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 March 31, 2007


or




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




Commission
      File Number 000-50491







China
      Fire & Security Group, Inc.


(Name
      of
      small business issuer in its charter)




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




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





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




Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      Rule
      12b-2 of the Act). Yes  o   No x




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




As
      of May 14, 2007, the Registrant had 26,461,678 shares of common stock
      outstanding.












China
      Fire & Security Group, Inc.




Table
      of
      Contents


PagePART
                I -
            
            FINANCIAL
                INFORMATIONItem
                1.
            
            Financial
                Statements (Unaudited):Consolidated
                Balance Sheets as of March 31, 2007 and December 31, 2006
            3Consolidated
                  Statements of Income and Other Comprehensive Income
                Three
                  moths ended March 31, 2007 and 2006.
            4Consolidated
                Statements of shareholders' Equity
              Three
                moths ended March 31, 2007 and
                2006.
            5Consolidated
                  Statements of Cash Flows
                Three
                  months ended March 31, 2007 and 2006.
            6Notes
                to Consolidated Financial Statements (Unaudited) March 31,
                2007
            7Item
                2.
            
            Management's
                Discussion and Analysis or Plan of Operation
            20Item
                3.
            
            Controls
                and Procedures
            24PART
                II -
            
            OTHER
                INFORMATIONItem
                1.
            
            Legal
                Proceedings
            25Item
                2.
            
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            25Item
                3.
            
            Defaults
                Upon Senior Securities
            25Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders.
            25Item
                5.
            
            Other
                Information
            25Item
                6.
            
            Exhibits
                and Reports on Form 8-K
            25












PART
      I -
      FINANCIAL INFORMATION


Item
      1. Financial Statements.


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





A
                S S E T SMarch
                31,
            
            December
                31,2007
            
            2006UnauditedCURRENT
                ASSETS:Cash
            
            $
            9,921,357
            
            $
            9,426,091Restricted
                cash
            
            
            733,079
            
            
            1,622,833Accounts
                receivable, net of allowance for doubtful accounts of $1,372,329
                and$1,252,947
                as of March 31, 2007 and December 31, 2006, respectively
            
            
            14,679,031
            
            
            13,262,040Accounts
                receivable - related party
            
            
            336,433
            
            
            333,056Notes
                receivable
            
            
            984,200
            
            
            903,425Other
                receivables
            
            
            1,338,849
            
            
            785,111Other
                receivables - related party
            
            
            90,920
            
            
            90,008Inventories
            
            
            3,549,366
            
            
            4,190,830Costs
                and estimated earnings in excess of billings
            
            
            9,846,489
            
            
            9,020,122Employee
                advances
            
            
            1,999,290
            
            
            1,648,560Prepayments
                and deferred expenses
            
            
            2,931,053
            
            
            2,396,571Total
                current assets
            
            
            46,410,067
            
            
            43,678,647PLANT
                AND EQUIPMENT, net
            
            
            3,669,210
            
            
            3,529,808OTHER
                ASSETS:Deferred
                expenses - non current
            
            
            -
            
            
            40,830Investment
                in Tianjin Fire Safety Equipment Co. Ltd.
            
            
            506,371
            
            
            501,288Intangible
                assets - land use right, net of accumulated amortization
            
            
            560,554
            
            
            558,255Total
                other assets
            
            
            1,066,925
            
            
            1,100,373Total
                assets
            
            $
            51,146,202
            
            $
            48,308,828L
                I A B I L I T I E S   A N D   S H A R E H O L D E R
                S'   E Q U I T YCURRENT
                LIABILITIES:Accounts
                payable
            
            $
            4,830,955
            
            $
            5,796,979Accounts
                payable - related party
            
            
            -
            
            
            320,754Customer
                deposits
            
            
            5,193,027
            
            
            2,713,451Billings
                in excess of costs and estimated earnings
            
            
            6,886,639
            
            
            8,867,624Other
                payables
            
            
            620,901
            
            
            388,434Other
                payables - related party
            
            
            523
            
            
            50,523Accrued
                liabilities
            
            
            2,139,075
            
            
            1,891,628Taxes
                payable
            
            
            159,084
            
            
            619,949Total
                current liabilities
            
            
            19,830,204
            
            
            20,649,342DERIVATIVE
                INSTRUMENT LIABILITIES
            
            
            1,846,648
            
            
            2,680,811COMMITMENTS
                AND CONTINGENCIES
            
            
            -
            
            
            -SHAREHOLDERS'
                EQUITY:Common
                stock, $0.001 par value, 65,000,000 shares authorized,26,461,678
                shares issued and outstanding
            
            
            26,462
            
            
            26,462Additional
                paid-in-capital
            
            
            13,458,171
            
            
            13,393,171Statutory
                reserves
            
            
            3,728,127
            
            
            3,728,127Retained
                earnings
            
            
            10,895,509
            
            
            6,765,393Accumulated
                other comprehensive income
            
            
            1,361,081
            
            
            1,065,522Total
                shareholders' equity
            
            
            29,469,350
            
            
            24,978,675Total
                liabilities and shareholders' equity
            
            $
            51,146,202
            
            $
            48,308,828




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 INCOME AND OTHER COMPREHENSIVE INCOME


FOR
        THE
        THREE MONTHS ENDED MARCH 31, 2007 AND 2006


(Unaudited)


