UNITED ~~STATESSECURITIES~~STATES SECURITIES AND EXCHANGE ~~COMMISSIONWashington~~COMMISSION Washington, D.C. ~~20549FORM~~20549 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, 2011 [ ] 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: 001-33774CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC.(Exact name of small business issuer as specified in its charter)

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: June 30, 2011

[ ] 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: 001-33774

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC.
(Exact name of registrant 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 ~~RoadFutian~~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)~~

(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 [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [ X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "“large accelerated filer,"” "“accelerated filer"” and "“smaller reporting company"” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	[ ]	Accelerated Filer	[X]
Non-Accelerated Filer	[ ]	Smaller reporting company	[ ]
(Do not check if a smaller reporting company)

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

Yes [ ] No [X]

The number of shares outstanding of each of the issuer'’s classes of common equity, as of ~~April~~July 2021, 2011 is as follows:

Class of Securities	Shares Outstanding
Common Stock, $0.0001 par value	89,~~722~~703,~~023~~773

TABLE OF CONTENTS

	PART I	Page
		Page
Item 1.	Financial Statements	2
PART I
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	28
Item 1.	Financial Statements	1
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 4.	Controls and Procedures	49
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	53
	PART II
Item 4.	Controls and Procedures	54
Item 1.	Legal Proceedings	50
PART II
Item 1A.	Risk Factors	50
Item 1.	Legal Proceedings	55
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 1A.	Risk Factors	55
Item 3.	Defaults Upon Senior Securities	50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 4.	(Removed and Reserved)	50
Item 3.	Defaults Upon Senior Securities	56
Item 5.	Other Information	50
Item 4.	(Removed and Reserved)	56
Item 6.	Exhibits	50
Item 5.	Other Information	56
Item 6.	Exhibits	57

1 PART I FINANCIAL INFORMATION

~~PART I FINANCIAL INFORMATION~~ ITEM 1. FINANCIAL STATEMENTS. CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2011 (UNAUDITED) AND DECEMBER 31, 2010 Expressed in thousands of U.S. dollars (Except for share and per share amounts) ASSETS

		March 31, 2011		December 31, 2010
Cash and cash equivalents	$	278,739	$	65,626
Restricted cash		20,000		--
Accounts receivable, net		417,966		433,986
Inventories, net		43,026		59,368
Prepayments and deposits		56,809		56,241
Advances to suppliers and subcontractors		103,701		88,360
Other receivables		61,011		47,116
Total current assets		981,252		750,697
Deposits paid for business acquisitions, properties and intangible assets		153,657		146,243
Plant and equipment, net		75,136		75,294
Land use rights, net		7,957		7,896
Intangible assets, net		47,346		48,692
Goodwill		79,516		79,516
Deferred financing costs, net		2,669		2,684
TOTAL ASSETS	$	1,347,533	$	1,111,022

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2011 (UNAUDITED) AND DECEMBER 31, 2010
Expressed in thousands of U.S. dollars
(Except for share and per share amounts)

~~Continued~~ASSETS

		June 30, 2011		December 31, 2010
Cash and cash equivalents	$	144,205	$	65,626
Restricted cash		22,472		--
Accounts receivable, net		491,369		433,986
Inventories, net		43,101		59,368
Prepayments and deposits		168,589		56,241
Advances to suppliers and subcontractors		154,760		88,360
Other receivables		48,568		47,116
Total current assets		1,073,064		750,697

Deposits paid for business acquisitions, properties and intangible assets		132,753		146,243
Plant and equipment, net		77,321		75,294
Land use rights, net		8,042		7,896
Intangible assets, net		45,799		48,692
Goodwill		79,519		79,516
Deferred financing costs, net		2,143		2,684
TOTAL ASSETS	$	1,418,641	$	1,111,022

