10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10−Q

(Mark One)

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

For the quarterly period ended: March 31, 2007

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

For the transition period from ____________ to _____________

Commission File Number: 000-25901

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC.

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

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

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

Futian District, Shenzhen, China 518034

(Address of principal executive offices, Zip Code)

(86) 755-8351-0888

(Registrant’s telephone number, including area code)

_____________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

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

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

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

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

Yes o No x

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

Class of Securities	Shares Outstanding
Common Stock, $0.0001 par value		34,942,206

TABLE OF CONTENTS

	PART I	Page
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4T.	Controls and Procedures	28
	PART II
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Submission of Matters to a Vote of Securities Holders	29
Item 5.	Other Information	29
Item 6.	Index to Exhibits	29

i

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

Expressed in thousands of U.S. dollars

(Except for share and per share amounts)

	March 31,		December 31,
	2007		2006
	(Unaudited)
	USD		USD
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	71,892	$	30,980
Accounts receivable, net		30,366		26,754
Related party receivables		635		440
Inventories, net		22,153		19,721
Prepayments & deposits		8,511		3,533
Advances to suppliers		2,814		2,889
Other receivables		2,020		1,697
Deferred tax assets - current portion		31		41
Total current assets		138,422		86,055
Deposits for acquisition of subsidiaries and properties		20,618		-
Plant and equipment, net		8,452		8,339
Land use rights, net		1,153		1,152
Intangible assets		9,532		9,997
Investment, at cost		13		12
Goodwill		8,426		8,426
Deferred tax assets - non-current portion		466		462
TOTAL ASSETS	$	187,082	$	114,443
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable - short term	$	5,948	$	2,272
Accounts payable		4,492		4,000
Accrued expenses		958		749
Advances from customers		7,484		5,432
Taxes payable		1,579		1,660
Payable for acquisition of business		-		7,500
Deferred income		766		831
Due to a director		-		76
Total current liabilities		21,227		22,520
LONG-TERM LIABILITIES
Notes payable - long term		-		2,010
Convertible notes payable		61,163		-
Total liabilities		82,390		24,530
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES		79		94
SHAREHOLDERS' EQUITY
Common stock, $0.0001 par value; 100,000,000 shares authorized 34,754,127 (March 31, 2007) and 31,824,938 (December 31, 2006) shares issued and outstanding		3		3
Additional paid-in capital		54,786		45,320
Retained earnings		46,016		41,483
Statutory reserves		804		804
Accumulated other comprehensive income		3,004		2,209
Total shareholders' equity		104,613		89,819
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	187,082	$	114,443

See the accompanying notes to condensed consolidated financial statements

-1-

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

Expressed in thousands of U.S. dollars

(Except for share and per share amounts)

	Three Months Ended March 31
	2007			2006
	(Unaudited)			(Unaudited)
	USD			USD
Revenues	$	38,451		$	14,594
Cost of goods sold		28,333			10,197
Gross profit		10,118			4,397
Selling and marketing		603			122
General and administrative		2,251			295
(including non-cash employee compensation of $265)
Depreciation and amortization		806			102
Income from operations		6,458			3,878
Rental income received from related party		127			122
Interest income		82			5
Interest expense		(1,319	)		-
Other income, net		492			115
Income before income taxes and minority interest		5,840			4,120
Minority interest in income of consolidated subsidiaries		9			-
Income taxes		(1,316	)		(620	)
Net income		4,533			3,500
Foreign currency translation gain		795			380
COMPREHENSIVE INCOME	$	5,328		$	3,880
NET INCOME PER SHARE
BASIC	$	0.14		$	0.16
DILUTED	$	0.13		$	0.16
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING
BASIC		33,108,640			21,591,333
DILUTED		34,268,180			21,642,536

See the accompanying notes to condensed consolidated financial statements

-2-

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

THREE MONTHS ENDED MARCH 31, 2007 (UNAUDITED)

Expressed in thousands of U.S. dollars

(Except for share and per share amounts) 

	Common Stock				Additional				Accumulated Other
	Shares		Par Value		Paid-in Capital		Retained Earnings		Comprehensive Income		Statutory reserves		Total
			USD		USD		USD		USD		USD		USD
BALANCE AT JANUARY 1, 2007		31,824,938	$	3	$	45,320	$	41,483	$	2,209	$	804	$	89,819
Warrants exercised (cashless) per Securities Purchase Agreement		161,056		-		-		-		-		-		-
Warrants exercised for cash per Securities Purchase Agreement		126,285		-		606		-		-		-		606
Warrants exercised for cash per Investor Relation Service Agreement		228,000		-		1,095		-		-		-		1,095
Common stock issued under Equity Incentive Plan		1,052,100		-		265		-		-		-		265
Common stock issued for acquisition of Cheng Feng		1,361,748		-		7,500		-		-		-		7,500
Foreign currency translation		-		-		-		-		795		-		795
Net income for the period		-		-		-		4,533		-		-		4,533
BALANCE AT MARCH 31, 2007		34,754,127	$	3	$	54,786	$	46,016	$	3,004	$	804	$	104,613

See the accompanying notes to condensed consolidated financial statements

-3-

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Expressed in thousands of U.S. dollars

(Except for share and per share amounts)

	Three Months Ended March 31
	2007			2006
	(Unaudited)			(Unaudited)
	USD			USD
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		4,533			3,500
Adjustments to reconcile net income to net cash (used in) provided by operating
activities:
Depreciation and amortization		806			102
Amortization of consultancy services		30			17
Non-cash employee compensation		265			-
Redemption accretion on convertible notes		1,163			-
Deferred taxes		12			(15	)
Minority interest		(9	)		-
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable		(3,370	)		3,007
Related party receivables		(192	)		1,280
Inventories		(2,254	)		1,852
Prepayments & deposits		(4,977	)		-
Advances to suppliers		101			(2,745	)
Other receivables		(308	)		119
Deferred expenses		-			(1,028	)
(Decrease) increase in:
Accounts payable and accrued expenses		744			(147	)
Advances from customers		2,003			-
Tax payable		(65	)		379
Deferred income		(57	)		943
Net cash (used in) provided by operating activities		(1,575	)		7,264
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant and equipment		(215	)		(1	)
Additions to intangible assets		(66	)		-
Deposits paid for acquisition of subsidiaries		(19,972	)		-
Deposits paid for acquisition of properties		(646	)		-
Net cash (used in) investing activities		(20,899	)		(1	)
CASH FLOWS FROM FINANCING ACTIVITIES
Due to a director		(75	)		71
Issuance of common stock, net of issuing expenses		1,701			-
New borrowings		65,172			-
Repayment of borrowings		(3,468	)		-
Net cash provided by financing activities		63,330			71
NET INCREASE IN CASH AND CASH EQUIVALENTS		40,856			7,334
Effect of exchange rate changes on cash		56			31
Cash and cash equivalents, at beginning of period		30,980			2,277
CASH AND CASH EQUIVALENTS, END OF PERIOD		71,892			9,642

See the accompanying notes to condensed consolidated financial statements

-4-

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Expressed in thousands of U.S. dollars

(Except for share and per share amounts)

SUPPLEMENTARY CASH FLOW INFORMATION:
Interest paid	$	153	$	-
Income taxes paid	$	1,397	$	334

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

1,361,748 shares of common stock issuable in satisfaction of the equity portion of the purchase price of approximately $7,500 in the acquisition of Shanghai Cheng Feng Digital High-tech Co., Ltd., (“Cheng Feng”), were issued in the first quarter of 2007. (Note 15)

See the accompanying notes to condensed consolidated financial statements

-5-

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Expressed in thousands of U.S. dollars

(Except for share and per share amounts)

1.

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

2.

SUMMARY OF SELECTED SIGNIFICANT ACCOUNTING POLICIES

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

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

As of March 31, 2007 and December 31, 2006, unamortized computer software costs were $141 and $267, respectively. During the three months ended March 31, 2007 and 2006, $246 and $0 amortization expense was charged to income, respectively.

(b)    Inventories

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

When inventories are sold, their carrying amount is charged to expense in the year in which the revenue is recognized. Write-downs for declines in net realizable value or for losses of inventories are recognized as an expense in the year the impairment or loss occurs. There were no declines in net realizable value of inventory for the three months ended March 31, 2007 and 2006.

During the three months ended March 31, 2007 and 2006, approximately 89% and 99%, of total inventory purchases were from five suppliers, respectively.

-6-

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Expressed in thousands of U.S. dollars

(Except for share and per share amounts)

2. SUMMARY OF SELECTED SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(c)    Accounts Receivable

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

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

(d)    Revenue Recognition

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

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

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

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

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

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

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

(e)    Research and Development Costs

Research and development costs are expensed as incurred. Research and development costs included in general and administrative expenses for the three months ended March 31, 2007 and 2006 amounted to $21 and $0 respectively.

(f)    Advertising Costs

The Company expenses advertising costs as incurred or the first time advertising takes place. During the three months ended March 31, 2007 and 2006, the Company incurred approximately $100 and $17 respectively.

-7-

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Expressed in thousands of U.S. dollars

(Except for share and per share amounts)

2. SUMMARY OF SELECTED SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(g)    Retirement Benefits

Retirement benefits in the form of contributions under defined contribution retirement plans to the relevant authorities are charged to the consolidated statements of income as incurred. The retirement benefit expenses for the three months ended March 31, 2007 and 2006 were $54 and $1 respectively and are included in general and administrative expenses.

(h)    Income taxes

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

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

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

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

(i)    Use of Estimates

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

(j)    Earnings Per Share

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

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

The calculation of diluted earnings per share for the three months ended March 31, 2007 has been calculated using the treasury stock method based on the weighted average number of dilutive securities outstanding during 2007. As of March 31, 2007, warrants were outstanding to acquire 835,912 shares of common stock.

-8-

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Expressed in thousands of U.S. dollars

(Except for share and per share amounts)

3. ACCOUNTS RECEIVABLE

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

	March 31, 2007			December 31,2006
Accounts receivable	$	30,487		$	26,877
Less: allowance for doubtful accounts		(121	)		(123	)
Accounts receivable, net	$	30,366		$	26,754

4. RELATED PARTY RECEIVABLES

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

	March 31, 2007		December 31, 2006
Related party receivables	$	635	$	440
Less: allowance for doubtful accounts		—		—
Related party receivables, net	$	635	$	440

The Company has leased offices to three related parties since January 1, 2004. The leases expire on December 31, 2007. The rental income was RMB990 ($127) and RMB990 ($122) for the three months ended March 31, 2007 and 2006, respectively.

-9-

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Expressed in thousands of U.S. dollars

(Except for share and per share amounts)

5. INVENTORIES

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

	March 31, 2007			December 31,2006
Raw materials	$	2,613		$	2,261
Finished goods		1,025			642
Installations in process		18,745			17,091
Total		22,383			19,994
Less: allowance for obsolete inventories		(230	)		(273	)
Inventories, net	$	22,153		$	19,721

6. PREPAYMENTS & DEPOSITS

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

	March 31, 2007		December 31,2006
Current Portion	$	8,511	$	3,533
Non current portion - Deposits paid for acquisition of properties		646		-
- Deposits paid for acquisition of subsidiaries		19,972		-
	$	20,618	$	-

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

7. ADVANCE PAYMENTS

The Company has made payments to unrelated suppliers in advance of receiving merchandise. The advance payments are meant to ensure preferential pricing and delivery. The amounts advanced under such arrangements totaled $2,814 and $2,889 as of March 31, 2007 and December 31, 2006, respectively.