2007
              
              2006REVENUES
              
              $
              9,499,460
              
              $
              6,654,350COST
                  OF REVENUES
              
              
              4,483,555
              
              
              3,138,374GROSS
                  PROFIT
              
              
              5,015,905
              
              
              3,515,976OPERATING
                  EXPENSESelling
                  and marketing
              
              
              551,410
              
              
              581,900General
                  and administrative
              
              
              1,011,044
              
              
              501,729Depreciation
                  and amortization
              
              
              126,483
              
              
              136,889Research
                  and development
              
              
              50,295
              
              
              176,972Total
                  operating expense
              
              
              1,739,232
              
              
              1,397,490INCOME
                  FROM OPERATIONS
              
              
              3,276,673
              
              
              2,118,486OTHER
                  INCOME (EXPENSE)Change
                  in fair value of derivative instruments
              
              
              834,163
              
              
              -Other
                  income, net of other expense
              
              
              19,280
              
              
              99,101Total
                  other income (expense)
              
              
              853,443
              
              
              99,101INCOME
                  BEFORE PROVISION FOR INCOME TAXESAND
                  MINORITY INTEREST
              
              
              4,130,116
              
              
              2,217,587PROVISION
                  FOR INCOME TAXES
              
              
              -
              
              
              13,656NET
                  INCOME BEFORE MINORITY INTEREST
              
              
              4,130,116
              
              
              2,203,931MINORITY
                  INTEREST
              
              
              -
              
              
              18,890NET
                  INCOME
              
              
              4,130,116
              
              
              2,185,041OTHER
                  COMPREHENSIVE INCOMEForeign
                  currency translation adjustment
              
              
              295,559
              
              
              87,684COMPREHENSIVE
                  INCOME
              
              $
              4,425,675
              
              $
              2,272,725WEIGHTED
                  AVERAGE NUMBER OF SHARES - BASIC
              
              
              26,461,678
              
              
              24,000,000WEIGHTED
                  AVERAGE NUMBER OF SHARES - DILUTED
              
              
              27,001,528
              
              
              24,000,000EARNING
                  PER SHARE - BASIC
              
              $
              0.16
              
              $
              0.09EARNING
                  PER SHARE - DILUTED
              
              $
              0.15
              
              $
              0.09






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




4




CHINA
      FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES


(FORMERLY
        KNOWN AS UNIPRO FINANCIAL SERVICES, INC.)




CONSOLIDATED
        STATEMENTS OF SHAREHOLDERS' EQUITY


FOR
        THE
        THREE MONTHS ENDED MARCH 31, 2007 AND 2006





Retained
                  Earnings
              
              Owner
              
              Accumulated
                  otherCommon
                  Stock
              
              Additional
              
              Statutory
              
              
              
              contribution
              
              comprehensiveShares
              
              Par
                  value
              
              paid-in-capital
              
              reserves
              
              Unrestricted
              
              receivable
              
              income
              
              TotalsBALANCE,
                  December 31, 2005
              
              
              24,000,000
              
              $
              24,000
              
              $
              6,056,058
              
              $
              3,458,325
              
              $
              65,554
              
              $
              (10,087,527
              )
              $
              483,590
              
              $
              -Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,185,041
              
              
              
              
              
              
              
              
              2,185,041Foreign
                  currency translation adjustment
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              87,684
              
              
              87,684BALANCE,
                  March 31, 2006 (Unaudited)
              
              
              24,000,000
              
              $
              24,000
              
              $
              6,056,058
              
              $
              3,458,325
              
              $
              2,250,595
              
              $
              (10,087,527
              )
              $
              571,274
              
              $
              2,272,725Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              4,784,600
              
              
              
              
              
              
              
              
              4,784,600Adjustment
                  to statutory reserves
              
              
              
              
              
              
              
              
              
              
              
              269,802
              
              
              (269,802
              )Collection
                  of contribution receivable
              
              
              
              
              
              
              
              
              4,973
              
              
              
              
              
              
              
              
              10,087,527
              
              
              
              
              
              10,092,500Cash
                  proceeds from investment inSureland
                  Equipment Co., Ltd
              
              
              
              
              
              
              
              
              660,000
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              660,000Issuance
                  of common stock
              
              
              2,461,678
              
              
              2,462
              
              
              6,028,140
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              6,030,602Options
                  issued to employees
              
              
              
              
              
              
              
              
              644,000
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              644,000Foreign
                  currency translation adjustment
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              494,248
              
              
              494,248BALANCE,
                  December 31, 2006
              
              
              26,461,678
              
              $
              26,462
              
              $
              13,393,171
              
              $
              3,728,127
              
              $
              6,765,393
              
              $
              -
              
              $
              1,065,522
              
              $
              24,978,675Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              4,130,116
              
              
              
              
              
              
              
              
              4,130,116Options
                  issued to employees
              
              
              
              
              
              
              
              
              65,000
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              65,000Foreign
                  currency translation adjustment
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              295,559
              
              
              295,559BALANCE,
                  March 31, 2007 (Unaudited)
              
              
              26,461,678
              
              $
              26,462
              
              $
              13,458,171
              
              $
              3,728,127
              
              $
              10,895,509
              
              $
              -
              
              $
              1,361,081
              
              $
              29,469,350




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






5





CHINA
        FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES


(FORMERLY
        KNOWN AS UNIPRO FINANCIAL SERVICES, INC.)