~~CHINA~~Continued SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) AS OF MARCH 31, 2011 (UNAUDITED) AND DECEMBER 31, 2010 Expressed in thousands of U.S. dollars (Except for share and per share amounts) LIABILITIES AND EQUITY

		March 31, 2011			December 31, 2010
CURRENT LIABILITIES
Notes payable – short term	$	182,657		$	196,329
Obligations under product financing arrangements – short term		6,110			6,687
Guaranteed senior unsecured notes payable – short term		21,907			37,408
Accounts and bills payable		40,608			32,240
Accrued expenses		58,472			49,421
Advances from customers		17,738			15,216
Taxes payable		26,230			28,648
Payable for acquisition of businesses, properties and land use rights		3,763			3,763
Deferred income		2,768			3,201
Total current liabilities		360,253			372,913
LONG TERM LIABILITIES
Notes payable – long term		299,903			60,570
Obligations under product financing arrangements – long term		5,164			6,474
Guaranteed senior unsecured notes payable – long term		3,285			6,580
Net deferred tax liabilities		668			282
Total liabilities		669,273			446,819
EQUITY
Preferred stock, $0.0001 par value; 10,000,000 shares authorized, no shares issued and outstanding
Common stock, $0.0001 par value; 290,000,000 shares authorized, 89,722,023 (March 31, 2011) and 89,521,115 (December 31, 2010) shares issued and outstanding		9			9
Additional paid-in capital		379,964			374,417
Retained earnings		245,050			243,371
Statutory surplus reserve fund		804			804
Accumulated other comprehensive income		52,450			45,619
Total equity of the Company		678,277			664,220
Noncontrolling interest		(17	)		(17	)
Total equity		678,260			664,203
TOTAL LIABILITIES AND EQUITY	$	1,347,533		$	1,111,022

~~See~~CHINA ~~accompanying~~SECURITY ~~notes~~& toSURVEILLANCE ~~condensed~~TECHNOLOGY, ~~consolidated~~INC. ~~financial~~AND ~~statements~~SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) AS OF JUNE 30, 2011 (UNAUDITED) AND DECEMBER 31, 2010 Expressed in thousands of U.S. dollars (Except for share and per share amounts)

3LIABILITIES AND EQUITY

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010 Expressed in thousands of U.S. dollars (Except for share and per share amounts)

		June 30, 2011			December 31, 2010

CURRENT LIABILITIES
Notes payable – short term	$	191,014		$	196,329
Obligations under product financing arrangements – short term		5,512			6,687
Guaranteed senior unsecured notes payable – short term		22,168			37,408
Accounts and bills payable		77,464			32,240
Accrued expenses		60,919			49,421
Advances from customers		18,722			15,216
Taxes payable		29,438			28,648
Payable for acquisition of businesses		3,763			3,763
Deferred income		2,806			3,201
Total current liabilities		411,806			372,913

LONG TERM LIABILITIES
Notes payable – long term		299,945			60,570
Obligation under product financing arrangements – long term		3,810			6,474
Guaranteed senior unsecured notes payable – long term		3,324			6,580
Net deferred tax liabilities		676			282
Total liabilities		719,561			446,819

EQUITY
Preferred stock, $0.0001 par value; 10,000,000 shares authorized, no shares issued and outstanding
Common stock, $0.0001 par value; 290,000,000 shares authorized 89,703,773 (June 30, 2011) and 89,521,115 (December 31, 2010) shares issued and outstanding		9			9
Additional paid-in capital		384,981			374,417
Retained earnings		251,016			243,371
Statutory surplus reserve fund		804			804
Accumulated other comprehensive income		62,287			45,619
Total equity of the Company		699,097			664,220
Noncontrolling interest		(17	)		(17	)
Total equity		699,080			664,203
TOTAL LIABILITIES AND EQUITY	$	1,418,641		$	1,111,022