8. PLANT AND EQUIPMENT

At March 31, 2007 and December 31, 2006, plant and equipment, at cost, consist of

	March 31, 2007			December 31, 2006
Buildings	$	7,649		$	7,450
Leasehold improvements		870			888
Plant and equipment		332			267
Electronic equipment		764			669
Motor vehicles		945			938
		10,560			10,212
Less: accumulated depreciation		(2,108	)		(1,873	)
Plant and equipment, net	$	8,452		$	8,339

-10-

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Expressed in thousands of U.S. dollars

(Except for share and per share amounts)

9. LAND USE RIGHTS

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

	March 31, 2007			December 31, 2006
Cost of land use rights	$	1,457		$	1,445
Less: Accumulated amortization		(304	)		(293	)
Land use rights, net	$	1,153		$	1,152

Amortization expense for the three months ended March 31, 2007 and 2006 was $8 and $7, respectively.

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

2007 (remaining 9 months)	$	22
2008		29
2009		29
2010		29
2011		29
2012		29
Thereafter		986
Total	$	1,153

-11-

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Expressed in thousands of U.S. dollars

(Except for share and per share amounts)

10. INTANGIBLE ASSETS

	March 31, 2007			December 31, 2006
Acquired customer base from the Four-Related Companies (life of 5 years)	$	5,899		$	5,840
Acquired contracts in progress from the Four-Related Companies (life of 2 months)		178			177
Acquired non-competition contracts from the Four-Related Companies (life of 5 years)		956			953
Acquired surveillance software and patents from Cheng Feng (life of 5 years)		3,449			3,159
Acquired surveillance recording system from Yuan Da (life of 5 years)		522			511
Less: accumulated amortization		(1,472	)		(643	)
Intangible assets, net	$	9,532		$	9,997

The Company acquired Cheng Feng and the security and surveillance businesses of Jian Golden An Ke Technology Co., Ltd., Shenzhen Golden Guangdian Technology Co., Ltd., Shenyang Golden Digital Technology Co., Ltd., and Jiangxi Golden Digital Technology Co., Ltd. (collectively referred to herein as the “the Four-Related Companies”) during 2006. The valuations and allocation of the intangible assets was determined by a third party appraisal firm. The Company's intangible assets from Shenzhen Yuan Da Wei Shi Technology Limited (“Yuan Da”) represent the value determined by an independent accounting firm for the intellectual property pertaining to a surveillance recording system developed by Yuan Da which was acquired by the Company on December 31, 2005.

The amortization expense for the three months ended March 31, 2007 and 2006 was $629 and $25, respectively.

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

2007 (remaining nine months)	$	1,551
2008		2,440
2009		2,983
2010		1,701
2011		692
Thereafter		165
Total	$	9,532

-12-

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Expressed in thousands of U.S. dollars

(Except for share and per share amounts)

11. NOTES PAYABLE

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

	March 31, 2007			December 31, 2006
Bank loans	$	5,948		$	4,282
Less: current portion		(5,948	)		(2,272	)
Long-term portion	$	—		$	2,010

	Long-term notes		Short-term notes		Total
2007 (remaining nine months)	$	—	$	776	$	776
2008		—		5,172		5,172
Total	$	—	$	5,948	$	5,948

On August 16, 2006, the Company entered into a loan agreement with Shanghai PuDong Development Bank, guaranteed by the CEO of the Company. The Company borrowed RMB 10,000 (approximately $1,293) with an annual interest rate of 5.94% payable at the end of each month. The loan was repaid in February 2007. The loan agreement required the Company to use the loan proceeds only for the Company's operations.

On February 16, 2007, the Company entered into a loan agreement with Shanghai PuDong Development Bank. The Company borrowed RMB 10,000 (approximately $1,293) with an annual interest rate of 6.39%. The loan is due in February 2008, and the interest is payable at the end of each month. The loan agreement requires the Company to use the loan proceeds only for the Company's operations. The bank has the right to increase the interest rate and demand repayment of the entire loan principal and unpaid interest if the Company uses the loan for any purpose other than operations. The loan is guaranteed by the directors and the CEO of the Company and by Shenzhen Chuangguan Intelligent Network Technology Co., Ltd.

On February 2, 2007, the Company entered into a loan agreement with Shanghai PuDong Development Bank. The Company borrowed RMB 30,000 (approximately $3,879) with an annual interest rate of 6.12%. The loan is due in February 2008, and the interest is payable at the end of each month. The loan agreement requires the Company to use the loan proceeds only for the Company's operations. The bank has the right to increase the interest rate and demand repayment of the entire loan principal and unpaid interest if the Company uses the loan for any purpose other than operations. The loan is guaranteed by the directors and the CEO of the Company and by Shenzhen Chuangguan Intelligent Network Technology Co., Ltd.

The Company did not have any long term loans from banks as of March 31, 2007, the Company’s long term loan outstanding as of December 31, 2006 was repaid on March 27, 2007.

On November 1, 2005, Cheng Feng entered into a loan agreement with Shanghai PuDong Development Bank in the amount of RMB 6,000 (approximately $776) with an annual interest rate of 5.76%. The loan is due on November 7, 2007, and the interest is payable at the end of each quarter. The loan agreement requires the Company to use the loan proceeds only for the Company's operations. The bank has the right to increase the interest rate and demand repayment of the entire loan principal and unpaid interest if the Company uses the loan for any purpose other than operations.

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CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Expressed in thousands of U.S. dollars

(Except for share and per share amounts)

11. NOTES PAYABLE  (CONTINUED)

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

12. CONVERTIBLE NOTES PAYABLE

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

Under the February Notes indenture, the February Notes are convertible, by the holders thereof, at any time on or prior to maturity, into common shares of the Company initially at the conversion price of $18 per share (subject to adjustment in certain circumstances, including semi-annual reset of the conversion price and upon occurrence of certain dilutive events, in each case subject to certain conditions). If the February Notes are not converted before maturity, the February Notes will be redeemed by the Company on the maturity date at a redemption price equal to 100% of the principal amount of the February Notes then outstanding plus an additional amount of 15.0% per annum, calculated on a quarterly compounded basis, plus any accrued and unpaid interest. In addition, if the 45-day variable weighted average price (“VWAP”) during the one year period from February 16, 2009 to February 15, 2010 equals or is greater than $30.00 per share of common stock, the Company shall, within 1 trading day, force holders of the February Notes to convert 50% of the then-outstanding principal amount of the February Notes at the then applicable conversion rate on a pro rata basis (the “2010 Mandatory Conversion”). If the 45-day VWAP during the one year period from February 16, 2010 to February 15, 2011 equals or is greater than $35.00 per share of common stock (the “2011 Mandatory Conversion Trigger”) and the 2010 Mandatory Conversion had occurred, the Company shall, within 1 trading day, force holders of the February Notes to convert all of the then-outstanding principal amount of the February Notes at the then applicable conversion price. If the 2011 Mandatory Conversion Trigger occurs and the 2010 Mandatory Conversion had not occurred, the Company shall, within 1 trading day, force holders of the February Notes to convert 50% of the then-outstanding principal amount of the February Notes at the then applicable conversion rate on a pro rata basis.

As of March 31, 2007, the Company has accreted $1,163 of the additional redemption amount related to the February Notes, which amount is included in interest expense.

The indenture, notes purchase agreement and investor rights agreement related to the February Notes contain various covenants that may limit the Company’s discretion in operating its business. In particular, the Company is limited in its ability to merge, consolidate or transfer substantially all of its assets, issue stock of subsidiaries, incur additional debt and create liens on assets to secure debt. In addition, if there is a default, or if the Company does not maintain certain financial covenants or does not maintain borrowing availability in excess of certain pre-determined levels, the February Notes may be accelerated with the balance becoming due and payable immediately and the Company may be unable to incur additional indebtedness, make restricted payments (including paying cash dividends on capital stock) or redeem or repurchase capital stock.  As of March 31, 2007, the Company has complied with all the required note covenants.

13. DEFERRED INCOME

Deferred income balances as of March 31, 2007 and December 31, 2006 were $766 and $831 respectively, and represented amounts invoiced but deferred as revenue as an estimated warranty reserve.

14. DUE TO A DIRECTOR

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

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CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Expressed in thousands of U.S. dollars

(Except for share and per share amounts)

15. ISSUANCE OF COMMON STOCK AND WARRANTS

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

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

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

Net proceeds to the Company from the sale of all of the units pursuant to the Securities Purchase Agreement was approximately $14,900. 106,285 and 248,000 warrants were exercised at $4.80 per share in February and March 2007, respectively.

In conjunction with execution of the Securities Purchase Agreement, the Company also executed a Registration Rights Agreement under which it is obligated to file registration statements on Form S-4 and Form S-1, or other available form, to register the shares and the shares underlying the warrants for resale, within 45 days and 55 days after the closing date, respectively. The Company was obligated to use its best efforts to cause the registration statement to be declared effective within 180 days of the closing date, and was liable for payment of penalties to the purchasers in the event the registration statement has not declared effective within the 180-day period.

The Company also issued warrants to purchase 324,421 shares of its common stock with an exercise price of $4.20 to two private placement agents as commission for their services in connection with the private placement. In March 2007, 227,095 of such warrants were exercised using the cashless exercise feature.

A summary of the status of the Company's warrants issued in 2006 as described above, and the changes during the three months ended March 31, 2007 and 2006, is presented below:

	2007						2006
				Weighted Average Exercise					Weighted Average Exercise
	Shares			Prices			Shares		Prices
Outstanding at beginning of period		1,417,292		$	4.40			100,000	$	1.85
Granted		-			-			-		-
Exercised		(581,380	)		(4.57	)		-		-
Outstanding at end of period		835,912		$	4.28			100,000	$	1.85
Warrants exercisable at end of period		835,912			4.28			100,000		1.85

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CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Expressed in thousands of U.S. dollars

(Except for share and per share amounts)

15. ISSUANCE OF COMMON STOCK AND WARRANTS (CONTINUED)

The Company agreed to pay RMB 120,000 (approximately $15,000) in exchange for 100% ownership of Cheng Feng, consisting of RMB 60,000 (approximately $7,500) in cash and RMB 60,000 in the Company's restricted stock. RMB 2,000 (approximately $250) of the purchase price was paid as a deposit on May 18, 2006. An additional RMB 8,000 (approximately $1,000) was paid in August 2006. The balance of the cash portion of the purchase price, RMB 50,000 (approximately $6,250), was paid in December 2006. The number of shares issuable in satisfaction of the equity portion of the purchase price was 1,361,748 shares, which were issued in March 2007.

16. EQUITY INCENTIVE PLAN

On February 7, 2007, the Company adopted the 2007 Equity Incentive Plan, which has a five-year term and provides for grants of stock options, stock appreciation rights, performance units, restricted stock units and performance shares. The total number of shares which may be issued under the plan are 8,000,000 shares of common stock. On February 27, 2007, the Company granted an aggregate of 1,052,100 shares of restricted stock. The shares issued vest over a four-year period, and at issue resulted in total deferred compensation of $12,699. The fair values of these restricted stock awards are equal to the fair value of the Company’s stock on the date of grant. Such restricted stock is subject to the risk of forfeiture upon the occurrence of certain events. During the three months ended March 31, 2007, the Company recognized $265 of compensation expense under the plan. As of March 31, 2007, there was $12,434 of unrecognized compensation expense related to the nonvested restricted stock. This cost is expected to be recognized over a four-year period.