CONSOLIDATED
      STATEMENTS OF CASH FLOWS


FOR
        THE
        THREE MONTHS ENDED MARCH 31, 2007 AND 2006
 (Unaudited)


2007
              
              2006CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  income
              
              $
              4,130,116
              
              $
              2,185,041Adjustments
                  to reconcile net income to cash(used
                    in) provided by operating activities:Minority
                  Interest
              
              
              -
              
              
              18,890Depreciation
              
              
              123,134
              
              
              133,663Amortization
              
              
              3,349
              
              
              3,226Provision
                  for doubtful accounts
              
              
              119,382
              
              
              2,834Compensation
                  expense for options issued to employees
              
              
              65,000
              
              
              -Change
                  in fair value of derivative instruments
              
              
              (834,163
              )
              
              -(Increase)
                  decrease in assets:Accounts
                    receivable
              
              
              (1,397,038
              )
              
              (1,018,360
              )Notes
                  receivable
              
              
              (71,343
              )
              
              (55,926
              )Other
                  receivables
              
              
              (543,711
              )
              
              (421,680
              )Inventories
              
              
              681,373
              
              
              431,731Costs
                  and estimated earnings in excess of billings
              
              
              (732,119
              )
              
              (872,424
              )Employee
                    advances
              
              
              (332,749
              )
              
              (7,505
              )Prepayments
                  and deferred expenses
              
              
              (467,161
              )
              
              (522,521
              )Increase
                  (decrease) in liabilities:Accounts
                    payable
              
              
              (1,020,929
              )
              
              160,198Accounts
                  payable - related party
              
              
              (322,781
              )
              
              -Customer
                  deposits
              
              
              2,442,783
              
              
              2,848,467Billings
                  in excess of costs and estimated earnings
              
              
              (2,063,070
              )
              
              (344,407
              )Other
                  payables
              
              
              227,663
              
              
              64,223Other
                  payables - related party
              
              
              (50,321
              )
              
              -Accrued
                  liabilities
              
              
              227,401
              
              
              462,243Taxes
                  payable
              
              
              (465,384
              )
              
              23,304Net
                  cash (used in) provided by operating activities
              
              
              (280,568
              )
              
              3,090,997CASH
                  FLOWS FROM INVESTING ACTIVITIES:Purchase
                  of equipment
              
              
              (226,350
              )
              
              (136,634
              )Net
                  cash used in investing activities
              
              
              (226,350
              )
              
              (136,634
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Decrease
                  in restricted cash
              
              
              902,781
              
              
              458,758Dividend
                  distributions to shareholders
              
              
              -
              
              
              (7,414,545
              )Dividend
                  distributions to minority interest shareholder
              
              
              -
              
              
              (390,239
              )Cash
                  proceeds from note payables
              
              
              -
              
              
              2,485,600Net
                  cash provided by (used in) financing activities
              
              
              902,781
              
              
              (4,860,426
              )EFFECTS
                  OF EXCHANGE RATE CHANGE IN CASH
              
              
              99,403
              
              
              7,234INCREASE
                  (DECREASE) IN CASH
              
              
              495,266
              
              
              (1,898,829
              )CASH,
                  beginning of period
              
              
              9,426,091
              
              
              2,357,399CASH,
                  end of period
              
              $
              9,921,357
              
              $
              458,570




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




6


CHINA
          FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES
 (FORMERLY
          KNOWN AS UNIPRO FINANCIAL SERVICES, INC.)




NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


March
      31,
      2007


(Unaudited)




**Note
      1 - Background**





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





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





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





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





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





During
      June and July 2006, the CFPG issued 33,500 shares of common stock to the
      Original Shareholders in consideration of a promissory note receivable totaling
      $10,087,527 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.




**Beijing
      Zhong Xiao Fire Safety Technology Co., Ltd. (“Beijing Zhong
      Xiao”)** is a
      subsidiary of Sureland Industrial established in the PRC as a limited liability
      company on March 18, 2003. Upon its establishment, 80% and 20% of its registered
      capital were contributed by Sureland Industrial, partly in cash and partly
      in
      equipment and Beijing Sureland Creation Fire Prevention Technology Co., Ltd.
      (“Sureland Creation”) in cash, respectively. The equipment contributed by
      Sureland Industrial consisted of certain machinery and office equipment with
      aggregate amount of approximately $145,200 (RMB1.2 million), being then the
      total carrying values of such assets in Sureland Industrial’s books. On October
      8, 2006, Sureland Industrial and Sureland Creation agreed to transfer the 20%
      ownership in Beijing Zhong Xiao from Sureland Creation to Sureland Industrial,
      and Sureland Industrial became 100% shareholder of Beijing Zhong
      Xiao.





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





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






7


**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 Zhong Xiao, Beijing Hua An, and Sureland 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.





Balance
      sheet classifications





The
      Company includes in current assets accounts receivable under system contracting
      projects (principally retentions) that may extend beyond one year. A one-year
      time period is used as the basis for classifying all other current assets and
      liabilities.





Shipping
      and handling





Costs
      related to shipping and handling are included in cost of revenue.