		Three Months Ended March 31
		2011			2010
		(Unaudited)			(Unaudited)
Revenues	$	99,054		$	120,190
Cost of goods sold (including depreciation and amortization for the three months ended March 31, 2011 and 2010 of $259 and $254, respectively)		67,567			91,211
Gross profit		31,487			28,979
Selling and marketing		2,696			2,714
General and administrative (including non-cash employee compensation for the three months ended March 31, 2011 and 2010 of $5,547 and $8,326, respectively)		17,698			16,322
Depreciation and amortization		2,968			2,980
Income from operations		8,125			6,963
Interest income		141			78
Interest expense		(5,114	)		(2,295	)
Other income, net		596			246
Income before income taxes		3,748			4,992
Income taxes		(2,069	)		(1,717	)
Net income		1,679			3,275
Add: net loss attributable to the noncontrolling interest		--			2
Net income attributable to the Company		1,679			3,277
Foreign currency translation gain		6,831			124
Comprehensive income attributable to the Company		8,510			3,401
Comprehensive loss attributable to the noncontrolling interest		--			(2	)
COMPREHENSIVE INCOME	$	8,510		$	3,399
NET INCOME PER SHARE
ATTRIBUTABLE TO THE COMPANY’S COMMON SHAREHOLDERS
BASIC	$	0.02		$	0.05
DILUTED	$	0.02		$	0.05
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
BASIC		84,310,000			63,961,000
DILUTED		89,696,000			68,369,000

See accompanying notes to condensed consolidated financial statements

~~See the accompanying notes to condensed consolidated financial~~2 ~~statements.~~

4CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010 Expressed in thousands of U.S. dollars (Except for share and per share amounts)

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2011 (UNAUDITED) Expressed in thousands of U.S. dollars (Except for share and per share amounts)

		Three Months Ended June 30,						Six Months Ended June 30,
		2011			2010			2011			2010
		(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenues	$	156,339		$	168,354		$	255,393		$	288,544
Cost of goods sold (including depreciation and amortization for the three and six months ended June 30, 2011 and 2010 of $254, $513, $248 and $502, respectively)		114,331			124,994			181,898			216,205
Gross profit		42,008			43,360			73,495			72,339
Selling and marketing		3,116			3,131			5,812			5,845
General and administrative (including non-cash employee compensation for the three and six months ended June 30, 2011 and 2010 of $5,017, $10,564, $5,055 and $13,381, respectively)		21,274			12,670			38,972			28,992
Depreciation and amortization		2,971			3,005			5,939			5,985
Income from operations		14,647			24,554			22,772			31,517
Interest income		222			53			363			131
Interest expense		(6,436	)		(3,064	)		(11,550	)		(5,359	)
Other income, net		715			394			1,311			640
Income before income taxes		9,148			21,937			12,896			26,929
Income taxes		(3,182	)		(4,130	)		(5,251	)		(5,847	)
Net income		5,966			17,807			7,645			21,082
Add: Net income attributable to the noncontrolling interest		--			(4	)		--			(2	)
Net income attributable to the Company		5,966			17,803			7,645			21,080
Foreign currency translation gain		9,837			3,198			16,668			3,322
Comprehensive income attributable to the Company		15,803			21,001			24,313			24,402
Comprehensive income attributable to the noncontrolling interest		--			4			--			2
COMPREHENSIVE INCOME	$	15,803		$	21,005		$	24,313		$	24,404

NET INCOME PER SHARE ATTRIBUTABLE TO THE COMPANY’S COMMON SHAREHOLDERS
BASIC	$	0.07		$	0.25		$	0.09		$	0.31
DILUTED	$	0.07		$	0.23		$	0.09		$	0.29
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
BASIC		84,833,000			71,480,000			84,835,000			67,993,000
DILUTED		89,709,000			76,006,000			89,709,000			72,209,000

