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, our future operating results, our expectations regarding the market for surveillance and safety products, 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 our actual results to differ materially from those anticipated, expressed or implied in the forward-looking statements. These risks and uncertainties include, but not limited to, the factors mentioned in the "Risk Factors" section of our Annual Report on Form 10-K for the year ended December 31, 2008, and other risks mentioned in this Form 10-Q or in our other reports filed with the Securities Exchange Commission (the "SEC"). 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. We assume no obligation and do 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 "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 "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 "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 "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 "DM" are to Beijing DM Security & Technology Co., Ltd., a corporation incorporated in the People's Republic of China;

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 "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 "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 "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 "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 "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.

Overview of Our Business

China Security & Surveillance Technology, Inc. is a Delaware holding company whose China-based operating subsidiaries are primarily engaged in manufacturing, distributing, installing and servicing surveillance and safety products and systems and developing surveillance and safety related software in China. Our customers are mainly comprised of (i) commercial entities (including airports, hotels, real estate, banks, mines, railways, supermarkets and entertainment venues) and (ii) governmental entities (including customs agencies, courts, public security bureaus and prisons). These account for approximately 45% and 55% of our revenues for the three months ended September 30, 2009, respectively.

Our sales network covers most of China's populated areas and we do not rely on any particular region for our business. Our subsidiaries collectively have more than 140 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").

We also provide general corporate services to its segments and these costs are reported as "Corporate and others".

Recent Developments

On October 2, 2009, we entered into a securities purchase agreement with certain purchasers pursuant to which we sold a total of 9,359,148 shares of our common stock for an aggregate purchase price of $58.49 million at $6.25 per share. We also issued warrants to the purchasers to purchase 2,339,787 shares of our common stock at an exercise price of $8.16 per share. The warrants are exercisable for one year beginning on the date of the initial issuance of the warrants. The shares, including the shares issuable upon exercise of the warrants were drawn-down off of a shelf registration statement declared effective by the SEC on February 26, 2009.

On October 22, 2009, we entered into a notes purchase agreement with Citadel Equity Fund Ltd. pursuant to which we have agreed to repurchase the Tranche A Zero Coupon Guaranteed Senior Unsecured Convertible Notes in the aggregate principal amount of $50 million (the "Tranche A Notes") for a total consideration of $47.5 million (the "Purchase Price"). We will pay $27 million of the Purchase Price in exchange for the cancellation of 56.8421% of all of the outstanding Tranche A Notes in an aggregate principal amount of $28.42 million on or prior to October 30, 2009. We will pay $20.5 million to Citadel for the cancellation of the remaining 43.1579% of all of the outstanding Tranche A Notes on or prior to November 16, 2009.

We continued to experience strong demand for our products and services during the third fiscal quarter of 2009 and growth in our revenues and net income. The surveillance and safety product market in China continued to expand in the third quarter of 2009, due in part to several programs and regulatory drivers initiated by the Chinese government in 2006 and the 2008 economic stimulus package. In 2006, the Chinese government promulgated State Ordinance 458 and the Safe City program, which requires 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 November 2008, the Chinese government announced an economic stimulus package to invest RMB 4 trillion (approximately $586 billion) in infrastructure and social welfare by the end of 2010. The economic stimulus package increased the demand for surveillance and safety products in China. 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 estates, factories and shopping centers. Our third fiscal quarter financial results also benefit from the consolidation of Jin Lin and DIT which were acquired in the third and fourth quarter of 2008 and from the consolidation of Coson which was acquired in the first quarter of 2009. Jin Lin, DIT and Coson each contributed approximately $0.52 million, $5.18 million and $1.35 million revenues in the third quarter of 2009, accounting for approximately 0.3%, 3.2% and 0.8% of the total revenues of such period, respectively. In this quarter, we also restructured the two outstanding 1% Guaranteed Senior Unsecured Convertible Notes Due 2012 (the "Existing Notes") into zero coupon interest notes which resulted in a non-cash gain on modification of convertible notes of $9.32 million. We believe the restructuring of the notes will strengthen our balance sheet and enhance our capital structure.

The following are some financial highlights for the third quarter of 2009:

º Revenues: Revenues increased $40.53 million, or 34.0%, to $159.82 million for the third quarter of 2009, from $119.29 million for the same quarter of last year.

º Gross margin: Gross margin was 22.1% for the third quarter of 2009, compared to 26.8% for the same period in 2008.

º Income from operations: Income from operations increased $1.88 million, or 12.3%, to $17.21 million for the third quarter of 2009, from $15.33 million for the same period last year.

º Operating margin: Operating margin (the ratio of income from operations to revenues, expressed as a percentage) was 10.8% for the third quarter of 2009, compared to 12.8% for the same period in 2008.

º Net income attributable to the Company: Net income attributable to the Company increased $12.85 million, or 140.4%, to $22.00 million for the third quarter of 2009, from $9.15 million for the same period of last year.

