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. 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, revenues, 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 of the factors mentioned in the "Risk Factors". section of our Annual Report on Form 10-K for the year ended December 31, 2008 and subsequent SEC filings. 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 to "CSR," "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:

º "Allied Rich" are to Allied Rich Ltd., a Hong Kong corporation; and an indirect, wholly owned subsidiary of the Company;

º "Cheng Feng" are to Shanghai Cheng Feng Digital Technology Co. Ltd., a corporation incorporated in the People's Republic of China and an indirect, wholly owned subsidiary of the Company;

º "Chain Star" are to Chain Star Investments Ltd., a Hong Kong corporation; and an indirect, wholly owned subsidiary of the Company;

º "Chuang Guan" are to Shenzhen Chuang Guan Intelligence Network Technology Co., Ltd., a corporation incorporated in the People's Republic of China;

º "Coson" are to Shenzhen Coson Electronic Co. Ltd., a corporation incorporated in the People's Republic of China and an indirect, wholly owned subsidiary of the Company;

º "CSSD" are to China Security & Surveillance Distribution (PRC) Inc., a corporation incorporated in the People's Republic of China and a direct, wholly owned subsidiary of the Company;

º "CSSM" are to China Security & Surveillance Manufacturing (PRC) Inc., a corporation incorporated in the People's Republic of China and a direct, wholly owned subsidiary of the Company;

º "CSSS" are to China Security & Surveillance Services (PRC) Inc., a corporation incorporated in the People's Republic of China and a direct, wholly owned subsidiary of the Company;

º "CSST HK" are to China Security & Surveillance Technology (HK) Ltd., a Hong Kong corporation and an indirect, wholly owned subsidiary of the Company;

º "CSST PRC" are to China Security & Surveillance Technology (PRC) Inc., a corporation incorporated in the People's Republic of China and a direct, wholly owned subsidiary of the Company;

º "DIT" are to DIT Industry (H.K.) Limited, a Hong Kong corporation and an indirect, wholly owned subsidiary of the Company;

º "Golden" are to Golden Group Corporation (Shenzhen) Limited, a corporation incorporated in the People's Republic of China and an indirect, wholly owned subsidiary of the Company;

º "Guanling" are to Beijing Aurine Divine Land Technology Co., Ltd., a corporation incorporated in the People's Republic of China and an indirect, wholly owned subsidiary of the Company;

º "HiEasy" are to HiEasy Electronic Technology Development Co., Ltd., a corporation incorporated in the People's Republic of China and an indirect, wholly owned subsidiary of the Company;

º "Hongtianzhi" are to Shenzhen Hongtianzhi Electronics Co., Ltd., a corporation incorporated in the People's Republic of China and an indirect, wholly owned subsidiary of the Company;

º "Huge Long" are to Huge Long Limited, a Hong Kong corporation of which we have acquired the beneficial interest of all issued and outstanding capital stock;

º "Jin Lin" are to Shenzhen Jin Lin Technology Co., Ltd., a corporation incorporated in the People's Republic of China and an indirect, wholly owned subsidiary of the Company;

º "Kit Grant" are to Kit Grant Limited, a Hong Kong corporation and an indirect, wholly owned subsidiary of the Company;

º "Link Billion" are to Link Billion Investment Ltd., a Hong Kong corporation; and an indirect, wholly owned subsidiary of the Company;

º "Longhorn" are to Shenzhen Longhorn Security Technology Co., Ltd., a corporation incorporated in the People's Republic of China and an indirect, wholly owned subsidiary of the Company;

º "Long Top" are to Long Top Limited, a Hong Kong corporation and an indirect, wholly owned subsidiary of the Company;

º "Minking" are to Changzhou Minking Electronics Co., Ltd., a corporation incorporated in the People's Republic of China and an indirect, wholly owned subsidiary of the Company;

º "Multiwin" are to Multiwin International Holdings Limited, a Hong Kong corporation; and an indirect, wholly owned subsidiary of the Company;

º "Ocean Pacific" are to Ocean Pacific Technology Ltd., a Hong Kong corporation; and an indirect, wholly owned subsidiary of the Company;

º "Safetech" are to China Safetech Holdings Limited, a British Virgin Islands corporation and a wholly owned subsidiary of the Company;

º "Sharp Eagle" are to Sharp Eagle (HK) Limited, a Hong Kong corporation and an indirect, wholly owned subsidiary of the Company;

º "Sincere On" are to Sincere On Limited, a Hong Kong corporation and an indirect, wholly owned subsidiary of the Company;

º "Stonesonic" are to Guangdong Stonesonic Digital Technique Co., Ltd., a corporation incorporated in the People's Republic of China and an indirect, wholly owned subsidiary of the Company;

º "Tsingvision" are to Hangzhou Tsingvision Intelligence System Co., Ltd., a corporation incorporated in the People's Republic of China and an indirect, wholly owned subsidiary of the Company;

º "WDH" are to Shenzhen Wandaiheng Industry Limited, a corporation incorporated in the People's Republic of China;

º "BVI" are to the British Virgin Islands;

º "PRC" and "China" are to the People's Republic of China;

º "RMB" are to Yuan Renminbi of China;

º "U.S. dollar," "$" and "US$" are to United States dollars;

º "Exchange Act" are to the Securities Exchange Act of 1934, as amended; and

º "Securities Act" are to the Securities Act of 1933, as amended.