					The Company’s Shareholders
										Accumulated		Statutory
	Common Stock					Additional				Other		Surplus		Non-
				Par		Paid-in		Retained		Comprehensive		Reserve		Controlling			Total
		Shares		Value		Capital		Earnings		Income		Fund		Interest			Equity
BALANCE AT JANUARY 1, 2011		89,521,115	$	9	$	374,417	$	243,371	$	45,619	$	804	$	(17	)	$	664,203
Issuance of restricted stock under Equity Incentive Plan and recognition of stock-based compensation		200,908		--		5,547		--		--		--		--			5,547
Foreign currency translation gain		--		--		--		--		6,831		--		--			6,831
Net income for the period		--		--		--		1,679		--		--		--			1,679
BALANCE AT MARCH 31, 2011		89,722,023	$	9	$	379,964	$	245,050	$	52,450	$	804	$	(17	)	$	678,260

See accompanying notes to condensed consolidated financial statements

~~See~~3 ~~the accompanying notes to condensed consolidated financial statements.~~

5CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2011 (UNAUDITED) Expressed in thousands of U.S. dollars (Except for share and per share amounts)

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010 Expressed in thousands of U.S. dollars (Except for share and per share amounts)

							The Company’s Shareholders
									Accumulated		Statutory
	Common Stock				Additional				Other		Surplus		Non-
			Par		Paid-in		Retained		Comprehensive		Reserve		Controlling			Total
	Shares		Value		Capital		Earnings		Income		Fund		Interest			Equity

BALANCE AT JANUARY 1, 2011	89,521,115	$	9	$	374,417	$	243,371	$	45,619	$	804	$	(17	)	$	664,203

Issuance of restricted stock under Equity Incentive Plan (net of forfeited and retired shares) and recognition of stock-based compensation	182,658		--		10,564		--		--		--		--			10,564
Foreign currency translation gain	--		--		--		--		16,668		--		--			16,668
Net income for the period	--		--		--		7,645		--		--		--			7,645
BALANCE AT JUNE 30, 2011	89,703,773	$	9	$	384,981	$	251,016	$	62,287	$	804	$	(17	)	$	699,080

		Three Months Ended March 31
		2011			2010
		(Unaudited)			(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1,679		$	3,275
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		3,227			3,234
Provision for obsolete inventories		(6	)		--
Amortization of deferred financing costs		833			217
Non-cash compensation expense		5,547			8,326
Debt discount amortization		524			950
Deferred taxes		383			(310	)
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable		20,408			(48,573	)
Inventories		16,947			(3,308	)
Prepayments and deposits		1			(46	)
Advances to suppliers and subcontractors		(14,447	)		(14,634	)
Other receivables		(13,409	)		(3,626	)
Increase (decrease) in:
Accounts payable and accrued expenses		16,289			(13,846	)
Advances from customers		2,369			5,675
Taxes payable		(2,708	)		1,629
Deferred income		(465	)		159
Net cash provided by (used in) operating activities		37,172			(60,878	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant and equipment		(519	)		(597	)
Additions to intangible assets, other than through business acquisitions		(276	)		(533	)
Deposits paid for business acquisitions, properties and intangible assets, net		(5,935	)		(6,526	)
Net cash used in investing activities		(6,730	)		(7,656	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Restricted cash		(20,000	)		--
Proceeds from borrowings, net of financing costs		300,800			109,137
Repayment of borrowings		(77,992	)		(32,229	)
Repayment of guaranteed senior unsecured notes payable		(19,320	)		(19,320	)
Repayment of obligations under product financing arrangements		(1,716	)		(1,251	)
Net cash provided by financing activities		181,772			56,337
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		212,214			(12,197	)
Effect of exchange rate changes on cash and cash equivalents		899			7
Cash and cash equivalents, beginning of period		65,626			154,483
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	278,739		$	142,293

See accompanying notes to condensed consolidated financial statements

~~Continued~~4

6CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010 Expressed in thousands of U.S. dollars (Except for share and per share amounts)