º Net margin: Net margin (the ratio of net income attributable to the Company to revenues, expressed as a percentage) was 13.8% for the third quarter of 2009, compared to 7.7% for the same period in 2008.

º Fully diluted net income per share: Fully diluted net income per share was $0.41 for the third quarter of 2009, as compared to $0.20 for the same period last year.

º Non-cash expenses: Non-cash expenses included (i) the redemption accretion on convertible notes of $3.90 million for the third quarter of 2009, as compared to $5.36 million for the same period last year, (ii) depreciation and amortization of $3.22 million for the third quarter of 2009, as compared to $2.51 million for the same period last year, and (iii) non-cash employee compensation expense of $4.74 million for the third quarter of 2009, as compared to $3.60 million for the same period last year. However, due to the restructuring of the Existing Notes, we recorded a non-cash gain on modification of convertible notes of $9.32 million in the third quarter of 2009. As a result, total non-cash expenses (including non-cash gain) are $2.54 million for the third quarter of 2009, decrease of $8.93 million, or 77.9%, from $11.47 million for the same period last year.

Our net income attributable to the Company for the three months ended September 30, 2009 and 2008 was $22.00 million and $9.15 million, respectively. Our net income attributable to the Company for the nine months ended September 30, 2009 and 2008 was $30.51 million and $21.38 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 Accounting Standard Codification ("ASC") 718, previously SFAS No. 123(R), redemption accretion on convertible notes and gain on modification of 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, redemption accretion on convertible notes and gain on modification of 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
                                                                      September 30,
                                                                                              Increase
Non-cash expenses (income)                                        2009           2008        (Decrease)
Depreciation and amortization                                  $    2.96    $       2.28           0.68
Depreciation and amortization (included in cost of goods sold)      0.26            0.23           0.03
Non-cash employee compensation                                      4.74            3.60           1.14
Redemption accretion on convertible notes                           3.90            5.36          (1.46 )
Gain on modification of convertible notes                          (9.32 )            --          (9.32 )
Total                                                          $    2.54    $      11.47          (8.93 )

The following table summarizes our non-cash expenses (income) during the nine months ended September 30, 2009 and 2008:

                    All amounts in millions of U.S. dollars

                                                                  Nine Months Ended
                                                                    September 30,
                                                                                           Increase
Non-cash expenses (income)                                         2009         2008      (Decrease)
Depreciation and amortization                                  $     8.69    $   6.23           2.46
Depreciation and amortization (included in cost of goods sold)       0.74        0.52           0.22
Non-cash employee compensation                                      13.32        9.66           3.66
Redemption accretion on convertible notes                           14.85       14.09           0.76
Gain on modification of convertible notes                           (9.32 )        --          (9.32 )
Total                                                          $    28.28    $  30.50          (2.22 )

Results of Operations

The following table sets forth key components of our results of operations for
the periods indicated, in millions of U.S. dollars and as a percentage of
revenues.

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

                               Three Months Ended September 30,                   Nine Months Ended September 30,
                                 2009                     2008                     2009                     2008
                                       % of                     % of                     % of                     % of
                         Amount      Revenues     Amount      Revenues     Amount      Revenues     Amount      Revenues
Revenues               $  159.82         100%   $  119.29       100.0%   $  398.15       100.0%   $  283.81       100.0%
Cost of goods sold
(including
depreciation and
amortization for the
three and nine months
ended September 30,
2009 and 2008 of
$0.26, $0.74, $0.23
and $0.52,
respectively)            (124.48 )      77.9%      (87.28 )      73.2%     (306.77 )      77.0%     (199.09 )      70.1%
Gross profit               35.34        22.1%       32.01        26.8%       91.38        23.0%       84.72        29.9%
Selling and marketing
expenses                   (3.10 )       1.9%       (3.38 )       2.8%       (8.85 )       2.2%       (8.51 )       3.0%
General and
administrative
expenses                   (7.33 )       4.5%       (7.42 )       6.2%      (22.76 )       5.7%      (19.61 )       6.9%
Non-cash employee
compensation               (4.74 )       3.0%       (3.60 )       3.0%      (13.32 )       3.3%       (9.66 )       3.4%
Depreciation and
amortization               (2.96 )       1.9%       (2.28 )       1.9%       (8.69 )       2.2%       (6.23 )       2.2%
Income from operations     17.21        10.8%       15.33        12.8%       37.76         9.6%       40.71        14.3%
Other income                0.51         0.3%        0.55         0.5%        1.84         0.5%        1.37         0.5%
Gain on modification
of convertible notes        9.32         5.8%          --           --        9.32         2.3%          --           --
Interest expense, Cash     (1.28 )       0.8%       (0.59 )       0.5%       (2.95 )       0.7%       (1.51 )       0.5%
Redemption accretion
on convertible notes       (3.90 )       2.4%       (5.36 )       4.5%      (14.85 )       3.8%      (14.09 )       5.0%
Income before income
taxes                      21.86        13.7%        9.93         8.3%       31.12         7.9%       26.48         9.3%
Income taxes                0.14         0.1%       (0.78 )       0.6%       (0.61 )       0.2%       (5.10 )       1.8%
Net income
attributable to the
Company                $   22.00        13.8%   $    9.15         7.7%   $   30.51         7.7%   $   21.38         7.5%