China Security & Surveillance Technology, Inc. is a Delaware holding company whose China-based operating subsidiaries are primarily engaged in manufacturing, distributing, installing and servicing security and surveillance products and systems and developing security and surveillance related software in China. Our customers are mainly comprised of (i) commercial entities (including airports, hotels, real estate development companies, banks, mines, railways, supermarkets and entertainment venues); and (ii) governmental entities (including customs agencies, courts, public security bureaus and prisons). These account for approximately 54% and 46% of our revenues for the three months ended March 31, 2009, respectively.

Our sales network covers most of China's populated areas and we do not rely on any particular region of China for revenues. Our subsidiaries collectively have more than 150 branch offices and distribution points.

Reportable Operating Segments

Segment information is consistent with how management reviews the businesses, makes investing and resource allocation decisions and assesses operating performance. The Company reports financial and operating information in the following three segments:

º The Installation segment provides design, sales, installation, services and monitoring of electronics surveillance and safety systems to residential, commercial, industrial and governmental customers (the "Installation segment");

º The Manufacturing segment provides design, manufacturing and sales of surveillance and safety products, including intrusion security, access control and video management systems (the "Manufacturing segment"); and

º The Distribution segment provides distribution and sales of surveillance and safety products and services, including intrusion security, access control and video management systems (the "Distribution segment").

The Company also provides general corporate services to its segments and these costs are reported as "Corporate and others."

First Quarter Financial Performance Highlights

We continued to experience strong demand for our products and services during the first quarter of 2009 and growth in our revenues. The surveillance and safety product market in China continued to expand in the first quarter of 2009 due, in part, to several programs and regulatory drivers initiated by the Chinese government in 2006. In 2006, the Chinese government promulgated State Ordinance 458 and the Safe City program, which require many public places to install security systems, including city-wide surveillance systems, traffic conjunctions, critical government locations, cyber cafés, bars and discotheques. The ongoing installation of these security systems as required by applicable Chinese law is being conducted by the affected constituents. In addition, the economic development in China and the fact that the population in China in general is becoming relatively wealthier also contributed to increased demand for surveillance and safety products within various industries and organizations, such as residential real estate, factories and shopping centers. Our first fiscal quarter financial results also benefited from the consolidation of Stonesonic, Longhorn, Guanling, Jin Lin and DIT which were acquired in second, third and fourth quarters of 2008 and from the consolidation of Coson which was acquired in the first quarter of 2009 and contributed approximately $8.49 million and $0.83 million revenues in aggregate, accounting for approximately 8.8% and 0.9% of the total revenues of the first quarter of 2009.

º Revenues: Revenues increased $24.64 million, or 34.3%, to $96.42 million for the three months ended March 31, 2009, from $71.78 million for the three months ended March 31, 2008.

º Gross margin: Gross margin was 26.0% for the three months ended March 31, 2009, compared to 31.0% for the three months ended March 31, 2008. Such decrease was primarily due to a change of product mix and lower selling prices.

º Income from operations: Income from operations decreased $3.16 million, or 28.4%, to $7.98 million for the three months ended March 31, 2009, from $11.14 million in 2008.

º Operating margin: Operating margin (the ratio of income from operations to revenues, expressed as a percentage) was 8.3% for the three months ended March 31, 2009, compared to 15.5% in 2008.

º Net income: Net income decreased $2.47 million, or 55.3%, to $2.00 million for the three months ended March 31, 2009, from $4.47 million for the three months ended March 31, 2008.

º Net margin: Net margin (the ratio of net income to revenues, expressed as a percentage) was 2.1% for the three months ended March 31, 2009, compared to 6.2% for the three months ended March 31, 2008. The decrease was primarily due to non-cash expenses described below.

º Fully diluted net income per share: Fully diluted net income per share was $0.04 for the three months ended March 31, 2009, as compared to $0.11 for the three months ended March 31, 2008.

º Non-cash expenses: Non-cash expenses included (i) the redemption accretion on convertible notes of $5.38 million, (ii) depreciation and amortization of $3.06 million, and (iii) non cash employee compensation expense of $4.22 million for the three months ended March 31, 2009. Total non-cash expenses are $12.66 million, representing an increase of $3.44 million, or 37.3%, from $9.22 million during the three months ended March 31, 2008.