The following table summarizes the status of the Company’s nonvested restricted stock awards during the three months ended March 31, 2007: 

	Nonvested Restricted Stock and Stock Unit Awards
	Number of Shares			Weighted Average Grant Date Fair Values
Outstanding at beginning of period		-		$	-
Granted		1,052,100			14.20
Vested		(21,919	)		-
Forfeited		-			-
Outstanding at end of period		1,030,181		$	14.20

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CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Expressed in thousands of U.S. dollars

(Except for share and per share amounts)

17. SUBSEQUENT EVENTS

Purchase of Shenzhen Hong Tian Zhi Electronics Co., Ltd.

On April 2, 2007, the Company entered into a Stock Transfer Agreement relating to the acquisition of 100 percent of the equity of Chain Star investments Limited which is the holding company of Shenzhen Hong Tian Zhi Electronics Co., Ltd. (“Hongtianzhi”). The results of operations of Hongtianzhi will be included in the Company’s consolidated financial statements beginning on April 2, 2007.

The Company agreed to pay RMB 250,000 (approximately $32,000) in exchange for 100% ownership of Hongtianzhi, consisting of RMB 125,000 (approximately $16,000) in cash and RMB 125,000 (approximately $16,000) in the Company's restricted stock. The number of shares issuable in satisfaction of the equity portion of the purchase price is 2,800,711, which will be issued in the second quarter of 2007.

Notes Purchase Agreement

In April 2007, the Company entered into a Notes Purchase Agreement with Citadel pursuant to which the Company issued to Citadel $50,000 aggregate principal amount of guaranteed senior unsecured convertible notes due 2012 (the “April Notes”). The April Notes bear interest at 1% per annum and carry an initial conversion price of $23.60 per share. All the net proceeds will be used for the Company's working capital and acquisition plan. If the April Notes are not converted before maturity, the April Notes are to be redeemed by the Company on the maturity date at a redemption price equal to 100% of the principal amount of the April Notes then outstanding plus an additional amount of 15.0% per annum, calculated on a quarterly compounded basis, plus any accrued and unpaid interests.

Purchase of HiEasy Electronic Technology Development Co., Ltd.

On May 11, 2007, the Company entered into a Stock Transfer Agreement relating to the acquisition of 100 percent of the equity of Link Billion Investment Limited which is the holding company of HiEasy Electronic Technology Development Co., Ltd. (“HiEasy”). The results of operations of HiEasy will be included in the Company’s consolidated financial statements beginning on May 11, 2007.

The Company agreed to pay RMB 40,000 (approximately $5,172) and 811,804 shares of common stock in exchange for 100% ownership of Link Billion Investment Limited. All cash consideration of RMB40,000 will be paid in second quarter of 2007. The number of shares issuable in satisfaction of the equity portion of the purchase price is 811,804, which will be issued in the second quarter of 2007.

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

Special Note Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q, including the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such statements include, among others, those concerning our expected financial performance and strategic and operational plans, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and that a number of risks and uncertainties could cause actual results of the Company to differ materially from those anticipated, expressed or implied in the forward-looking statements. The words “believe,” “expect,” “anticipate,” “project,” “targets,” “optimistic,” “intend,” “aim,” “will” or similar expressions are intended to identify forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. Risks and uncertainties that could cause actual results to differ materially from those anticipated include risks related to new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; uncertainties related to conducting business in China; any statements of belief or intention; any of the factors mentioned in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2006, and other risks mentioned in this Form 10-Q. The Company assumes no obligation and does not intend to update any forward-looking statements, except as required by law.

Use of terms

Except as otherwise indicated by the context, references in this Form 10-Q to “CSST,” “we,” “us,” “our,” “our Company,” or “the Company” are to China Security & Surveillance Technology, Inc., a Delaware corporation and its consolidated subsidiaries. Unless the context otherwise requires, all references to (i) “Safetech” are to China Safetech Holdings Limited, a British Virgin Islands corporation; (ii) “CSST HK” are to China Security & Surveillance Technology (HK) Ltd., a Hong Kong corporation; (iii) “CSST China” are to China Security & Surveillance Technology (PRC) Ltd., a corporation incorporated in the People’s Republic of China; (iv)”Golden” are to Golden Group Corporation (Shenzhen) Limited, a corporation incorporated in the People’s Republic of China; (v) “Cheng Feng” are to Shanghai Cheng Feng Digital Technology Co. Ltd.; (vi) “Hongtianzhi” are to Shenzhen Hongtianzhi Electronics Co., Ltd.; (vii) “BVI” are to British Virgin Islands; (viii) “PRC” and “China” are to the People’s Republic of China; (ix) “U.S. dollar,” “$” and “US$” are to United States dollars; (x) “RMB” are to Yuan Renminbi of China; (xi) “Securities Act” are to the Securities Act of 1933, as amended; and (xii) “Exchange Act” are to the Securities Exchange Act of 1934, as amended.

Overview

During the first quarter of 2007, we experienced solid growth in sales. Sales revenue increased from $14.6 million for the first quarter of 2006 to $38.5 million for the first quarter of 2007, representing a 163.5% increase. The cost of sales was $28.3 million. As a result, gross margin (the ratio of gross profit to revenue, expressed as a percentage) for the first quarter of 2007 was 26.3%.

The following are some highlights for the first quarter of 2007:

· Achieved revenues of $38.5 million for the first quarter of 2007, up 163.5% from the same quarter of last year.

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· Gross margin was 26.3% for the first quarter of 2007, compared to 30.1% for the same period in 2006. Such decrease was mainly due to the increased competition and the Company’s strategy to lower its selling price to attract more customers and penetrate into new markets.

· Income from operations was $6.5 million for the first quarter of 2007, up from $3.9 million of the same period last year, representing an increase of 66.5%.

· Fully diluted income from operations per share was $0.19 for the first quarter of 2007.

· Operating margin (the ratio of income from operations to revenues, expressed as a percentage) was 16.8% for the first quarter of 2007, compared to 26.6% during the same period in 2006.

· Net income was $4.5 million for the first quarter of 2007, up 29.5% from the same period of last year.

· Net margin (the ratio of net income to revenues, expressed as a percentage) was 11.7% for the first quarter of 2007, compared to 24.0% for the same period in 2006.

· Fully diluted net income per share was $0.13 for the first quarter of 2007.

· Non-cash items included (i) the redemption accretion on convertible notes of $1.16 million, (ii) depreciation and amortization of $0.8 million, and (iii) non-cash employee compensation expense of $0.27 million for the first quarter of 2007. Total non-cash items are $2.23 million, an increase of $2.13 million, or 2090.2%, from $0.1 million for the same quarter of last year.

The following table summarizes the Company’s non-cash components during the three months ended March 31, 2007 and 2006:

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

	Three Months Ended March 31,
Non-cash items	2007		2006		Increase (Decrease)
Depreciation and amortization	$	806	$	102		704
Non-cash employee compensation		265		-		265
Redemption accretion on convertible notes		1,163		-		1,163
Total		2,234		102		2,132
Non-cash items per share - basic
Depreciation and amortization	$	0.0243	$	0.0047		0.0196
Non-cash employee compensation		0.0080		-		0.0080
Redemption accretion on convertible notes		0.0351		-		0.0351
Total non-cash items per share - basic	$	0.0674	$	0.0047		0.0627
Non-cash items per share - diluted
Depreciation and amortization	$	0.0235	$	0.0047		0.0188
Non-cash employee compensation		0.0077		-		0.0077
Redemption accretion on convertible notes		0.0339		-		0.0339
Total non-cash items per share - diluted	$	0.0651	$	0.0047		0.0604
Weighted average number of shares outstanding
Basic		33,108,640		21,591,333
Diluted		34,268,180		21,642,536

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Our Business

We manufacture, distribute, install and service security and surveillance products and systems and develop security and surveillance related software in China. Our customers mainly comprise (i) governmental entities (including customs agencies, courts, public security bureaus and prisons), (ii) non-profit orgnizations (including schools, museums, sports arenas and libraries) and (iii) commercial entities (including airports, hotels, real estate, banks, mines, railways, supermarkets and entertainment venues). These account for approximately 40%, 10% and 50% of revenues, respectively.

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

Our subsidiary Golden has 37 branch offices in provincial cities, Cheng Feng has 22 distribution points and Hongtianzhi has 53 distribution points throughout China as our customers are located across the country without any particular concentration in any region.

Recent Developments

On April 2, 2007, our Company and our subsidiary Safetech entered into an Equity Transfer Agreement with Zheng Huang, the sole owner of Chain Star Investments Limited (“Chain Star”), pursuant to which Safetech purchased 100% ownership of Chain Star from Mr. Huang. Chain Star, a Hong Kong company, is a holding company owning 100% of the equity interests in Hongtianzhi, a PRC company engaged in the business of manufacturing digital cameras. Pursuant to the terms of the Equity Transfer Agreement, we agreed to pay a total consideration of RMB 250 million (approximately $32 million) in exchange for 100% ownership of Chain Star, consisting of RMB 125 million (approximately USD$16 million) in cash and RMB 125 million (approximately $16 million) in shares of the Company’s common stock. Please see our Current Report on Form 8-K filed on April 2, 2007, for more details.

On April 24, 2007, we entered into a Notes Purchase Agreement with Citadel Equity Fund Ltd. (“Citadel), pursuant to which we issued to Citadel $50 million principal amount of guaranteed senior unsecured convertible notes due 2012. The notes bear an annual interest rate of 1% which will be paid semi-annual and carry an initial conversion price of $23.60 per share. If the notes are not converted before their maturity, the notes will be redeemed by the Company on the maturity date at a redemption price equal to 100% of the principal amount of the notes then outstanding plus an additional amount of 15.0% per annum, calculated on a quarterly compounded basis, plus any accrued and unpaid interest. The net proceeds of the sale of the notes will be used for our working capital and acquisition plan. Please see our Current Report on Form 8-K filed on April 25, 2007 for more details.

On May 11, 2007, our Company and Safetech entered into an Equity Transfer Agreement with Yi Li, the sole owner of Link Billion Investment Limited (“Link Billion”), pursuant to which Safetech purchased 100% ownership of Link Billion from Mr. Li. Link Billion, a Hong Kong company, is a holding company owning 100% of the equity interests in HiEasy Electronic Technology Development Co., Ltd. (“HiEasy”), a PRC company engaged in the business of software development and assembly of DVR systems. Pursuant to the terms of the Equity Transfer Agreement, we will pay total consideration of RMB 40 million (approximately $5.17 million) and 811,804 shares of our common stock in exchange for 100% ownership of Link Billion. The cash consideration of RMB 40 million was due upon execution of the Equity Transfer Agreement. The Company shall issue all 811,804 shares of the Company’s common stock within 90 days after the date of the Equity Transfer Agreement.

