at
      $19,428 using the Black Sholes model with the following assumptions: volatility
      45%; risk free interest rate 4.57%; dividend yield of 0% and expected term
      of 5
      years. Options were vested immediately at exercise price of $4.51 per share
      which was the close price of the Company’s stock on April 19, 2007. Because the
      service that independent directors provide started from the second quarter
      of
      2007 and will last for one year, the related compensation expense was recognized
      on a straight-line basis over the total service period. The compensation expense
      for the three months and nine months ended September 30, 2007 are $9,714 and
      $9,714, respectively.





On
      July
      1, 2007, CFPG issued 20,000 options to Mr. Yuan Xiaoyuan, who joined the Company
      as Chief Accounting Officer on the same day. The options will vest evenly each
      quarter over the following four years, starting from the third quarter of 2007.
      The Company used the Black Sholes model to value the options at the time they
      were issued, based on the exercise price of $6.70, which was the close price
      of
      the Company’s stock on June 30, 2007 and expiration dates of the instruments and
      using a risk-free rate of 4.84% and the volatility of 40% that was estimated
      by
      analyzing the trading history of the Company’s stock. At that market price, the
      20,000 employee options had a fair value of $57,178. Because the options vested
      each quarter over the following four years, the related compensation expense
      is
      recognized on a straight-line basis over the total vesting period. The expense
      recognized for the three months and nine months ended September 30, 2007 are
      $3,574 and $3,574, respectively.




21





As
      of
      September 30, 2007, the Company has stock options as following:





WeightedOptions
            
            Average
                Exercise
            
            Aggregate
                  IntrinsicOutstanding
            
            Price
            
            ValueOutstanding,
                December 31, 2005
            
            
            -
            
            $
            -Granted
            
            
            750,000
            
            $
            1.25
            
            
            247,500Forfeited
            
            
            -
            
            $
            -
            
            
            -Exercised
            
            
            -
            
            $
            -
            
            
            -Outstanding,
                December 31, 2006
            
            
            750,000
            
            $
            1.25
            
            
            2,250,000Granted
            
            
            29,500
            
            $
            5.99
            
            
            -Forfeited
            
            
            -
            
            $
            -
            
            
            -Exercised
            
            
            -
            
            $
            -
            
            
            -Outstanding,
                  September 30, 2007
            
            
            779,500
            
            $
            1.43
            
            
            8,356,380





Following
      is a summary of the status of options outstanding at September 30,
      2007:





Outstanding
                Options
            
            Exercisable
                OptionsNumber
                of Options
            
            Exercise
                Price
            
            Average
                Remaining Contractual Life
            
            Number
                of Options
            
            Exercise
                Price
            
            Average
                Remaining Contractual Life750,000
            
            
            1.25
            
            
            3.75
            
            
            562,500
            
            
            1.25
            
            
            3.759,500
            
            
            4.51
            
            
            4.58
            
            
            -
            
            
            4.51
            
            
            4.5820,000
            
            
            6.70
            
            
            4.75
            
            
            1,250
            
            
            6.70
            
            
            4.75




**Note
      16** ** **-** ** **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
      17 - Subsequent event**




In
      October 2007, the Company issued 107,695 shares of common stock for warrants
      exercised.




22


**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. On July 16, 2007, China Fire & Security Group, Inc. began
      trading on Nasdaq Capital Market and retained the 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.





23




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.




By
      the
      end of third quarter 2007, Sureland operates more than 30 sales and liaison
      offices 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.




24




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.





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.