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 comprises the agreed contract amount
                and
                appropriate amounts from change orders, claims and incentive payments.
                Contract costs incurred comprise direct material, direct labor and
                an
                appropriate proportion of variable and fixed construction overhead.
                When
                the outcome of a project can be estimated reliably, revenue from
                the
                contract is recognized on the percentage of completion method, which
                is
                based on the proportion of contract costs incurred to date compared
                to the
                estimated total cost of the relevant contract. Where contract costs
                incurred to date plus recognized profits less recognized losses exceed
                progress billings, the surplus is treated as an amount due from contract
                consumers. Where progress billings exceed contract costs incurred
                to date
                plus recognized profits less recognized losses, the surplus is treated
                as
                an amount due to contract
                customers.





2.
            Revenue
                from product sales is recognized when the goods are delivered and
                title
                has passed. Product 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.





For
      the
      three months ended March 31, 2007, revenue from system contracting projects
      and
      other, and revenue from product sales was $7,397,705 and $2,101,755,
      respectively.





For
      the
      three months ended March 31, 2006, revenue from system contracting projects
      and
      other, and revenue from product sales was $4,285,118 and $2,369,232,
      respectively.






8




Foreign
      currency translation




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




Translation
      adjustments amounted to $1,361,081 and $1,065,522 as of March 31, 2007 and
      December 31, 2006, respectively. Asset and liability accounts at March 31,
      2007
      were translated at 7.72 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 three months
      ended March 31, 2007 and 2006 were 7.75 RMB and 8.05 RMB, respectively. Cash
      flows are also translated at average translation rates for the period,
      therefore, amounts reported on the statement of cash flows will not necessarily
      agree with changes in the corresponding balances on the balance sheet.





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





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. The depreciation expense for the three months
      ended March 31, 2007 and 2006 amounted to $123,134 and $133,663
      respectively.





Estimated
      useful lives of the assets are as follows:




EstimatedUseful
                  LifeBuildings
                  and improvement
              40
                  yearsTransportation
                  equipment
              5
                  yearsMachinery
              10
                  yearsOffice
                  equipment
              5
                  yearsFurniture
              5
                  years







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





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





Long-term
      assets of the Company are reviewed annually or more often if circumstances
      dictate, to determine whether their carrying value has become impaired. The
      Company considers assets to be impaired if the carrying value exceeds the future
      projected cash flows from related operations. The Company evaluates the periods
      of depreciation and amortization to determine whether subsequent events and
      circumstances warrant revised estimates of useful lives. As of March 31, 2007,
      the Company expects these assets to be fully recoverable.





9




Plant
      and
      equipment consist of the following at:




March
                  31,
              
              December
                  31,2007
              
              2006UnauditedBuildings
                  and improvement
              
              $
              2,417,439
              
              $
              2,393,171Transportation
                  equipment
              
              
              2,043,975
              
              
              1,678,678Machinery
              
              
              585,586
              
              
              579,708Office
                  equipment
              
              
              994,232
              
              
              968,213Furniture
              
              
              33,978
              
              
              33,637Totals
              
              
              6,075,210
              
              
              5,653,407Less
                  accumulated depreciation
              
              
              2,406,000
              
              
              2,123,599Totals
              
              $
              3,669,210
              
              $
              3,529,808




Use
      of
      estimates





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


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





Cash
      and concentration of risk





Cash
      includes cash on hand and demand deposits in accounts maintained with
      state **** owned
      banks within the People’s Republic of China. Total cash (including restricted
      cash balances) in these banks at March 31, 2007 and December 31, 2006, amounted
      to $10,691,187 and $11,037,830, respectively of which no deposits are covered
      by
      insurance. The Company has not experienced any losses in such accounts and
      believes it is not exposed to any risks on its cash in bank
      accounts.





Restricted
      cash





Restricted
      cash represents cash required to be deposited in a separate bank account subject
      to withdrawal restrictions by its system contracting projects and product sales
      customers to guarantee its contracts will be performed. The deposit cannot
      be
      drawn or transferred by the Company until the restriction period has expired.
      The amounts are $733,079 and $1,622,833 as of March 31, 2007 and December 31,
      2006, respectively.





March
                  31,
              
              December
                  31,2007
              
              2006UnauditedRestricted
                  CashProduct
                sales
              
              $
              544,087
              
              $
              1,210,727System
                contracting projects
              
              
              188,992
              
              
              412,106Total
                  Restricted Cash
              
              $
              733,079
              
              $
              1,622,833






10




Inventories





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





March
                31,
            
            December
                31,2007
            
            2006UnauditedRaw
                materials
            
            $
            215,204
            
            $
            150,546Finished
                goods
            
            
            3,008,037
            
            
            3,770,626Work
                in progress
            
            
            326,125
            
            
            269,658Totals
            
            $
            3,549,366
            
            $
            4,190,830




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





Accounts
      receivable





Accounts
      receivable represents amounts due from customers for product 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:




March
                  31,
              
              December
                  31,2007
              
              2006UnauditedAccounts
                  receivable:Product
                  sales
              
              $
              6,441,477
              
              $
              6,149,185Maintenance
                  services
              
              
              625,859
              
              
              781,902System
                  contracting projects
              
              
              8,984,024
              
              
              7,583,900Total
                  accounts receivable
              
              
              16,051,360
              
              
              14,514,987Allowance
                  for bad debts
              
              
              (1,372,329
              )
              