Our net income, as reported in our results of operations for the period ended March 31, 2009 and 2008 were approximately $2.00 million, and $4.47 million, respectively. Our net income was materially impacted by depreciation and amortization of long-lived assets in the subsidiaries we acquired, non cash employee compensation recognized pursuant to SFAS 123 (R) and redemption accretion on convertible notes. In the table below, we have presented a non-GAAP financial disclosure to provide a quantitative analysis of the impact of the depreciation and amortization of long-lived assets in the subsidiaries we acquired, non cash employee compensation and redemption accretion on convertible notes on our net income. Because these items do not require the use of current assets, management does not include these items in its analysis of our financial results or how we allocate our resources. Because of this, we deemed it meaningful to provide this non-GAAP disclosure of the impact of these significant items on our financial results.

All amounts in millions of U.S. dollars

                                                       Three Months Ended March 31,
Non-cash expenses                                    2009           2008       Increase
Depreciation and amortization                    $     2.82    $      1.82   $     1.00
Depreciation and amortization (included in cost        0.24           0.08         0.16
of goods sold)
Non cash employee compensation                         4.22           2.96         1.26
Redemption accretion on convertible notes              5.38           4.36         1.02
Total                                            $    12.66    $      9.22   $     3.44

Results of Operations

The following table sets forth key components of our results of operations for
the three months ended March 31, 2009 and 2008, in dollars and as a percentage
of revenues.

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

                                                  2009                      2008
Revenues                                 $    96.42       100.0%   $    71.78       100.0%
Cost of goods sold (including
depreciation and amortization amounted
$0.24 and $0.08, respectively)               (71.39 )      74.0%       (49.52 )      69.0%
Gross profit                                  25.03        26.0%        22.26        31.0%
Selling and marketing                         (2.71 )       2.8%        (2.14 )       3.0%
General and administrative                    (7.30 )       7.6%        (4.20 )       5.9%
Non cash employee compensation                (4.22 )       4.4%        (2.96 )       4.1%
Depreciation and amortization                 (2.82 )       2.9%        (1.82 )       2.5%
Income from operations                         7.98         8.3%        11.14        15.5%
Other income                                   0.26         0.3%         0.37         0.5%
Interest expense, cash                        (0.66 )       0.7%        (0.50 )       0.7%
Redemption accretion on convertible
notes                                         (5.38 )       5.6%        (4.36 )       6.1%
Income before income taxes                     2.20         2.3%         6.65         9.2%
Income taxes                                  (0.20 )       0.2%        (2.18 )       3.0%
Net income                               $     2.00         2.1%   $     4.47         6.2%

Our revenues are generated from system installations and manufacturing and distribution of surveillance and safety products. During the first quarter of 2009, we experienced solid growth in revenues. Revenues increased from $71.78 million for the first quarter of 2008 to $96.42 million for the first quarter of 2009, representing a 34.3% increase. Such increase was mainly attributable to growth in the surveillance and safety market in China, the increased market demand for our products, our increased brand recognition and the acquisition of several companies in 2008 and 2009 as discussed in detail below. Our strategic efforts to increase our distribution channels during 2008 and sufficient working capital from prior fundraising activities with local Chinese banks also should allow us to successfully take advantage of the growth in market demand in the future. Historically, the first quarter has generally been a slow quarter for us due to the Chinese New Year holiday and the third quarter has generally been the strongest quarter. Management expects the same trend in 2009 and that revenue growth will remain strong in the remainder of 2009.

After the acquisition of Coson was closed in January 2009, we consolidated the financial results of Coson in the first quarter of 2009, which contributed $0.83 million to revenues in the first quarter of 2009. After Stonesonic, Longhorn, Guanling, Jin Lin and DIT became our wholly owned subsidiaries, we consolidated the financial results of these five companies beginning in the second, third and fourth quarters of 2008, which contributed $8.49 million to revenues in the first quarter of 2009. As the acquisitions of Hongtianzhi, HiEasy, Minking and Tsingvision have surpassed the one year anniversary, we have included these revenues in our organic growth since the third and fourth quarter of 2008.

The following table shows the components of revenues recognized in the first quarter of 2009:

Revenues from the Installation segment recognized from installation   $     29.46
contracts signed in 2008
Revenues from the Installation segment recognized from installation   $     45.46
contracts signed in 2009
Revenues from the Manufacturing segment recognized from manufacturing $      2.80
contracts signed in 2008
Revenues from the Manufacturing segment recognized from manufacturing $     12.51
contracts signed in 2009
Revenues from the Distribution segment recognized from distribution   $      0.94
contracts signed in 2008
Revenues from the Distribution segment recognized from distribution   $      5.25
contracts signed in 2009
Total revenues recognized in the first quarter of 2009                $     96.42
Revenues deferred                                                     $      1.02
Backlog of contracts for system installation and manufacturing of     $     86.87
surveillance and safety products signed before March 31, 2009 (1)

(1) We have conservatively not included the letter of intents, framework agreements and various signed partnership agreements in our backlog numbers as they are subject to final binding individual agreements to be entered into at later dates.