25




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 September 30, 2007 and
      2006:***




**Three
                months ended**
              **September
                30,****2007**
            
            **2006**Revenues
            
            $
            11,596,970
            
            $
            8,042,200Cost
                of revenues
            
            
            4,729,538
            
            
            4,218,005Gross
                Profits
            
            
            6,867,432
            
            
            3,824,195Operating
                expenses
            
            
            2,769,996
            
            
            2,663,346Income
                From Operations
            
            
            4,097,436
            
            
            1,160,849Other
                income(expense)
            
            
            294,599
            
            
            352,857Income
                Before Income Taxes
            
            
            4,392,035
            
            
            1,513,706Income
                taxes
            
            
            -
            
            
            (17,619
            )Net
                profit (Loss)
            
            
            4,392,035
            
            
            1,531,325Foreign
                exchange adjustment
            
            
            540,152
            
            
            210,268Comprehensive
                income
            
            
            4,932,187
            
            
            1,741,593weighted
                average number of shares-basic
            
            
            27,026,221
            
            
            24,000,000weighted
                average number of shares-diluted
            
            
            27,825,442
            
            
            24,000,000earning
                per share-basic
            
            
            0.16
            
            
            0.06earning
                per share-diluted
            
            
            0.16
            
            
            0.06




26




Total
      revenues were approximately $11.6 million for the three months ended September
      30, 2007 as compared to approximately $8.0 million for the three months ended
      September 30, 2006, which represent an increase of approximately $3.6 million
      or
      44.2 percent. This increase was mainly attributable to an increase in our
      product sales and the execution of contracts at a bigger value in the
      period. During the period, the Company performed 104 total solution and product
      sales contracts as compared to 120 contracts for the three months ended
      September 30, 2006. The revenues from total solution contracts increased by
      7.8
      percent to $6.1 million, compared to $5.7 million for the same period of last
      year; while the revenues from product sales increased by 133.1 percent to $5.2
      million, compared to $2.2 million in the same period of last year. In
      particular, the three largest customers were Maanshan Iron and Steel Group,
      Sichuan Dongfang Electronic Equipment and PetroChina, who collectively
      contributed approximately $4.9 million of the revenues, representing 43.0
      percent of our total revenues for this period.





27




Cost
      of
      revenues for the three months ended September 30, 2007 was approximately $4.7
      million or 40.8 percent of revenues, as compared to $4.2 million or 52.4 percent
      of revenue for the three months ended September 30, 2006. Gross margin during
      this period was 59.2 percent, which is higher than the gross margin of 47.6
      percent for the same period of 2006. The increase in the gross margin was mainly
      attributable to a higher percentage of revenue contribution from the sales
      of
      the Company’s proprietary products which enjoy higher margins.




Operating
      expense were approximately $2.8 million for the three months ended September
      30,
      2007, as compared to approximately $2.7 million for the three months ended
      September 30, 2006, which represent an increase of approximately $0.1 million
      or
      4.0 percent. During this period, the Company increased its expenditures in
      sales-related activities and raised the compensation for the management 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 $4.1 million for the three months ended September
      30,
      2007 as compared to approximately $1.2 million for the three months ended
      September 30, 2006, representing a 253.0 percent increase. The improvement
      in
      operating income was mainly attributable to the increase in revenue and gross
      margin and the efficient cost control.





Total
      other income was approximately $0.3 million for the three months ended September
      30, 2007 as compared to approximately $0.4 million for the three months ended
      September 30, 2006.





Our
      net
      income was approximately $4.4 million for the three months ended September
      30,
      2007 as compared to approximately $1.5 million net income for the three months
      ended September 30, 2006, which represent an increase of $2.9 million or 186.8
      percent. This was attributable to the fact that the net income as a % of
      sales for this period was 37.9 percent, which was higher than the
      net income as a % of sales of 19.0 percent for the same period of 2006. The
      higher net income as a % of sales was mainly attributable to the higher
      gross margin that the Company enjoyed and the lower operating expenses as a
      result of our successful cost control in the period.





Currency
      translation adjustments resulting from RMB appreciation process amounted to
      $540,152 and $210,268 for the three months ended September 30, 2007 and 2006,
      respectively. The balance sheet amounts with the exception of equity at
      September 30, 2007 were translated at 7.50 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 September 30, 2007, and 2006 were 7.57 RMB and 7.98 RMB,
      respectively.