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Material Opportunities and Challenges

Regulations promulgated by governmental agencies in China relating to security and surveillance industry often create opportunities for us. Currently, there are a number of formal and planned regulatory drivers which the Company believes offer significant growth opportunities. These include the estimated $6 billion to $12 billion that the Chinese government expects to spend for security infrastructure in preparation for the 2008 Olympics, along with the planned investment by Shanghai for the 2010 Worlds Fair. In addition, several ordinances have been passed by the Chinese government which require security surveillance systems to be installed in: (1) 660 cities throughout China for street surveillance as part of the Safe City Project “Plan 3111”; (2) all entertainment locations starting from March 1, 2006; (3) all Justice Departments and Courts; and (4) all coal mines in China (currently estimated at 24,000) from the beginning of 2008.

We are actively pursuing near-term acquisition prospects and other strategic opportunities. In the past twelve months, we successfully acquired Cheng Feng and Hongtianzhi and the security and surveillance business of Jian Golden An Ke Technology Co. Ltd., Shenzhen Golden Guangdian Technology Co. Ltd., Shenyang Golden Digital Technology Co. Ltd., and Jiangxi Golden Digital Technology Co. Ltd. (referred to herein as the “Four-Related Companies”). In May 2007, we acquired HiEasy. We also expect to close the acquisitions of Changzhou Minking Electronics Inc. Ltd., Hangzhou Tsingvision Intelligence System Co. Ltd., and Shenzhen Wandaiheng Industry Ltd. in 2007 and establish an exclusive cooperation relationship with Shenzhen Chuang Guan Intelligence Network Technology Co., Ltd. (“Chuang Guan”) in the second quarter of 2007 under which, among other things, Chuang Guan will subcontract or assign certain of its businesses to us to the extent permitted by applicable PRC laws and regulations.

We have a government policy monitoring group within the Company that regularly monitors changes in governmental regulations affecting the security and surveillance industry in China. If we determine that a new regulation or a change to an existing regulation presents an opportunity for us, we will actively pursue such opportunity. As a result, we act promptly on policy changes and are able to turn them into business opportunities.

We also face the long-term challenge of maintaining our rapid growth. In addition to maintaining the growth of our existing businesses, we will employ an acquisition strategy. In addition, to promote the continued growth of the group, we plan to explore others areas related to the security and surveillance industry (including, but not limited to, the fire and alarm sectors, access control, and related security and surveillance services) and recurring revenue business models within our existing business sectors.

Results Of Operations

Three Months Ended March 31, 2007 Compared to Three Months Ended March 31, 2006

The following table summarizes the results of our operations during the three-month periods ended March 31, 2007 and 2006, and provides information regarding the dollar and percentage increase or (decrease) from the three-month period ended March 31, 2007 to the three-month period ended March 31, 2006.

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

	3 Months Ended March 31,
Item	2007			2006		Increase (Decrease)			% Increase (% Decrease)
Revenue	$	38.45		$	14.59	$	23.86			163.5	%
Cost of Goods Sold		28.33			10.20		18.13			177.7	%
Gross Profit		10.12			4.39		5.73			130.5	%
Operating Expenses		3.66			0.51		3.15			617.6	%
Other Income (expense)		(0.61	)		0.24		(0.85	)		(354.2	)%
Provision for Taxes		1.32			0.62		0.70			112.9	%
Net income		4.53			3.50		1.03			29.4	%

Revenue. During the first quarter of 2007, we experienced solid growth in sales. Sales revenue increased from $14.6 million for the first quarter of 2006 to $38.5 million for the first quarter of 2007, representing a 163.5% increase. This included revenue generated from Cheng Feng of $2.3 million for the first quarter of 2007. The increase in revenue was mainly due to the following factors: First, demand for security and surveillance products has grown in China, which we attribute in part to the population in China in general becoming relatively wealthier; as well as increased demand within various industries and organizations, such as residential estates, factories and shopping centers. Second, the Chinese government initiated several programs and regulatory drivers during the past year, such as State Ordinance 458 and the “3111” program, that require many public places, including city-wide surveillance systems, traffic surveillance systems, critical government locations, cyber cafés, bars and discotheques, to install security systems. Third, our strategic efforts to increase our distribution channels during 2005 and 2006 allowed us to successfully take advantage of the growth in market demand in the first quarter of 2007. Fourth, we have been successful in raising sufficient working capital to facilitate expansion in the China market. Finally, our increased brand recognition in 2007 also contributed to the growth in sales revenue. Management expects growth to remain strong due to (i) continued growth in the security and surveillance market both within the corporate and government sectors, (ii) better capitalization of the Company to fuel its growth, (iii) continuing to enhance our branding and profiling in China, and (iv) acquisition strategy intended to boost our market share and competitiveness.

Revenue growth in the first quarter of 2006 was not as significant as that of the second and third quarters of 2006 because of the Chinese New Year holiday. The first quarter has traditionally been a slow quarter for us and the third quarter has traditionally been the strongest quarter in terms of sales. Management expects growth in the remainder of 2007 to remain strong.

During the first quarter of 2007, we signed 39 new contracts with a total contract value of approximately $33.6 million, of which we recognized $11.7 million in revenues. Of the 39 projects, 16 were finished as of March 31, 2007, and, accordingly, approximately $0.8 million of revenue related to warranty requirements was deferred to the second quarter of 2007. The remaining 23 projects had not been started as of March 31, 2007, and the value of these backlog projects was approximately $21.9 million. During the first quarter of 2007, the Company also completed implementation of 31 contracts signed in 2006 (representing all of the contracts that had been signed, but not yet implemented, during 2006), and recognized the revenue of $22.4 million deferred from 2006 related to those contracts. The following table shows the revenue recognized in the first quarter of 2007:

(In millions of U.S. dollars)

Revenue recognized from contracts signed before 2007	$	22.4
Revenue recognized from contracts signed in the first quarter 2007	$	11.7
Other revenue from first quarter 2007	$	2.1
Revenue recognized from Cheng Feng	$	2.3
Total revenue recognized in the first quarter 2007	$	38.5
Revenue deferred	$	0.8
Backlog of contracts signed in the first quarter of 2007	$	21.9

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Components of Revenue. The following table shows the different components comprising our total revenue over the three months ended March 31, 2007 and 2006.

 All amounts in millions of U.S. dollars

	Three months ended March 31,
	2007		2006
Security systems and installation	$	34.03	$	13.0
Sales of parts		4.42		1.5
	$	38.45	$	14.5

Income from installation projects contributed 88.5% of total revenue for the three months ended March 31, 2007, as compared to 89.7% for the same period last year. Management believes that revenues from the installation projects will continue to be the Company’s major revenue source in the next a few years. With the acquisitions of Cheng Feng and Hongtianzhi and other planned acquisitions, management believes that the percentage of revenue from the sale of products will increase in the future.

Cost of goods sold. Cost of goods sold for the first quarter of 2007 totaled $28.3 million, compared to $10.2 million of the same period in 2006, an increase of 177.7%. Components of costs of goods sold in the first quarters of 2007 and 2006 are as follows:

 All amounts in millions of U.S. dollars

	Three months ended March 31,
	2007			2006
Purchases (of raw material)	$	28.0		$	10.0
Percentage		98.8	%		98.0	%
Salary	$	0.3		$	0.2
Percentage		1.2	%		2.0	%
		100	%		100	%

Labor and security system purchase cost represented 1.2% and 98.8% of the total cost of goods sold for the first quarter of 2007, respectively, as compared to 2.0% and 98% for the same period in 2006.

Net margin. Net margin for the first three months of 2007 was 11.7%, as compared to 24.0% for the same period of 2006. The decrease of the net margin was mainly due to the combination of a decrease in sales price in the first quarter of 2007 and the increase in expenses related to the costs of being a public reporting company. The lower net margin of Cheng Feng’s business also contributed to the decrease of gross margin for the first quarter of 2007. Cheng Feng, as a separate business entity, reported a net income of approximately $0.1 million with a revenue of approximately $2.3 million. Cheng Feng’s net margin was approximately 4.3%. Cheng Feng generates almost all revenues from manufacturing security and surveillance equipments which generally has a lower margin than installation service revenue.

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General and administrative expenses. General and administrative expenses for the first quarter of 2007 increased by 666.7% to $2.3 million from $0.3 million of the same period in 2006, primarily due to compensation expense of the restricted common stock issued to employees, the hiring of additional staff, and professional expenses related to the costs of being a public reporting company.

Total selling expenses. Total selling expenses for the first quarter of 2007 were $0.6 million, a 394.3% increase from $0.1 million for the same period in 2006. The increase was mainly due to the hiring of sales staff.

Income Taxes. In accordance with the relevant tax laws and regulations of the People’s Republic of China for the Shenzhen Special Economic Zone, our Chinese subsidiary Golden is subject to the Chinese enterprise income tax (“EIT”) rate of 15% for the fiscal years 2006, 2005, and 2004. Cheng Feng is subject to an EIT rate of 7.5% due to its software and high technology company status. We anticipate that our effective tax rate will change from the current 15% in the first quarter of 2007 because the companies we acquired and intend to acquire are located in different cities and may have different tax rates.

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

Income taxes paid increased $0.70 million to $1.32 million for the three months ended March 31, 2007 from $0.62 million for the same period of 2006. We paid more taxes during the first three months of 2007 mostly because of increased income before income taxes during that period.

Net income. Net income for the first quarter of 2007 was $4.5 million, representing a 29.5% increase from the same period in 2006. The increase was mainly due to the increase in sales. During the first three months of 2007, we reported sales revenue of $38.5 million, with a back-log of approximately $21.9 million. Gross margin for the first quarter of 2007 was 26.3%, a decrease from 30.1% for the same quarter of 2006. While the first quarter of 2006 was an exceptional quarter in terms of gross margin, the gross margin for the first quarter of 2007 was also within the range of the average gross margin recorded by the Company. The decrease in gross margin in the first quarter was mainly due to a decrease in sales prices. As noted above, we decreased our selling prices as a strategic move to increase our market penetration into new markets. In the first quarter of 2007, about half of the projects we signed were in the western part of China where economic development is not as advanced as the coastal cities. We reduced the prices to gain market penetration in these cities.

Income from operations per share. The basic income from operations per share for the first quarter of 2007 was $0.20, as compared to $0.18 for the same quarter of 2006. The diluted income from operations per share for the first quarter of 2007 was $0.19, as compared to $0.18 for the same period of 2006.

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Liquidity and Capital Resources

General

As of March 31, 2007 and December 31, 2006, we had cash and cash equivalents of $71.9 million and $31.0 million, respectively. The following table provides detailed information about our net cash flow for the three months ended March 31, 2007 and 2006.

Cash Flow

 All amounts in thousands of U.S. dollars

	Three months ended March 31,
	2007			2006
Net cash (used in) provided by operating activities	$	(1,575	)	$	7,264
Net cash (used in) provided by investing activities		(20,899	)		(1	)
Net cash provided by (used in) financing activities		63,330			71
Net increase in cash and cash equivalents	$	40,856		$	7,334

Operating Activities:

Net cash used in operating activities was $1.58 millionfor the three months ended March 31, 2007, which is a decrease of $8.84 million from the $7.26 million of the net cash provided by operating activities for the same period in 2006. The decrease was mainly due to an increase in inventories, prepayment and deposits and trade receivables.

Investing Activities:

Our main uses of cash for investing activities during the first quarter of 2007 were deposits for the acquisition of subsidiaries and businesses and for property, plant and equipment.