Revenues

Our revenues are generated from system installations and manufacturing and distribution of surveillance and safety products. During the third quarter of 2009, we experienced solid growth in revenues. Revenues increased $40.53 million, or 34.0%, to $159.82 million for the three months ended September 30, 2009 from $119.29 million for the three months ended September 30, 2008. The increase in revenues 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 DIT in the fourth quarter of 2008 and Coson in the first quarter of 2009. Our strategic efforts to increase our distribution channels during 2008 and sufficient working capital from our recent fundraising activities with local Chinese banks also should allow us to successfully take advantage of the growth in market demand in the future.

After the acquisition of Coson closed in January 2009, we consolidated the financial results of Coson since the second and third quarter of 2009, which contributed $1.35 million to revenues in the third quarter of 2009. After Stonesonic, Longhorn and Guanling became our wholly owned subsidiaries, we consolidated the financial results of Stonesonic, Longhorn and Guanling beginning in the second quarter of 2008. We consolidated the financial results of Jin Lin and DIT from the third and fourth quarters of 2008, respectively. These two companies collectively contributed $5.70 million to our revenues in the third quarter of 2009, $13.54 million in the second quarter of 2009 and $8.49 million in the first quarter of 2009. As the acquisitions of Hongtianzhi, HiEasy, Minking and Tsingvision, Stonesonic, Longhorn and Guanling have all surpassed the one year anniversary, we have included the revenues contributed by these companies in our organic growth for the third quarter of 2009.

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

Revenues from the Installation Segment recognized from installation contracts signed before June 30, 2009           $         65.02
Revenues from the Installation Segment recognized from installation contracts signed in the third quarter of 2009             55.48
Revenues from the Manufacturing Segment recognized from manufacturing contracts signed before June 30, 2009                    2.15
Revenues from the Manufacturing Segment recognized from manufacturing contracts signed in the third quarter of 2009           22.37
Revenues from the Distribution Segment recognized from distribution contracts signed before June 30, 2009                      0.56
Revenues from the Distribution Segment recognized from distribution contracts signed in the third quarter of 2009             14.24
Total revenues recognized in the third quarter of 2009                                                                       159.82
Revenues deferred                                                                                                              1.33
Backlog of contracts for system installation and manufacturing of surveillance and safety products signed before              73.26
September 30, 2009 (1)


(1) We have conservatively not included letters of intent, framework agreements
and various other agreements in our backlog numbers as they are subject to final
binding 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 September 30, 2009 and 2008.

    All amounts, except percentage of revenues, in millions of U.S. dollars

                                                   2009                                                           2008
                                                                   Percent of                                                     Percent of
Revenues                              Amount                        Revenues                         Amount                        Revenues
Installation Segment  $                            120.50                    75.4%   $                             86.85                    72.8%
Manufacturing Segment                               24.52                    15.3%                                 21.43                    18.0%
Distribution Segment                                14.80                     9.3%                                 11.01                     9.2%
Total                 $                            159.82                   100.0%   $                            119.29                   100.0%

For the three months ended September 30, 2009 and 2008, our Installation Segment generated revenues of $120.50 million and $86.85 million which represented 75.4% and 72.8% of our total revenues, respectively. Such increase in revenues was mainly due to the following factors: First, demand for surveillance and safety 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 2006, 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, in November 2008, the Chinese government announced an economic stimulus package to invest RMB 4 trillion (approximately $586 billion) in infrastructure and social welfare by the end of 2010. The economic stimulus package increased the demand for surveillance and safety products in China. Fourth, our strategic efforts to increase our distribution channels in 2008 allowed us to successfully take advantage of the growth in market demand in the third quarter of 2009. Fifth, we have been successful in raising sufficient working capital to facilitate expansion in the China market. Finally, our increased brand recognition also contributed to the growth in sales revenue.

For the three months ended September 30, 2009 and 2008, our Manufacturing Segment generated revenues of $24.52 million and $21.43 million, representing 15.3% and 18.0% of our total revenues, respectively. For the three months ended September 30, 2009 and 2008, our Distribution Segment generated revenues of $14.80 million and $11.01 million, representing 9.3% and 9.2% of our total revenues. Management believes that revenues from the installation projects will continue to be our 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 surveillance and safety market both within the corporate and government sectors, (ii) our better capitalization to fuel our growth, (iii) continued enhancement of our brand and profile in China, and (iv) acquisition strategy intended to boost our market share and competitiveness.

Cost of goods sold

. . .