The
      comprehensive income, which adds the currency adjustment to the net income,
      were
      approximately $4.9 million for the three months ended September 30, 2007 as
      compared to approximately $1.7 million comprehensive income for the three months
      ended September 30, 2006, which represent an increase of $ 3.2 million or 183.2
      percent.




28





**Nine
      Months Financial Results**





***Comparison
      of the Nine Months Ended September 30, 2007 and 2006***





**Nine
                months ended**
              **September
                30**,**2007**
            
            **2006**Revenues
            
            $
            32,643,617
            
            $
            23,068,283Cost
                of revenues
            
            
            14,450,765
            
            
            10,943,005Gross
                Profits
            
            
            18,192,852
            
            
            12,125,278Operating
                expenses
            
            
            7,294,318
            
            
            5,278,138Income
                From Operations
            
            
            10,898,534
            
            
            6,847,140Other
                income(expense)
            
            
            1,866,141
            
            
            541,402Income
                Before Income Taxes
            
            
            12,764,675
            
            
            7,388,542Income
                taxes
            
            
            -
            
            
            39,181Net
                profit (Loss)
            
            
            12,764,675
            
            
            7,349,361Foreign
                exchange adjustment
            
            
            1,350,486
            
            
            330,945Comprehensive
                income
            
            
            14,115,161
            
            
            7,680,306weighted
                average number of shares-basic
            
            
            26,649,859
            
            
            24,000,000weighted
                average number of shares-diluted
            
            
            27,436,695
            
            
            24,000,000earning
                per share-basic
            
            
            0.48
            
            
            0.31earning
                per share-diluted
            
            
            0.47
            
            
            0.31




Total
      revenues were approximately $32.6 million for the nine months ended September
      30, 2007 as compared to approximately $23.1 million for the nine months ended
      September 30, 2006, which represent an increase of approximately $9.6 million
      or
      41.5 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 contracts in the period. During the
      period, the Company performed 186 total solution and product sales contracts
      as
      compared to 181 contracts for the nine months ended September 30, 2006. The
      three largest customers were Maanshan Iron and Steel, Sichuan Dongfang
      Electronic Equipment, and Jiuquan Iron and Steel, who collectively contributed
      approximately $12.3 million of the revenues, representing 37.7 percent of our
      total revenues for this period.





Cost
      of
      revenues for the nine months ended September 30, 2007 was approximately $14.5
      million or 44.3 percent of revenues, as compared to $10.9 million or 47.4
      percent of revenues for the nine months ended September 30, 2006. Gross margin
      during this period was 55.7 percent, which is higher than the gross margin
      of
      52.6 percent for the same period of 2006. The increase in the gross margin
      was
      mainly attributable to a higher percentage of revenue contribution from the
      sales of the Company’s proprietary products which enjoy higher
      margins.





Operating
      expenses were approximately $7.3 million for the nine months ended September
      30,
      2007 as compared to approximately $5.3 million for the nine months ended
      September 30, 2006, which represent an increase of approximately $2.0 million
      or
      38.2 percent. During the period, the Company increased expenditures in
      sales-related activities and raised the compensation for the management 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 $10.9 million for the nine months ended September
      30,
      2007 as compared to approximately $6.8 million for the nine months ended
      September 30, 2006, which represent an increase of $4.1 million or 59.2 percent.
      The increase was mainly due to the increase in our revenues and higher gross
      margin 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.





29





Total
      other income was approximately $1.9 million for the nine months ended September
      30, 2007 as compared to approximately $0.5 million for the nine months ended
      September 30, 2006. This increase in total other income is primarily due to
      the
      increase from the change in fair value of derivative. 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 $12.8 million for the nine months ended September
      30,
      2007 as compared to approximately $7.3 million net income for the nine months
      ended September 30, 2006, which represent an increase of 5.4 million or 73.7
      percent. Net income margin for the nine months ended September 30, 2007 was
      39.1
      percent, which is higher than the net income as a % of sales of 31.9
      percent for the same period of 2006. The reason for the increase in the net
      income was mainly due to the increase in the revenues and operating margin
      and
      the non-cash credit of $1.2 million related to the change 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 pro forma net income
      is $11.6 million for the nine months ended September 30, 2007.