Net cash used in investing activities in the three months ended March 31, 2007 was $20.90 million, which is an increase of $20.90 millionfrom net cash used in investing activities of $0.001 millionin the same period of 2006 due to increased acquisition of property, plant, equipment and businesses in 2007.

We have signed letters of intent to acquire Changzhou Minking Electronics Inc, Ltd. (“Minking”), Hangzhou Tsingvision Intelligence System Co., Ltd. (“Tsing”) and Shenzhen Wandaiheng Industry Ltd. (“Wandai”). Pursuant to the letters of intent, the cash consideration for these three intended acquisitions is expected to total $32.3 million with additional consideration to be paid in equity. The number of our shares to be included in the equity portion of the purchase price for the Minking and Tsing acquisitions will be subject to the achievement of certain net income performance targets over a two-year period. We expect to finance the cash portion of the purchase price with the net proceeds from our $60 million convertible notes financing that closed in February 2007. The Minking and Tsing acquisitions are expected to be accretive to earnings upon closing and are expected to provide support to the Company’s city-wide projects. Wandai owns an 80,000 square meter Industrial Park in Shenzhen. We expect that we will consolidate all existing and potentially acquired entities into a single location in Shenzhen in order to benefit from greater economies of scale. All three acquisitions are expected to close in the second quarter of 2007. Consummation of each acquisition is subject to customary closing conditions, including execution of definitive documentation and receipt of governmental approval.

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Financing Activities:

Net cash provided by financing activities in the three months ended March 31, 2007 totaled $63.33 millionas compared to $0.07 millionprovided by financing activities in the same period of 2006. The increase of cash provided by financing activities was mainly attributable to the issuance of common shares in connection with several financing transactions closed in the first quarter of 2007.

Loan Facilities

As of March 31, 2007, the amounts and maturity dates for our bank loans were as follows.

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

Banks	At March 31, 2007		Beginning Date		Ending Date		Duration
Shanghai PuDong Development Bank		-		August 2006		February 2007		6 months
China Construction Bank		-		September 2006		September 2016		10 years
Shanghai PuDong Development Bank	$	3.88		February 2007		February 2008		1 year
Shanghai PuDong Development Bank	$	1.29		February 2007		February 2008		1 year
Shanghai PuDong Development Bank	$	0.78		November 2005		November 2007		2 years
Total	$	5.95

As of December 31, 2006, our total long-term liabilities were approximately $2.22 million, consisting of a 10-year loan from China Construction Bank (“CCB”) for the purpose of purchasing new office premises in Shenzhen. We received the loan on September 27, 2006. We repaid this loan on March 27, 2007.

On August 16, 2006, we entered into a loan agreement with Shanghai PuDong Development Bank pursuant to which we borrowed RMB 10 million (approximately $1.28 million) with an annual interest rate of 5.94%. The loan was repaid on February 16, 2007.

On October 3, 2006, we signed a banking facility agreement with CCB under which CCB agreed to provide a new receivable-based facility to support our efforts in securing new contracts relating to the Safe City Project initiative, also known as “Plan 3111.” This facility will provide three possible financing options: (1) the government takes a loan from CCB to finance the project; (2) we sell the accounts receivable to CCB, 85% of the total account receivables value will be paid by CCB to the Company and the remaining 15% will be collected by CCB from the government; from the 15% collected from the government, CCB will retain certain finance charges and pay the remainder over to Company; or (3) we take a loan from CCB to finance the project As part of this agreement, we will make periodic deposits with CCB, which, depending upon the specific project, will provide a maximum factoring capacity of five to ten times the amount deposited. None of the facility has been drawn down as of the date of this Report.

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In February 2007, we entered into two short-term loan agreements with Shanghai PuDong Development Bank pursuant to which we borrowed RMB10 million (approximately $1.29 million) at an annual interest rate of 6.15%, and RMB30 million (approximately $3.88 million) with an annual interest rate of 6.39%, respectively. The loans are due in February 2008.

On February 20, 2007, we completed a financing with Citadel pursuant to which we issued to Citadel $60 million aggregate principal amount of guaranteed senior unsecured convertible notes due 2012 (the “February Convertible Notes”). This financing replaced an existing bridge financing closed on February 8, 2007 in which we issued to Citadel $60 million aggregate principal amount of senior notes. The February Convertible Notes bear an annual interest rate of 1% and carry an initial conversion price of $18 per share. If the February Convertible Notes are not converted before their maturity, they will be redeemed by us on the maturity date at a redemption price equal to 100% of the principal amount of the February Convertible Notes then outstanding plus an additional amount of 15.0% per annum, calculated on a quarterly compounded basis, plus any accrued and unpaid interest. The net proceeds of approximately $60 million are and will be used for working capital and our acquisition plan.

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

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

Obligations Under Material Contracts

Below is a table setting forth our material contractual obligations as of March 31, 2007:

All amounts in thousands of U.S. dollars

	Payments due by period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Long-Term Debt Obligations	$	60,000	$	-	$	-	$	60,000	$	-
Operating Lease Obligations		497		239		216		42		-
Total	$	60,497	$	239	$	216	$	60,042	$	-

Critical Accounting Policies

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is based on our condensed consolidated financial statements, which have been prepared using accounting principles generally accepted in the United States of America. The preparation of financial statements, in conformity with accounting principles generally accepted in the United States, requires our management to make assumptions, estimates and judgments that affect the amounts reported in the financial statements, including the notes thereto, and related disclosures of commitments and contingencies, if any. We consider our critical accounting policies to be those that require the more significant judgments and estimates in the preparation of financial statements, including basis of consolidation, intangible assets, goodwill, inventories, revenue recognition, foreign currency translation, use of estimates and income taxes. Except for the implementation of Financial Accounting Standards Board (“FASB”) Interpretation No. 48 (“FIN 48”), as described below, management believes there have been no material changes during the three months ended March 31, 2007 to the critical accounting policies discussed in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K for the year ended December 31, 2006, as filed with the Securities and Exchange Commission (the “SEC”) on March 21, 2007.

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

We file income tax returns in the U.S. federal jurisdiction and PRC jurisdictions. We were not subject to U.S. federal tax examinations for years before 2006. We do not believe there will be any material changes in our unrecognized tax positions over the next 12 months.

Our policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of the date of adoption of FIN 48, we did not have any accrued interest or penalties associated with any unrecognized tax benefits, nor were any interest expenses recognized during the quarter. Our effective tax rate differs from the federal statutory rate primarily due to non-deductible expenses, temporary differences, and preferential tax treatment.

Seasonality

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

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Interest Rate Risk

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

Foreign Exchange Risk

While our reporting currency is the U.S. dollar, all of our consolidated revenues and consolidated costs and expenses are denominated in RMB. All of our assets are denominated in RMB except for cash. As a result, we are exposed to foreign exchange risk as our revenues and results of operations may be affected by fluctuations in the exchange rate between U.S. Dollars and RMB. If the RMB depreciates against the U.S. Dollar, the value of our RMB revenues, earnings and assets as expressed in our U.S. dollar financial statements will decline. We have not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk.

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Inflation

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

ITEM 4T. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. We maintain a system of disclosure controls and procedures. The term “disclosure controls and procedures,” as defined by regulations of the SEC, means controls and other procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit to the SEC under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit to the SEC under the Exchange Act is accumulated and communicated to the our management, including our principal executive officer and our principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions to be made regarding required disclosure. Each of Guoshen Tu, our President and Chief Executive Officer, and Terence Yap, our Chief Financial Officer, have evaluated the design and operating effectiveness of our disclosure controls and procedures as of March 31, 2007. Based upon their evaluation, these executive officers have concluded that our disclosure controls and procedures are effective as of March 31, 2007.

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

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

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

Changes in Internal Control Over Financial Reporting. There has been no change to our internal control over financial reporting during the quarter ended March 31, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

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

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

On February 16, 2007, we entered into a Notes Purchase Agreement with Citadel pursuant to which the Company issued and sold to Citadel $60 million Guaranteed Senior Unsecured Convertible Notes due 2012. The notes carry an initial conversion price of $18 per share. If the notes are not converted before its maturity, the notes will be redeemed by the Company on the maturity date at a redemption price equal to 100% of the principal amount of the notes then outstanding plus an additional amount of 15.0% per annum, calculated on a quarterly compounded basis, plus any accrued and unpaid interest. The offer and sale of the notes were made in an offshore transaction pursuant to Regulation S under the Securities Act.

In February 2007, we issued 1,361,748 shares of common stock in satisfaction of the equity portion of the purchase price of approximately $7.5 million in the acquisition of Cheng Feng. The offer and sale of the notes were made in an offshore transaction pursuant to Regulation S under the Securities Act.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

There were no defaults upon senior securities in the quarter ended March 31, 2007.

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

No matters were submitted to a vote of security holders in the quarter ended March 31, 2007.

ITEM 5.OTHER INFORMATION

N/A

ITEM 6. EXHIBITS

Exhibit Number	Description
3.1	Certificate of Incorporation of the registrant (incorporated by reference to Exhibit 3.1 to the registrant’s Registration Statement on Form S-4 filed with the Securities and Exchange Commission on October 4, 2006).

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3.2	By-laws of the registrant (incorporated by reference to Exhibit 3.2 to the registrant’s Registration Statement on Form S-4 filed with the Securities and Exchange Commission on October 4, 2006).
4.1	Notes Purchase Agreement, dated February 5, 2007, by and between the registrant and Citadel Equity Fund Ltd. (incorporated by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 9, 2007).
4.2	Share Pledge Agreement, dated February 8, 2007, by and among Citadel Equity Fund Ltd., The Bank of New York, Guoshen Tu, Zhiqun Li and Whitehorse Technology Limited (incorporated by reference to Exhibit 4.2 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 9, 2007).
4.3	Form of the Notes (incorporated by reference to Exhibit 4.3 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 9, 2007).
4.4	Notes Purchase Agreement, dated February 16, 2007, by and among the registrant, Safetech, CSST HK, CSST PRC, Golden, Cheng Feng and Citadel Equity Fund Ltd. (incorporated by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 16, 2007).
4.5	Indenture, dated February 16, 2007, among the registrant, Safetech, CSST HK and The Bank of New York (incorporated by reference to Exhibit 4.2 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 16, 2007).
4.6	Investor Rights Agreement, dated February 16, 2007, among the registrant, Safetech, CSST HK, CSST PRC, Golden, Cheng Feng, Guoshen Tu, Zhiqun Li, Whitehorse Technology Limited and Citadel Equity Fund Ltd. (incorporated by reference to Exhibit 4.3 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 16, 2007).
4.7	Supplemental Indenture, dated March 29, 2007, among the Company, Safetech, CSST-HK and The Bank of New York. (incorporated by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission April 2, 2007).
4.8	Amendment to the Investor Rights Agreement, dated March 29, 2007, among the Company, Safetech, CSST-HK, CSST-PRC, Golden, Cheng Feng, Mr. Tu, Ms. Li, Whitehorse and Citadel. (incorporated by reference to Exhibit 4.2 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission April 2, 2007).
10.1	China Security & Surveillance Technology, Inc. 2007 Equity Incentive Plan (incorporated by reference to Exhibit 99.1 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 13, 2007).

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10.2	Equity Purchase Agreement, dated April 2, 2007, by and among the registrant, China Safetech Holdings Limited, Chain Star Investments Limited and Zheng Huang.*
31.1	Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2	Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1	Certification of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2	Certification of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

* Filed herewith.