              (1,252,947
              )Accounts
                  receivable, net
              
              $
              14,679,031
              
              $
              13,262,040


Costs
      and estimated earnings in excess of billings




March
                  31,
              
              December
                  31,2007
              
              2006UnauditedContracts
                  costs incurred plus recognized profits less recognized losses to
                  date
              
              $
              37,293,837
              
              $
              25,378,764Less
                  progress billings
              
              
              27,447,348
              
              
              16,358,642Costs
                  and estimated earnings in excess of billings
              
              $
              9,846,489
              
              $
              9,020,122


11




Billings
      in excess of costs and estimated earnings







March
                  31,
              
              December
                  31,2007
              
              2006UnauditedProgress
                  billings
              
              $
              17,303,728
              
              $
              23,129,942Contracts
                  costs incurred plus recognized profits less recognized losses to
                  date
              
              
              10,417,089
              
              
              14,262,318Billings
                  in excess of costs and estimated earnings
              
              $
              6,886,639
              
              $
              8,867,624




At
      March
      31, 2007 and December 31, 2006, retentions held by customers of system
      contracting projects included in the Company’s accounts receivable amounted to
      $1,567,255 and $2,519,128, respectively. These balances represent portions
      of
      billings made by the Company but held for payment by the customer pending
      satisfactory completion of the project. Retention payments are generally
      collected within one year of the completion of the project.





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.





Financial
      instruments





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





Intangible
      assets





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 1999 for a
      total amount of $635,757. The land use rights expire in 2049. The costs of
      these
      rights are being amortized over
      fifty years using
      the straight-line method. As of March 31, 2007 and December 31, 2006, accumulated
      amortization amounted to $119,864 and $115,332, respectively.





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 March 31, 2007, the Company expects these assets to be fully recoverable.





Total
      amortization expense for the three months ended March 31, 2007 and 2006 amounted
      to $3,349 and $3,226, respectively.




12




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 March 31, 2007
      and
      December 31, 2006.





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





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





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





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





Value
      Added Tax





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





VAT
      on
      sales and VAT on purchases amounted to $1,333,888 and $1,027,078 for the three
      months ended March 31, 2007 and $735,930 and $557,743 for the three months
      ended
      March 31, 2006, respectively. Sales and purchases are recorded net of VAT
      collected and paid as the Company acts as an agent for the government. VAT
      taxes
      are not impacted by the income tax holiday.





Stock
      based compensation





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




13




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





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





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





**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 March 31, 2007 and 2006:






14


2007
              
              2006Unaudited
              
              UnauditedNet
                  income for earnings per share
              
              $
              4,130,116
              
              $
              2,185,041Weighted
                  average shares used in basic computation
              
              
              26,461,678
              
              
              24,000,000Diluted
                  effect of stock options and warrants
              
              
              539,850
              
              
              -Weighted
                  average shares used in diluted computation
              
              
              27,001,528
              
              
              24,000,000Earnings
                  per share:Basic
              
              $
              0.16
              
              $
              0.09Diluted
              
              $
              0.15
              
              $
              0.09




At
      March
      31, 2007, 492,340 warrants were excluded from the calculation because of their
      antidilutive nature.





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





The
      Company paid $47,978 and $106,048 for income tax for the three months ended
      March 31, 2007 and 2006, respectively. No interest was paid for the three months
      ended March 31, 2007 and 2006.





**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 $984,200 and $903,425 as of March 31,
      2007 and December 31, 2006, respectively.





**Note
      6 - Prepayments and deferred expenses**





Prepayments
      and deferred expenses are monies deposited with or advanced to subcontractors
      to
      perform services on System Contracting Projects. Some subcontractors require
      a
      certain amount of money to be deposited as a guarantee payment in order for
      them
      start performing the services. Prepayments and deferred expenses also include
      monies deposited or advanced to vendors on future inventory purchases to ensure
      timely delivery. The total outstanding amount was $2,931,053 and $2,396,571
      as
      of March 31, 2007 and December 31, 2006, respectively.




**Note
      7 - Customer deposits**





Customer
      deposits represent amounts advanced by customers on product 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 March 31, 2007 and December 31,
      2006, customer deposits amounted to $5,193,027 and $2,713,451,
      respectively.





**Note
      8 - Accrued liabilities**





Accrued
      liabilities represent subcontractors’ expenses incurred as of period end for
      system contracting projects. As of March 31, 2007 and December 31, 2006, accrued
      liabilities amounted to $2,139,075 and $1,891,628, respectively.




15




**Note
      9 - Income taxes**





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





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





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





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





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





The
      Company’s subsidiaries, Beijing Zhong Xiao, and 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, all the subsidiaries have obtained the
      following additional tax benefits:





Beijing
      Zhong Xiao was exempt from income taxes during the period between March 18,
      2003
      and December 31, 2005.





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.





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





The
      key
      changes are:


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


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





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




16




The
      provision for income taxes for the three months ended March 31 consisted of
      the
      following:





2007
              
              2006Unaudited
              
              UnauditedProvision
                  for China Income Tax
              
              $
              -
              
              $
              12,415Provision
                  for China Local Tax
              
              
              -
              
              
              1,241Total
                provision for income taxes
              
              $
              -
              
              $
              13,656






The
      following table reconciles the U.S. statutory rates to the Company’s effective
      tax rate for the three months ended March 31:







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




The
      estimated tax savings for the three months ended March 31, 2007 and 2006
      amounted to $1,185,465 and $735,569, 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 March 31, 2007 and 2006 by $0.04
      and $0.03, respectively.