Currency
      translation adjustments resulting from RMB appreciation process amounted to
      $1,350,486 and $330,945 as of the nine months ended September 30, 2007 and
      2006,
      respectively.





The
      comprehensive income, which adds the currency adjustment to the net income,
      were
      approximately $14.1 million for the nine months ended September 30, 2007 as
      compared to approximately $7.7 million comprehensive income for the nine months
      ended September 30, 2006, which represent an increase of $6.4 million or 83.8
      percent.





**Liquidity
      and Capital Resources**




As
      of
      September 30, 2007, we had working capital of $35.1 million including cash
      and
      cash equivalents of $13.0 million. The following table sets forth a summary
      of
      our cash flows for the periods indicated:




Nine
                Months Ended
              September
                30,2007
            
            2006Net
                cash provided by (used in) operating activities
            
            $
            3,236,930
            
            $
            8,368,333Net
                cash used in investing activities
            
            
            (3,484,254
            )
            
            (731,523
            )Net
                cash provided by (used in) financing activities
            
            
            3,387,848
            
            
            (7,927,645
            )Effect
                of foreign currency translation on cash and cash
                equivalents
            
            
            412,282
            
            
            108,216Net
                cash flow
            
            $
            3,552,806
            
            $
            (182,619
            )




***Operating
      Activities***




Net
      cash
      provided by operating activities was approximately $3.2 million for the nine
      months ended September 30, 2007 as compared to approximately $8.4 million net
      cash provided by operating activities for the same period in 2006. Net cash
      provided by operating activities in the nine months ended September 30, 2007
      was
      mainly due to net income of $12.8 million, a $2.1 million increase in customer
      deposits, a $0.6 million increase in accrued liabilities and a $0.6 million
      increase in account payable offset by a $3.4 million increase in account
      receivable, a $2.1 million increase in costs and estimated earnings in excess
      of
      billings, a $4.7 million decrease in billings in excess of costs and estimated
      earnings and a $1.1 million increase in prepayments and deferred expenses.
      The
      increase of a $2.1 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 a $4.7 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.




30





On
      a
      quarterly basis, the operating cash flow for the third quarter of 2007 is
      approximately positive $3.3 million as compared to approximately positive $0.2
      million for the second 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 nine months ended September 30, 2007 was
      $3.5 million, which is an increase of $2.8 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 a $1.0 million used to
      purchase equipment, a $2.3 million used to purchase building, a $0.6 million
      used to purchase intangible asset, and $1.0 million used to invest in King
      Galaxy Investment Limited offset by a $0.5 million proceeds from the sale of
      investment in Tianjin Fire Safety Equipment Co. Ltd. and a $1.1 million proceeds
      from the restructure in Beijing Zhong Xiao.





***Financing
      Activities***




Net
      cash
      provided by financing activities in the nine months ended September 30, 2007
      totaled $3.4 million as compared to $7.9 million used in financing activities
      in
      the same period of 2006. The increase of the cash provided by financing
      activities was attributable to 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 a $1.4 million payment from Beijing Zhong
      Xiao to clear the balance between Beijing Hua An and Beijing Zhong Xiao, and
      a
      $3.6 million proceeds from the issuance of common stock for the exercise of
      warrants offset by a $2.4 million payment to Beijing Zhong Xiao to clear the
      balance between our Company and Beijing Zhong Xiao.





As
      a
      result of the total cash activities, net cash increased $3.6 million from
      December 31, 2006 to September 30, 2007.  We believe that our currently
      available working capital of $35.1 million including cash and cash equivalents
      of $13.0 million should be adequate to sustain our operations at our current
      level and our anticipated expansion through at least the next twelve
      months.




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**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, our Chief Executive Officer and Robert Yuan, our Chief 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 their evaluations,
      Mr.
      Lin and Mr. Yuan concluded that our disclosure controls and procedures were
      effective as of September 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.





32




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.





None





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





33





**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 November 13, 2007.


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






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