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SIGNATURES

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

DATED: May 15, 2007

China Security & Surveillance Technology, Inc.
By:	/s/ Guoshen Tu
	Guoshen Tu
	Principle Executive Officer

By:	/s/ Terence Yap
	Terence Yap
	Principle Financial Officer

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EXHIBIT INDEX

Exhibit Number	Description
3.1	Certificate of Incorporation of the registrant (incorporated by reference to Exhibit 3.1 to the registrant’s Registration Statement on Form S-4 filed with the Securities and Exchange Commission on October 4, 2006).
3.2	By-laws of the registrant (incorporated by reference to Exhibit 3.2 to the registrant’s Registration Statement on Form S-4 filed with the Securities and Exchange Commission on October 4, 2006).
4.1	Notes Purchase Agreement, dated February 5, 2007, by and between the registrant and Citadel Equity Fund Ltd. (incorporated by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 9, 2007).
4.2	Share Pledge Agreement, dated February 8, 2007, by and among Citadel Equity Fund Ltd., The Bank of New York, Guoshen Tu, Zhiqun Li and Whitehorse Technology Limited (incorporated by reference to Exhibit 4.2 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 9, 2007).
4.3	Form of the Notes (incorporated by reference to Exhibit 4.3 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 9, 2007).
4.4	Notes Purchase Agreement, dated February 16, 2007, by and among the registrant, Safetech, CSST HK, CSST PRC, Golden, Cheng Feng and Citadel Equity Fund Ltd. (incorporated by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 16, 2007).
4.5	Indenture, dated February 16, 2007, among the registrant, Safetech, CSST HK and The Bank of New York (incorporated by reference to Exhibit 4.2 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 16, 2007).
4.6	Investor Rights Agreement, dated February 16, 2007, among the registrant, Safetech, CSST HK, CSST PRC, Golden, Cheng Feng, Guoshen Tu, Zhiqun Li, Whitehorse Technology Limited and Citadel Equity Fund Ltd. (incorporated by reference to Exhibit 4.3 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 16, 2007).
4.7	Supplemental Indenture, dated March 29, 2007, among the Company, Safetech, CSST-HK and The Bank of New York. (incorporated by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission April 2, 2007).

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4.8	Amendment to the Investor Rights Agreement, dated March 29, 2007, among the Company, Safetech, CSST-HK, CSST-PRC, Golden, Cheng Feng, Mr. Tu, Ms. Li, Whitehorse and Citadel. (incorporated by reference to Exhibit 4.2 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission April 2, 2007).
10.1	China Security & Surveillance Technology, Inc. 2007 Equity Incentive Plan (incorporated by reference to Exhibit 99.1 to the registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 13, 2007).
10.2	Equity Purchase Agreement, dated April 2, 2007, by and among the registrant, China Safetech Holdings Limited, Chain Star Investments Limited and Zheng Huang.*
31.1	Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2	Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1	Certification of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2	Certification of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

* Filed herewith.

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EX-10.2

Exhibit 10.2

(English Translation)

April 2, 2007

The Transferor: Huang Zheng

The Transferee: CHINA SAFETECH HOLDINGS LIMITED

Party C: CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC.

Equity Transfer Agreement

of

All Issued Shares

of

Chain Star Investments Limited

This Equity Transfer Agreement(the “Agreement”) is entered into by the following parties on April 2, 2007:

(1) Huang Zheng whose address is Unit 31, 5/F, Sing Win Factory Building, Nos.15-17 Shing Yip Street, Kowloon, Hong Kong  (the “Transferor”);

(2) CHINA SAFETECH HOLDINGS LIMITED, a company incorporated in British Virgin Islands, whose address is F13, Press Plaza, Shennan Avenue Special Zone, Futian District, Shenzhen (the “Transferee”);

(3) CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC., a company incorporated in Delaware, United States, whose address is F13, Press Plaza, Shennan Avenue Special Zone, Futian District, Shenzhen (“Party C”);

The Transferor, the Transferee and Party C above shall be individually referred to as a “Party” and collectively referred to as the “Parties”.

WHEREAS CHAIN STAR INVESTMENTS LIMITED, a limited liability company legally organized and validly existing under the Company Ordinance of Hong Kong, whose information is listed as Exhibit I (“Chain Star”), and all of its issued shares are beneficially held by the Transferor.

WHEREAS Chain Star invests and establishes Shenzhen Hongtianzhi Electronics Co., Ltd., a wholly foreign owned company legally organized and validly existing under the laws of People’s Republic of China, whose information is listed as Exhibit III (“Hongtianzhi”), and all of its issued and outstanding shares are beneficially held by Chain Star.

WHEREAS The Transferee desires to purchase from the Transferor and the Transferor desires to transfer to the Transferee 100% issued shares of Chain Star. Upon completion of the transfer under this Agreement, the Transferee shall indirectly and fully acquire 100% equity and control power of Hongtianzhi.

WHEREAS The Transferor and the Transferee have entered into Letter of Intent of equity transfer (“Letter of Intent”) on October 2, 2006.

NOW, THEREFORE, the Parties hereby agree as follows:

1

Article 1  Definitions

1.1 Unless otherwise defined in this Agreement, the following terms shall have the meanings indicated as follow:

“Company Ordinance”	means Chapter 32 Company Ordinance of the laws of Hong Kong;
“Shares for Transfer”	means 1 common share of Chain Star owned by the Transferor to be transferred from the Transferor to the Transferee under this Agreement, constituting 100% issued shares of Chain Star (for details please refer to Exhibit II - Part A);
“Equity Transfer” “Balance”	means 100% issued shares of Chain Star to be transferred from the Transferor to the Transferee under Article 2.1 hereof; Refers to Article 3.2.1(2);
“Total Transfer Price”	means total price paid to the Transferor by the Transferee under Article 3.1 hereof;
“Closing Date”	April 2, 2007;
“Accounts of Chain Star”	means management and financial statements of Chain Star as of December 31, 2006, the copies of which are attached as Exhibit A hereof;
“Hongtianzhi Accounts”	means financial statements of Hongtianzhi as of December 31, 2006 verified by PRC auditors, the copies of which are attached as Exhibit B hereof;
“Business Day and Working Hours”	means the days when banks in Hong Kong normally provide general bank services (excluding Saturday, Sunday and other Hong Kong public holidays) and general working hours;
“PRC”	means People’s Republic of China;
“Hong Kong”	means Hong Kong Special Administrative Region of PRC;
“HKD”	means legal currency of Hong Kong;
“USD”	means legal currency of United States;
“RMB”	means legal currency of PRC.

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1.2 In this Agreement:

(i)   Any rule or law involved herein shall include any and all amendments, supplements or reenactments hereof from time to time;

(ii)   Words and terms contained in Companies Ordinance shall be interpreted according to definitions stipulated in Companies Ordinance except as otherwise defined or stated in this Agreement, however, any amendment or change to Companies Ordinance shall be excluded which is not enforced before or on the date to execute this Agreement.

(iii)   Single word also include plural meaning; word referred to any gender also include the other gender and neuter, word referred to person also include groups (legal person or non-legal person) and (under every circumstance), vice versa;

(iv)   Here above mentioned the parties, descriptions, exhibits, appendices and terms and conditions shall be respectively referred to the parties, descriptions, exhibits, appendices and terms and conditions hereof; and

(v)   The headings and table of contents in this Agreement are provided for reference only and will not affect its construction or interpretation.

Article 2  Equity Transfer

2.1 As per stipulations in this Agreement, the Transferor, as the actual interest holder of all outstanding shares of Chain Star (for more details please refer to Part A, Exhibit II), shall transfer such shares to be transferred to the Transferee (for more details please refer to Part B, Exhibit II). After such transfer, the Transferee will own 100% outstanding shares of Chain Star.

2.2 Upon the completion of transaction hereunder, Shares for Transfer shall not be attached with any mortgage, lien or property encumbrances of any form, and Shares for Transfer shall be transferred with all rights attached and accumulated thereto, including all dividends, profits, the investment in Hongtianzhi by Chain Star and relevant benefits accumulated and distributed from the completion date.

Article 3  Transfer Price

3.1 Transfer Price

The Transferor and the Transferee agree, the Transferor shall transfer to the Transferee Shares for Transfer. In return, the Transferee shall pay to the Transferor Total Transfer Price of RMB250,000,000, including RMB125,000,000 in cash and shares of Party C listed on US OTCBB with the value of RMB125,000,000.

3.2 Payment

3.2.1 The Transferee shall pay Total Transfer Price to the Transferor as follows:

(1) The Transferee has paid to the Transferor RMB12,500,000 on October 16, 2006.

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(2) The Transferee shall pay the remaining price of RMB112,500,000 (“Balance”) at one time on the execution date of this Agreement.

(3)    The Transferee (through the parent company, Party C) shall issue restricted shares equal to RMB125,000,000 to the Transferor or his designeeswithin ninety days from the execution date of this Agreement, and the share value shall be calculated on the average closing price (USD5.77/share) of twenty trading days prior to the execution date of the Letter of Intent, which means that the Transferee shall issue totally 2,800,711 shares to the Transferor. The Transferor shall pledge corresponding shares to the Transferee under Article 5.2 hereof.

(4)  In addition, if net profits of Chain Star and Hongtianzhi in 2006 audited by US auditors are lower than RMB 15,000,000 or although such net profits reach RMB 15,000,000, net profits plus received tax refund are lower than RMB 20,000,000, then the Transferor shall refund the price to the Transferee at corresponding proportion. Such proportion shall be calculated as follows: for example, if net profits actually achieved by Chain Star and Hongtianzhi in 2006 plus received tax refund are RMB 19,000,000, then the price to be refunded shall be: ø2,000-1,900÷÷2,000×250,000,000 = RMB12,500,000, among which, 6,250,000 shall be cash and 6,250,000 shall be equivalent shares. 

3.2.2 The Transferee shall send the Balance to the following bank accounts designated by the Transferor:

USD Account

Account Name: HUANG ZHENG

Account No.: 650-000813-888

Bank: HSBC

Address of the bank: LG01-3, Lower Ground Floor, The Wood, 8 Belcher’s Street, Hong Kong

SWIFT: HSBCHKHHHKH 

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3.3 Exchange Rate

Cash of the total transfer price shall be paid by the Transferee to the Transferor in USD. Exchange Rate of RMB against USD shall be 1æ7.7351.

Article 4  Closing

4.1 The equity transfer shall be completed on the Closing Date at the place stipulated by both parties in accordance with Exhibit V.

4.2 Terms and conditions to be performed hereof shall remain in force after the Closing Date.

4.3 From the Closing Date, Debts and Credits and all risks of Chain Star and Hongtianzhi shall be promptly borne by the Transferee (except otherwise undertaken by the Transferor in Exhibit IV).

4.4 From the Closing Date, the Transferee shall have the right to consolidate profits of Chain Star and Hongtianzhi to accounts of the Transferee group. At the meantime, the Transferee shall have the right to send manager or financial person, or authorize, appoint exsiting personnel of Chain Star and Hongtianzhi to take charge of management and operation of Chain Star and Hongtianzhi as well as all files, materials, financial documents and so on. The Transferor shall not enjoy any right and/or interest as shareholder of Chain Star and Hongtianzhi from the Closing Date because of such equity transfer, provided that all relevant obligations shall be borne by the Transferor under law and this Agreement.