Taxes
      payable





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







March
                  31,
              
              December
                  31,2007
              
              2006UnauditedVAT
                  taxes payable (credit)
              
              $
              (464,243
              )
              $
              47,211Income
                  taxes payable (refund)
              
              
              (47,816
              )
              
              (13,317
              )Sales
                  taxes
              
              
              633,686
              
              
              541,486Other
                  taxes payable
              
              
              37,457
              
              
              44,569Total
              
              $
              159,084
              
              $
              619,949




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





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





In
      2006,
      the Company invested $501,288 into Tianjin Fire Safety Equipment Co., Ltd.
      (“Tianjin Fire”), for a 19% ownership in Tianjin Fire. For the three months
      ended March 31, 2007, Tianjin Fire did not purchase any equipment, raw
      materials, and finished goods from the Company’s subsidiary, Sureland Equipment.
      As of March 31, 2007 and December 31, 2006, the accounts receivable due from
      Tianjin Fire was $336,433 and $333,056 respectively, and other receivable due
      from Tianjin Fire was $90,920 and $90,008, respectively.





The
      Company’s subsidiary, Sureland Industrial, purchased a total of $452,722 and $0
      of raw materials from Tianjin Fire for the three months ended March 31, 2007
      and
      2006, respectively. As of March 31, 2007 and December 31, 2006, the accounts
      payable due to Tianjin Fire was $0 and $320,754, respectively. As of March
      31,
      2007 and December 31, 2006, the other payable due to related parties amounted
      to
      $523 and $50,523, respectively. Those amounts were generated from making cash
      advances by the shareholders for ordinary business expenses. These amounts
      are
      unsecured, non interest bearing, and have no fixed terms of
      repayment.




17




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





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





The
      Company has three major customers which represent approximately 51% and 35%
      of
      the Company’s sales for the three
      months ended March 31, 2007 and
      2006,
      respectively. These three customers represent 4% of the Company’s accounts
      receivable as of March 31, 2007.





For
      the
      three months ended March 31, 2007 and
      2006,
      the Company purchased approximately 45% and 27%, respectively, of their raw
      materials from four suppliers. These four suppliers represent 12% of the
      Company’s total accounts payable as of March 31, 2007.





**Note
      12 - Retirement plan**





The
      Compan y
      and its
      subsidiaries are required to participate in a central pension scheme operated
      by
      the local municipal government. The Company is required to contribute 20% of
      its
      payroll costs to the central pension scheme in 2006 and 2005. The contributions
      are charged to the income statement of the Company as they become payable in
      accordance with the rules of the scheme. The
      aggregate contributions of the Company to retirement benefit schemes amounted
      to
      $36,996 and $17,594 for
      the
      three months ended March 31, 2007 and
      2006,
      respectively.




**Note
      13 - Statutory reserves**





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





Surplus
      reserve fund





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





The
      transfer to this reserve must be made before distribution of any dividend to
      shareholders. For
      the
      three months ended March 31, 2007 and
      2006,
      the Company did not transfer any fund to this reserve. 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.




18




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 three months ended March 31, 2007.





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





The
      Company’s office lease is under a one year term expiring in November 2007. It is
      cancelable with three months prior notice. At March 31, 2007, total future
      minimum lease payments under an operating lease were as follows:





Year
                  Ended December 31,
              
              Amount2007
              
              $
              26,418Thereafter
              
              
              -




Total
      rent expense for the three months ended March 31, 2007 and 2006 amounted to
      $28,901 and $43,587, respectively.





**Note
      15 - Shareholders’ equity**





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





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





Warrants





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




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




Subsequent
      to the initial recording, the change in the fair value of the warrants,
      determined under the Cox-Ross-Rubinstein binomial model, at each reporting
      date
      will result in either an increase or decrease the amount recorded as liability,
      based on the fluctuations with the Company’s stock price with a corresponding
      adjustment to other income (or expense). As of December 31, 2006, the fair
      value
      of the derivative instrument totaled $2,680,811. At March 31, 2007, the Company
      determined the fair value of the warrants was $1,846,648 using the
      Cox-Ross-Rubinstein binomial model with the following assumptions: volatility
      25%; risk free interest rate 4.54%; dividend yield of 0% and expected term
      of
      4.6 years. A gain of $834,163 was recognized in the accompanying income
      statement based on the decrease in fair value since prior period ended December
      31, 2006.





**Note
      16 - Options issued to employees**





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





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





The
      Company’s stock was not traded when the options were granted. Therefore, the
      Company had to estimate the market value of its shares. There was no significant
      change in the business between July and October 2006, therefore, the company
      used the fair value from the October 27 transaction (discussed in Note 15)
      of
      $2.26 and took a discount of 30%, to estimate a market price of $1.58. At that
      market price, the 750,000 employee options had a fair value of approximately
      $834,000. Because 50% of the options vested immediately, the related
      compensation expense was recognized as the options vest, rather than on a
      straight-line basis over the total vesting period, as the amount recognized
      at
      any point in time must be at least equal to the portion vested. The expense
      recognized for the three months ended March 31, 2007 was $65,000.