Our revenues are generated from three business segments: Installation segment, Manufacturing segment and Distribution segment. The following table shows the different segments comprising our total revenues for the three months ended March 31, 2009 and 2008.

All amounts in millions of U.S. dollars

Revenues                     2009                         2008
Installation segment  $  74.92      77.7%   $               59.54      83.0%
Manufacturing segment    15.31      15.9%                    8.13      11.3%
Distribution segment      6.19       6.4%                    4.11       5.7%
Total                 $  96.42     100.0%   $               71.78     100.0%

For the three months ended March 31, 2009 and 2008, our Manufacturing segment generated revenues of $15.31 million and $8.13 million, representing 15.9% and 11.3% of our total revenues, respectively. For the three months ended March 31, 2009 and 2008, our Distribution segment generated revenues of $6.19 million and $4.11 million, representing 6.4% and 5.7% of our total revenues. Management believes that revenues from the installation projects will continue to be the Company's major revenue source in the next few years. With the acquisitions of 2008 and 2009 and other planned acquisitions, management believes that the percentage of revenues from the Manufacturing segment and the Distribution segment will increase in the future.

Management expects growth in all three segments to remain strong in the remainder of 2009 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.

Cost of goods sold

Our cost of goods sold is primarily comprised of the costs of our raw materials, labor and overhead. Cost of goods sold for the first quarter of 2009 increased by 44.2% to $71.39 million as compared to $49.52 million for the same period last year. The increase was generally in line with the increase of revenues.

Gross profit and gross margin

Our gross profit is equal to the difference between our revenues and our cost of goods sold. Our gross profit increased $2.77 million, or 12.4%, to $25.03 million for the three months ended March 31, 2009 from $22.26 million for the same period last year. Gross margin for the three months ended March 31, 2009 was 26.0%, as compared to 31.0% for the same period of 2008. The decrease in our gross margin was primarily driven by declining selling prices.

The following table shows the different segment components comprising our gross profit margin over the three months ended March 31, 2009 and 2008.

Gross Margin             2009      2008
Installation segment    25.8%     29.7%
Manufacturing segment   27.5%     35.9%
Distribution segment    23.6%     39.9%
Total                   26.0%     31.0%

For the three months ended March 31, 2009, gross margins of the Installation segment, Manufacturing segment and Distribution segment were approximately 25.8%, 27.5% and 23.6%, respectively, compared to 29.7%, 35.9% and 39.9% for the same period last year. Gross margins of the Installation segment decreased due to the declining margins from smaller scale projects. This was mainly due to our efforts in maintaining market share and expansion of customer base. Also, gross margin for the Manufacturing segment decreased to 27.5% for the three months ended March 31, 2009 from 35.9% for the same period last year. The decrease in our gross margin was primarily driven by the selling prices decreases. Gross margin for the Distribution segment decreased to 23.6% for the three months ended March 31, 2009 from 39.9% for the same period last year. Such high gross margin in the same period last year was mainly because our software solutions, that were sold during the same period last year, generally had a higher margin.

Our selling and marketing expenses are comprised primarily of sales commissions, the cost of advertising and promotional materials, salaries and fringe benefits of sales personnel, after-sale support services and other sales related costs. Our selling and marketing expenses increased $0.57 million, or 26.6%, to $2.71 million for the three months ended March 31, 2009 from $2.14 million for the same period in 2008. This dollar increase was primarily attributable to the consolidation of the financial results of Stonesonic, Longhorn, Guanling, Jin Lin, DIT and Coson which incurred selling and marketing expenses associated with sales of their products. As a percentage of revenues, our selling and marketing expenses decreased to 2.8% for the three months ended March 31, 2009 from 3.0% for the same period in 2008. The percentage slightly decrease was due to the cost efficiency.

General and administrative expenses

General and administrative expenses consist primarily of compensation and benefits to our general management, finance and administrative staff, professional advisor fees, audit fees and other expenses incurred in connection with general operation. Our general and administrative expenses increased $3.10 million, or 73.8%, to $7.30 million for the three months ended March 31, 2009 from $4.20 million of the same period in 2008. As a percentage of revenues, general and administrative expenses increased to 7.6% for the three months ended March 31, 2009 from 5.9% for the same period in 2008. The dollar and percentage . . .