Article 5  Warrants, Representations and Undertakes of the Transferor

5.1 In addition to the information disclosed in this Agreement, the Transferor shall warrant, represent and undertake to the Transferee under terms and conditions stipulated in Exhibit IV, which also constitute the base for the Transferee to accept such shares for transfer.

5.2 Under the circumstances of fully authorized operation and guaranteed sufficient operation funds, the Transferor undertakes to the Transferee that Chain Star and Hongtianzhi’s profits after tax in 2007 which are audited by US Auditors shall reach three levels: RMB25,000,000, RMB28,000,000, RMB30,000,000. If profits after tax reach RMB25,000,000, the Transferee shall release shares pledge of the Transferor equivalent to RMB7,000,000; if Chain Star and Hongtianzhi reach profits after tax of RMB28,000,000, the Transferee shall release shares pledge of the Transferor equivalent to RMB12,000,000; and if Chain Star and Hongtianzhi reach profits after tax of RMB30,000,000, the Transferee shall release shares pledge of the Transferor equivalent to RMB15,000,000. The Transferor undertakes to the Transferee the profits after tax in 2008 which are audited by US Auditors shall reach three targeting levels: RMB35,000,000, RMB38,000,000, RMB40,000,000. If profits after tax reach RMB35,000,000, the Transferee shall release shares pledge of the Transferor equivalent to RMB7,000,000; if Chain Star and Hongtianzhi reach profits after tax of RMB38,000,000, the Transferee shall release shares pledge of the Transferor equivalent to RMB12,000,000; and if Chain Star and Hongtianzhi reach profits after tax of RMB40,000,000, the Transferee shall release shares pledge of the Transferor equivalent to RMB15,000,000;

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Article 6  Warrants, Representations and Undertakes of the Transferee and Party C

6.1 The Transferee shall keep the organization structure of Chain Star and Hongtianzhi after equity transfer, expand its brand influence and fully support business development of Chain Star and Hongtianzhi. The Transferee shall also provide financial support as required by business.

6.2 The Transferee covenants that existing employees of Chain Star and Hongtianzhi will remain employed given that they are willing to stay and will not impede the development of companies after the Equity Transfer; arrangement of senior management personals and relevant events about operation rights and interests enjoyed by senior management personals and technicians shall be governed by separate agreements between the Transferee and relevant persons to be entered after the Equity Transfer. In addition, the Transferee covenants that benefits of such persons shall not be lower than their existing benefits.

6.3 The Transferee shall provide appropriate operation funds to Chain Star and Hongtianzhi on time in order to support the Transferor to realize profits after tax for 2007 and 2008, dates and amounts of providing such funds shall be otherwise stipulated.

6.4 Party C shall file relevant reports to the U.S. Securities and Exchange Committee (“SEC”) according to law and issue shares to the Transferor under Article 3.2.1(3) hereof within legal term after execution of this Agreement.

Article 7  Governing Law

This agreement shall be governed and construed by rules and laws of Hong Kong.

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Article 8  Settlement of Disputes and Agent of Receiving Legal Procedure Documents

8.1 Any dispute, arising out of or relating to this Agreement, shall be settled by friendly negotiation and discussion. If no agreement is reached through friendly negotiation and discussion, such dispute shall be final arbitrated by Hong Kong International Arbitration Center(HKIAC) in accordance with HKIAC Arbitration Rules then in effect. Unless otherwise provided arbitration rules of HKIAC then in effect, the arbitration shall be the sole and exclusive method and procedure of any dispute arising out of or relating to this Agreement.

8.2 The Parties to this Agreement agree that unless not permitted by the applicable laws and rules, the arbitration terms hereto shall be interpreted as and constitute the currently effective arbitration agreement in writing with legal effect, and shall be granted with such effect. The Parties to this Agreement hereby expressly waive any right of possibly requested local administrative, judicial or alternative dispute settlement methods, as the conditions of any settlement procedure which arising our of this Agreement.

8.3 The Parties to this Agreement expressly represent that the award made according to Article 8 hereof shall be final award binding upon the Parties. In addition, the Parties to this Agreement hereby waive the right to appeal the award made according to Article 8 hereof. The Article 8 shall constitute the most comprehensive exclusive agreement to the extent permitted by the applicable laws.

8.4 (1) The Transferee irrevocably entrusts CHARACTERS CORPORATE SERVICES LIMITED, whose address is Suite 2204, Tung Chiu Commercial Centre, 193 Lockhart Road, Wanchai, Hong Kong (“Agent”), to receive legal procedure documents and to be on behalf of the Transferee to receive arising out of or relevant to the Agreement or the legal procedures in Hong Kong (including, but not limited to, claims for reimbursement, summons, arbitration application and arbitration award) (“legal procedure documents”).

(2) Transferee undertakes to consecutively entrust the agent as the agent of receiving legal procedure documents, in order to on behalf of the Transferee receive legal procedure documents in Hong Kong and immediately the Transferor in writing if the agent or its address is modified.

(3) The Transferee agrees and confirms that legal procedure documents which have been sent to its agent shall be deemed as having been sent to any Transferee.

Article 9  Liabilities for Breach of Contract

9.1 If any statement or warrants made by any Party in this Agreement is untrue or false, it shall be deemed as breach of contract by the Party.

9.2 Any Party to this Agreement changes minds on purpose and cause the failure of the equity transfer, it shall be deemed as breach of contract by the Party.

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9.3 The breaching party shall, in addition to performance of other obligations under this Agreement, compensate the observant party all losses, damages, expenses suffered by the observant party due to breach of contract caused by breaching party.

9.4 If the Transferor changes minds on purpose and cause that the shares can not be transferred to the Transferee or the shares is forfeited after transfer, the Transferee shall have the right to terminate the Agreement, and The Transferor shall return the equity transfer price or the shares and assume liabilities under Article 9.3 of this Agreement.

Article 10  Force Majeure and Change of Circumstances

10.1 If any Party to this Agreement can not perform any part or all of the terms hereto directly or indirectly because of events such as fire, flood, earthquake or other unforeseeable, unavoidable and/or uncontrollable events, the party shall be exempted from liabilities to the extent as affected by force majeure.

10.2 If any Party or Parties lose(s) its/their interests under this Agreement because of legislation, or administration order or specific administration act of government, any Party shall have the right to terminate this Agreement and to restore to the conditions before the execution of this Agreement.

10.3 Any party affected by force majeure shall deliver the other Party the written notice regarding the occurrence of force majeure within 12 days after the occurrence of the force majeure event.

10.4 After the occurrence of force majeure event, the Parties to this Agreement shall immediately consultant and decide whether to delay the performance of this Agreement to a day in the future or to terminate this Agreement.

10.5 If any party delay or unable to perform all or part of the terms of this Agreement for more than 30 days as a result of force majeure, the other Party shall have the right to rescind this Agreement, and the Parties shall take all necessary actions to restore the rights and obligations of all parties to their respective original positions.

Article 11  Miscellaneous

11.1 This Agreement and its involved relevant documents constitute the full understanding of the Parties regarding the equity transfer, and replace any previous intention, expression and understanding of the Parties.

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11.2 If any term of this Agreement is regarded as illegal, invalid or enforceable at any time, the validity, effectiveness and enforceability of other terms of this Agreement shall not affected or impaired in any way and shall remain the full validity.

11.3 This Agreement shall bind the Parties and their respective successors and assignees. The interests of this Agreement shall be assigned to the Parties hereto and their respective successors and assignees. Without the permission of the Parties in writing, any Party shall not amend, modify or revise this Agreement.

11.4 This Agreement shall be effective upon signatures.

11.5 Without the permission of the Parties in writing (the relevant permission shall not be withheld without reasonable reasons), the Parties hereto shall not transfer any right or obligation under this Agreement.

11.6 The Parties agree to bear all the cost and expense in respect of the negotiation, preparation, execution and performance of the Agreement and the taxes arising from the transfer of Shares for Transfer. The stamp tax and all other tax and expenses arising out of the transfer of Shares for Transfer (including, but not limited to, arising out of China or any other areas), shall be borne and paid by the Transferor.

11.7 Unless provided and required by laws, regulations, order or judgments by the authorities or courts (including, but not limited to, applicable regulation of security exchanges), without the previous permission of the other Party in writing (the relevant permission shall not be withheld without reasonable reasons), any Party shall not make or distribute any related press statement or announcement.

11.8 Without the prior permission of the other Party in writing, any Party shall not disclose the Agreement or any content or material in connection with any transaction of this Agreement, excluding the following disclosure:

(1) the disclosure is made according to the provisions of applicable laws, regulations and rules (including, but not limited to, regulations of security exchanges) or requirements of relevant government authorities or supervision authorities, or court orders;

(2) the disclosure is made to Chain Star, Hongtianzhi, or its higher competent authorities or approval and examination authorities, or to contacted bank or professional consultant of the disclosing Party;

(3) the disclosure is made by the Transferor to the company of its company group or senior management thereof.

11.9 If any term of this Agreement is or becomes illegal, invalid or unenforceable at any time in respect, other terms of this Agreement shall not be affected or impaired.

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11.10 Any notice required to be sent under this Agreement shall be sent in writing. The notice shall be delivered to the following address or fax number or other address or fax number that the recipient designates according to this Agreement:

(1) The Transferor:HUANG Zheng

Address:Unit 31, 5/F, Sing Win Factory Building, Nos.15-17 Shing Yip Street, Kowloon, Hong Kong

Telephone:(86) 13392166188

Fax:(86-755) 83476833 

(2) The Transferee: CHINA SAFETECH HOLDINGS LIMITED

Address: Floor 13, Press Plaza, Shennan Avenue Special Zone, Futian District, Shenzhen

Telephone: (86-755) 83510888 

Fax: (86-755) 83510815 

(3) Party C:CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC.

Address: Floor 13, Press Plaza, Shennan Avenue Special Zone, Futian District, Shenzhen 

Telephone: (86-755) 83510888 

Fax: (86-755) 83510815 

11.11 Any notice can be sent by mail with postage pre-paid, personal delivery, courier with good reputation or by facsimile, and shall be deemed as delivered at the following time:

(1) two days (seven days if sending by airmail with postage prepaid) after post (the date of postmark is the posting date) for those sent by mail with postage prepaid;

(2) the next business day for those sent by fax;

(3) the receiving time for those sent by courier or personal delivery.

Any notice to the Transferee, when properly delivered to any Transferee, shall be regards as delivered to the other Transferee.

11.12 This Agreement shall be written in Chinese in three copies with each Party holding one copy.

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IN WITNESS WHEREOF, this Agreement has been executed by the Parties on the date first above written and the Parties confirm that the Parties have carefully read and fully understand all the content of the Agreement.

 

The Transferor 

Huang Zheng

Signature: /s/ Huang Zheng

Place of Signature: Shenzhen

Witness: Peng Yaoguang

The Transferee 

TU Guoshen for and on behalf of

CHINA SAFETECH HOLDINGS

LIMITED

Signature: /s/ Tu Guoshen

Place of Signature: Shenzhen

Witness: Luo Ganqi

Party C

To execute, stamp and deliver

TU Guoshen for and on behalf of

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC.