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





On
      April
      2, 2007, the board of directors of Sureland Industrial had a board meeting
      which
      approved the following resolutions:


1.
            In
                order to expand the regional presence in Hubei province, Sureland
                Industrial will set up a joint venture with Hubei Sanhe Technology
                Limited. The joint venture, Hubei Sureland Yangtse River Fire Safety
                Technology Limited, is 55.5% owned by Sureland Industrial with an
                investment of US$431,900 and 44.5% owned by Hubei Sanhe with an investment
                of US$344,300. Hubei Sanhe and its shareholders are not related to
                any
                officers or shareholders of the Company and its
                subsidiaries.


2.
            In
                order to further expand our fire extinguishing product lines, Sureland
                Industrial has set up a wholly owned subsidiary, Tianjin Tianxiao
                Fire
                Safety Equipment Limited (Tianjin Tianxiao), in the city of Tianjin.


3.
            Sureland
                Industrial will dispose its 19% ownership of Tianjin Fire to Shiji
                Huazhong (Beijing) Technology Limited for $507,153, the same price
                that
                Sureland Industrial paid for in July 2006. Shiji Huazhong and its
                shareholders are not related to any officers or shareholders of the
                Company and its subsidiaries.


4.
            Sureland
                Industrial will restructure its wholly owned subsidiary, Beijing
                Zhongxiao, and transfer 100% ownership for US$1,380,069 to an
                unrelated party. The restructuring has no impact on the business
                of the
                Company and its subsidiaries.





On
      May 3,
      2007, the Company amended its Series A Warrants and Series B Warrants issued
      to
      certain investors on October 27, 2006 pursuant to the Securities Purchase
      Agreement in connection with a private placement (the “Amendment”). The
      Amendment eliminates the right of the warrantholders 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.






19







**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, as well as the Company's Annual Report on Form
      10-KSB for the year ended December 31, 2006 which is incorporated herein by
      reference.





**Overview**





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





**Reorganization**





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




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





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





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




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






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




20




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




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




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




**Critical
      Accounting Policies and Estimates**




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




Revenue
      recognition




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




1.
            Revenue
                from Total Solution projects comprises the agreed contract amount
                and
                appropriate amounts from variation orders, claims and incentive payments.
                Contract costs incurred comprise direct material, direct labor and
                an
                appropriate proportion of variable and fixed construction overheads.
                When
                the outcome of a system contracting project can be estimated reliably,
                revenue from the contract is recognized on the percentage of completion
                method, measured by reference to the proportion of contract costs
                incurred
                to date to the estimated total cost of the relevant contract.




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.




Foreign
      currency translation




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




Plant
      and equipment




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




Estimated
      useful lives of the assets are as follows:




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




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




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




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




Use
      of
      estimates




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




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.




21




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. All references to
      the
      results of operations and financial condition are those of China Fire Protection
      Group.





***Comparison
      of the three months Ended on March 31, 2007 and 2006:***




**Three
                months ended March
                31****2007**
            **2006**Revenues
            $9,499,460
            $6,654,350Cost
                of revenues
            4,483,555
            3,138,374Operating
                expenses
            1,739,232
            1,397,490Other
                income(expense)
            853,443
            99,101Income
                taxes
            
            13,656Minority
                interest
            
            18,890Net
                profit (Loss)
            4,130,116
            2,185,041Foreign
                Exchange adjustment
            295,559
            87,684Comprehensive
                income
            4,425,675
            2,272,725weighted
                average number of shares-basic
            26,461,678
            24,000,000weighted
                average number of shares-diluted
            27,001,528
            24,000,000earning
                per share-basic
            0.16
            0.09earning
                per share-diluted
            0.15
            0.09





Total
      revenues were approximately $9.5 million for the three months ended March 31,
      2007 as compared to approximately $6.7 million for the three months ended March
      31, 2006, an increase of approximately $2.8 million or 42.8 percent. This
      increase was a result of improving sales execution and further penetration
      of
      the Company’s customer base in the iron and steel industries,
      and delivering more of our products and total solutions to our
      industrial customers during the three months ended March 31, 2007.





Cost
      of
      revenues for the three months ended March 31, 2007 was approximately $4.5
      million or 47.2 percent of revenues as compared to $3.1 million or 47.2 percent
      of revenues for the three months ended March 31, 2006. The cost of our own
      products are primarily composed of the costs of direct raw material (mainly
      copper wires, steel, and electronic devices), direct labor, depreciation and
      amortization of manufacturing equipment and facilities, and other overhead.
      The
      costs of projects include the cost of our products, the products from third
      party vendors and the cost of outsourcing of most of the labor intensive
      installations. We tend to have higher margin on our own products and have lower
      margin on projects which includes high percentage of products from third
      parties.




22




Operating
      expenses were approximately $1.7 million for the three months ended March 31,
      2007 as compared to approximately $1.4 million for the three months ended March
      31, 2006, an increase of approximately $0.3 million or 24.5 percent. We have
      successfully controlled our expenses during the period. The increase was mainly
      due to expenses related to being listed as a public company in the United
      States.