/s/ Tu Guoshen

(Corporate Seal)
Place of Signature: Shenzhen

Witness: Luo Ganqi

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Exhibit I

Information of Chain Star

Name in Chinese:创星投犼有榰公司

Name in English:CHAIN STAR INVESTMENTS LIMITED

Place of Registration: Hong Kong

Registered Address:Unit B1, 9/F, Loyong Court Commercial Building, 212-220 Lockhart Road, Wanchai, Hong Kong

Date of Registration and Establishment: October 13, 2006

Company Form:Limited Liability Company

Registered No.:1080227

Director:Huang Zheng

Company Secretary:CHARACTERS CORPORATE SERVICES LIMITED

Shares:Legally: HKD10,000, divided into 10,000 shares with face value of HKD1.00 per share Issued and fully paidæHKD1, divided into 1 share with face value of HKD1.00 per share

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Exhibit II

Part A

Information of Share for Transfer

Company	Registered Shareholder	Quantity of Common Shares	Face Value Per Share	Issued Shares
Chain Star	Huang Zheng	1	HKD 1 yuan	100%

Part B

Information of Share for Transfer

The Transferee	Amount of Share to Be Transferred
CHINA SAFETECH HOLDINGS LIMITED	1

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Exhibit III

Information of Hongtianzhi

Name	: Shenzhen Hongtianzhi Electronics Co., Ltd.
Legal Address	: 3F, No. 201 Jinzhong Industry Park, East Industry Region of Huaqiao City, Nanshan District, Shenzhen, PRC
Enterprise Type	: Wholly Foreign Owned Enterprise
Date of Establishment	: April 18, 2001
Business License No. Operational Term Total Investment Registered Capital Investor Legal Representative Directors Business Scope	: Qi Du Yue Zong Zi No. 320855 : 10 years : RMB18,500,000Yuan : RMB13,000,000Yuan : HONG KONG CHAIN STAR INVESTMENTS LIMITED : HUANG Zheng : HUANG Zheng, ZHANG Honghui, LI Shengnian, ZHANG Qinqin, QU Fengxia : To manufacture and operate computer equipment, office automatic equipment, camera and video distribution amplifier and to engage in wholesale and import and export business of relevant products (go through procedures according to State relevant regulations for goods involved in quota and license administration)

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Exhibit IV

Representation and Warranties

1. Chain Star and Hongtianzhi are companies legally established and validly existing under the laws of their respective places of establishment.

2. Chain Star and Hongtianzhi have been authorized and qualified to conduct business within the jurisdiction of their existing businesses.

3. The operation businesses and their operation of Chain Star and Hongtianzhi have been materially in compliance with the relevant laws.

4. Accounts of Chain Star and Hongtianzhi have been properly recorded in accordance with the account categories and the generally accepted account principles, standards and laws of their establishment place, which have truly represented and reflected the status of Chain Star and Hongtianzhi respectively for the fiscal year or the period ending on the date of the relevant book account.

5. (a) Exhibit I has listed all the directors and company secretaries of Chain Star before the completion of the transaction as of the Closing Date.

(b)  Exhibit III has listed all the directors and company secretaries of Hongtianzhi before the completion of the transaction as of the Closing Date. 

(c)  There has not been any shareholder resolution adopted to liquidate Chain Star or Hongtianzhi before the completion of the transaction as of the Closing Date. 

6. The register of shareholders of Chain Star has truly and correctly recorded the date and the changes of shareholders from the establishment to the completion date and before the completion of the transition.

7. Any share warrant has not been sent or given to any person in respect of any share of Chain Star and Hongtianzhi by the Transferor, Chain Star and Hongtianzhi.

8. (a) Chain Star has not conducted any business activities other than holding shares of Hongtianzhi.

(b)  Chain Star has Hongtianzhi as its only one subsidiary company. Hongtianzhi has two subsidiary companies, associated companies or branches which are Guangzhou Shixing Digital Electronic Co., Ltd and Shenzhen Tongxing Shixun Technology Co., Ltd.

9. Articles of associations of Chain Star and Hongtianzhi have been delivered to Transferee, which shall be true and complete.

10. If any thing conflicts or is inconsistent with foregoing warrants before the closing date, the Transferee agrees to immediately notify the Transferor in writing.

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11. Chain Star has fully paid the issued shares. Hongtianzhi has fully contributed the registered capital.

12. The Transferor shall be the solely and legal beneficial owner of the shares for transfer. The shares for transfer shall not be imposed of any mortgage, lien or property encumbrances.

13. Chain Star owns 100% of equities of Hongtianzhi. Chain Star shall be the solely and legal beneficial owner of the shares. The shares shall not be imposed of any mortgage, lien or property encumbrances.

14. The Transferor shall have the authority to execute the Agreement and can sell any shares for transfer without any third party’s permission. The Agreement shall be legally binding on the Transferor.

15. Except for the ongoing litigations disclosed to the Transferee, Chain Star and Hongtianzhi have not currently been involved in any material litigation or a party to any litigation and/or any unexecuted verdict, and have not been subject to any ongoing material injunction or order.

16. Up to the Closing Date, all or part of the assets or businesses of Chain Star and Hongtianzhi have not been entrusted to take over by any person, and there are not any orders or applications before court or adopted solutions to close down Chain Star and Hongtianzhi.

17. Except for debts (including the outstanding tax fees)disclosed by the Transferor, the Agreement or accounts of Chain Star and Hongtianzhi, Chain Star and Hongtianzhi shall not have any other debts and/or outstanding tax fees as of the Closing Date, which shall be assumed by the Transferor (if any).

18. Except for the information disclosed by the Transferor, the Agreement or accounts of Chain Star’s and Hongtianzhi, Chain Star and Hongtianzhi shall not have other unperformed material contracts.

19. The net assets in 2006 financial statements audited by the US auditor and verified by a third party appraiser shall be more than RMB 41,000,000 without including the reappraised value-added part of buildings in the industry park, and the net profits shall be no less than RMB15,000,000, and the net profits with refunded taxes shall be no less than RMB20,000,000.

20. The shareholders and the meeting of board of directors according to the Company Law, have reached a resolution to approve the equity transferor the issue of the equity transfer under the Agreement.

21. The existing and outstanding legal liabilities of Chain Star and Hongtianzhi before the Closing Date such as labor compensation disputes, bad debts and losses of bad assets, debt disputes and risks of contingent debts shall be assumed by the Transferor. For the losses which can be calculated into money, if the net assets of the target company are less than RMB41,000,000, the Transferor shall be obliged to make it up to RMB41,000,000.

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22. The Transferor shall be fully responsible for all civil and criminal liabilities of Chain Star and Hongtianzhi before and on the Closing Date.

23. The Transferor shall not manipulate any adverse change to the operations of Chain Star and Hongtianzhi on purpose (excluding the normal operation and force majeure) as of execution of this Agreement. The Transferor shall immediately inform the Transferee if there is any thing causing the material change to the operation of Chain Star and Hongtianzhi.

24. The Transferor undertakes to be the CEO of Chain Star and Hongtianzhi for another five years and maintain the stability of Chain Star and Hongtianzhi.

25. The Transferor undertakes that the Transferor and its direct relatives (parents, spouse or children) shall not engage in security and protection industry or operation in similar industry in five years.

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Exhibit V

Provisions for the Closing

1. Liabilities of the Transferee

(i) The Transferee shall pay the Balance of the total price to the Transferor according to Article 3.2.1 (2) of the Agreement and submit the proof document of payment to the Transferor.

(ii) The Transferee shall provide a consent letter executed by two persons to be the directors of Chain Star and a consent letter executed by three persons to be the directors of Hongtianzhi.

2. Liabilities of the Transferor

After the transferor confirms that its bank account under Article 3.2.2 of the Agreement has received all the payment by the Transferee under Article 3.2.1, the Transferor shall deliver the following to the Transferee: 

(i) The transfer documents and instruments for sale along with shares in connection with the Shares for Transfer;

(ii)   The original copy of resignation executed by three current directors of Hongtianzhi with stating that there are not any claims against Hongtianzhi;

(iii)  All account books, registration certificates, business registration certificates, articles of association, meeting records, statutory books, application forms, seals, offset printing, steel seals and all documents relevant to the company businesses (if any) of Chain Star controlled by the Transferor;

(iv)   The Transferor shall incentive Chain Star and Hongtianzhi to hold a board meeting to approve (1) the transfer of the Shares for Sale relevant to Chain Star, and registration after payment of appropriate stamp taxes; (2) appointment of the persons nominated by the Transferor according to law as the two new directors of Chain Star and the three new directors of Hongtianzhi under the written instruction of the Transferee; (3) after the completion of the foregoing (2), acceptance of resignation of the three directors of the Hongtianzhi under the above (ii); and (4) suspension and change of the operation of the bank accounts of Chain Star and Hongtianzhi, and appointment of the person nominated by the Transferee as the authorized person to execute the bank accounts of Chain Star and Hongtianzhi;

(v)   The original copy of records of the boarding meeting held for the issue of the above (iv) executed and confirmed by the directors of Chain Star and Hongtianzhi;

(vi)   The documents controlled by Hongtianzhi (refer to the list of Exhibit C);

(vii)   The original copy of the resignation properly executed by the legal representative of Hongtianzhi; and

(viii)   Legal opinion reports issued by Hong Kong law firms and China law firms.

3. The Transferor and the Transferee shall make obvious marks on the seals and enter into the delivery memorandum to present the differences between the new and the old.

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EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer Pursuant to

Securities Exchange Act Rules 13a-14(a) and 15d-14(a)

as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Guoshen Tu, certify that:

 1.     I have reviewed this quarterly report on Form 10-Q of China Security & Surveillance Technology, Inc.;

 2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: 

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; 

(b)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and 

(c)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 

5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function): 

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and 

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 15, 2007

/s/ Guoshen Tu

Guoshen Tu

Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer Pursuant to

Securities Exchange Act Rules 13a-14(a) and 15d-14(a)

as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Terence Yap, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of China Security & Surveillance Technology, Inc.; 

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 

4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: 

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; 

(b)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and 

(c)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 

5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function): 

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and 

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 15, 2007

/s/ Terence Yap

Terence Yap

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, Guoshen Tu, the Chief Executive Officer of CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. (the “Company”), DOES HEREBY CERTIFY that:

1.The Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 (the “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

2.Information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

IN WITNESS WHEREOF, each of the undersigned has executed this statement this 15th day of May 2007.

/s/ Guoshen Tu

Guoshen Tu

Chief Executive Officer

(Principal Executive Officer)

A signed original of this written statement required by Section 906 has been provided to China Security & Surveillance Technology, Inc. and will be retained by China Security & Surveillance Technology, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

The forgoing certification is being furnished to the Securities and Exchange Commission pursuant to § 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

The undersigned, Terence Yap, the Chief Financial Officer of CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. (the “Company”), DOES HEREBY CERTIFY that:

1.The Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 (the “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

2.Information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

IN WITNESS WHEREOF, each of the undersigned has executed this statement this 15^th day of May 2007.

/s/ Terence Yap

Terence Yap

Chief Financial Officer

(Principal Financial Officer)

A signed original of this written statement required by Section 906 has been provided to China Security & Surveillance Technology, Inc. and will be retained by China Security & Surveillance Technology, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

The forgoing certification is being furnished to the Securities and Exchange Commission pursuant to § 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.