Other
      Income was $0.9 million for the three months ended March 31, 2007 as compared
      to
      approximately $0.1 million for the three months ended March 31, 2006, an
      increase of approximately $0.8 million or 761.2% percent. The increase was
      due
      to the change in fair value of derivatives related to the warrants associated
      with the October 2006 private placement.





Our
      net
      income was approximately $4.1 million for the three months ended March 31,
      2007
      as compared to approximately $2.2 million net income for the three months ended
      March 31, 2006, an
      increase of $1.9 million or 89.0 percent .
      Excluding the $0.8 million increase from Other Income, the increase in the
      net
      income was mainly due to the increase in revenues from new customers in several
      industries and our continuous efforts in monitoring expenses.





Currency
      translation adjustments resulting from this process amounted to $295,559 and
      $87,684 as of the three months ended March 31, 2007 and 2006,
      respectively. The
      balance sheet amounts with the exception of equity at March 31, 2007 were
      translated at 7.72 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 March 31, 2007, and 2006 were 7.75 RMB and 8.05 RMB,
      respectively.





The
      comprehensive income, which adds the currency adjustment to the net income,
      were
      approximately $4.4 million for the three months ended March 31, 2007 as compared
      to approximately $2.3 million comprehensive income for the three months ended
      March 31, 2006, a increase of $2.2 million or 94.7 percent. Excluding the $0.8
      million from the change in fair value of derivatives, the comprehensive income
      was $3.6 million, or 58.0% increase from the same period of 2006.





**Income
      Taxes**




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


1.
            If
                the enterprise is located in a specially designated region (New Technology
                Enterprise Development Zone), it enjoys a three-year income tax exemption
                and a 50 percent income tax reduction for the following three years.


2.
            If
                the enterprise is a manufacturing related joint venture with a foreign
                enterprises or a wholly owned subsidiary of a foreign enterprise,
                it
                enjoys a two-year income tax exemption from the year that it is profitable
                and a 50 percent income tax reduction for the following three years.





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




23




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





l
            Beijing
                Zhong Xiao was exempt from income taxes during the period between
                March
                18, 2003 and December 31, 2005.





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


.


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:


l
            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%;


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





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





The
      provision for income taxes for the period ended March 31 consisted of the
      following:




2007
              
              2006Provision
                  for China Income Tax
              
              $
              -
              
              $
              12,415Provision
                  for China Local Tax
              
              
              -
              
              
              1,241Total
                  provision for income taxes
              
              $
              -
              
              $
              13,656





**Liquidity
      and Capital Resources**




As
      of
      March 31, 2007, we had working capital totaling $26.6 million including cash
      and
      cash equivalents of $9.9 million




Net
      cash
      used in operating activities totaled $0.3 million for the three months ended
      March 31, 2007. In this quarter, due to the Chinese New Year in mid February
      through March, we have not received cash advances from some of our
      signed contracts. This has led to our negative cash flow from the
      operations. This is a temporary and will be resolved in the second
      quarter. Net cash provided by operating activities approximately $3.1
      million for the three months ended March 31, 2006.




Net
      cash used
      in investing activities for the three months ended March 31, 2007 totaled $0.2
      million for the purchase of cars and equipment. Net cash  used
      in investing activities for the three months  ended
      March 31, 2006  totaled
      $0.1 million for the purchase of equipment. We have not made any significant
      investments in first quarter of 2006 and 2007.




Net
      cash provided
      by financing activities for the three months ended March 31, 2007 totaled $0.9
      million. Net cash used in financing activities for the three months ended March
      31, 2006 was $4.9 million.




As
      a
      result of the total cash activities, net cash increased $0.5 million from
      December 31, 2006 to March 31, 2007. We
      believe that our currently available working capital of $26.6 million including
      cash and cash equivalents of $9.9 million, should be adequate to sustain our
      operations at our current levels and our anticipated expansion through at least
      the next twelve months.




**Off-Balance
      Sheet Arrangements**





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





**Item
      3. Controls and Procedures.**





a)  *Evaluation
      of Disclosure Controls.* Brian
      Lin, who is our Chief Executive Officer and Principal Accounting Officer
      evaluated the effectiveness of our disclosure controls and procedures as of
      the
      end of our 2006 fiscal year pursuant to Rule 13a-15(b) of the Securities and
      Exchange Act. Disclosure controls and procedures are controls and other
      procedures that are designed to ensure that information required to be disclosed
      by us in the reports that we file or submit under the Exchange Act is recorded,
      processed, summarized and reported within the time periods specified in the
      SEC’s rules and forms. Disclosure controls and procedures include, without
      limitation, controls and procedures designed to ensure that information required
      to be disclosed by us in the reports that we file under the Exchange Act is
      accumulated and communicated to our management, as appropriate to allow timely
      decisions regarding required disclosure. Based on his evaluation, Mr. Lin
      concluded that our disclosure controls and procedures were effective as
      of March 31, 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.






24





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






25


**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-KSB to be signed on its behalf by the undersigned, thereunto duly
        authorized, in Beijing, on May 15, 2007.
  **CHINA
                  FIRE & SECURITY GROUP, INC.**By:
              /s/Brian
                  LinBrian
                  LinChief
                  Executive OfficerBy:
              /s/Brian
                  LinBrian
                  LinPrincipal
                  Financial Officer and Principal Accounting
                  Officer