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010 Expressed in thousands of U.S. dollars (Except for share and per share amounts)

		Six Months Ended June 30,
		2011			2010
		(Unaudited)			(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	7,645		$	21,082
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		6,452			6,487
Provision for obsolete inventories		(6	)		--
Amortization of deferred financing cost		1,707			563
Non-cash compensation expense		10,564			13,381
Debt discount amortization		824			1,681
Deferred taxes		388			(361	)
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable		(47,251	)		(65,925	)
Inventories		17,659			(9,866	)
Prepayments and deposits		(111,035	)		(159	)
Advances to suppliers and subcontractors		(64,336	)		(31,947	)
Other receivables		(351	)		(4,070	)
Increase (decrease) in:
Accounts payable and accrued expenses		54,815			(392	)
Advances from customers		3,151			3,953
Taxes payable		121			8,582
Deferred income		(470	)		529
Net cash used in operating activities		(120,123	)		(56,462	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant and equipment		(3,160	)		(846	)
Additions to intangible assets, other than through business acquisitions		(520	)		(807	)
Deposits refunded (paid) for business acquisitions, properties and intangible assets, net		16,905			(30,229	)
Payments for business acquisitions		--			(422	)
Net cash provided by (used in) investing activities		13,225			(32,304	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Restricted cash		(22,472	)		--
Issue of common stock, net of financing expenses		--			64,573
Proceeds from borrowings, net of financing costs		356,720			141,533
Repayment of borrowings		(128,440	)		(49,899	)
Repayment of guaranteed senior unsecured notes payable		(19,320	)		(19,320	)
Proceeds from borrowings from obligations under product financing arrangements, net of financing costs		--			6,293
Repayment of obligation under product financing arrangements		(4,450	)		(2,671	)
Net cash provided by financing activities		182,038			140,509
NET INCREASE IN CASH AND CASH EQUIVALENTS		75,140			51,743
Effect of exchange rate changes on cash and cash equivalents		3,439			1,841
Cash and cash equivalents, beginning of period		65,626			154,483
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	144,205		$	208,067

		Three Months Ended March 31,
		2011		2010
SUPPLEMENTARY CASH FLOW INFORMATION:		(Unaudited)		(Unaudited)
Interest paid	$	3,884	$	1,090
Income taxes paid	$	568	$	498

Continued

~~See~~5 ~~the accompanying notes to condensed consolidated financial statements.~~

7CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010 Expressed in thousands of U.S. dollars (Except for share and per share amounts)

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Expressed in thousands of U.S. dollars (Except for share and per share amounts)

		Six Months Ended June 30,
		2011		2010
SUPPLEMENTARY CASH FLOW INFORMATION:		(Unaudited)		(Unaudited)
Interest paid	$	11,227	$	3,157
Income taxes paid	$	4,345	$	735

1.See ~~BASIS~~accompanying OFnotes ~~PRESENTATION~~to condensed consolidated financial statements

~~The~~6 accompanying financial statements as of March 31, 2011 and for the three months ended March 31, 2011 and 2010, have been prepared by CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. (the “Company”) without an 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, 2010, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, filed with the SEC on February 28, 2011. Amounts as of December 31, 2010 are derived from these audited consolidated financial statements.

InCHINA ~~the~~SECURITY ~~opinion~~& ofSURVEILLANCE ~~management~~TECHNOLOGY, ~~all~~INC. ~~adjustments (which include~~AND ~~only~~SUBSIDIARIES ~~normal~~NOTES ~~recurring~~TO ~~adjustments)~~CONDENSED ~~necessary~~CONSOLIDATED toFINANCIAL ~~present fairly the financial~~STATEMENTS ~~position~~(UNAUDITED) asExpressed ofin ~~March~~thousands ~~31, 2011, results~~ of ~~operations and cash flows for the three months ended March 31, 2011 and 2010, have been made~~U.S. ~~The~~dollars ~~results of~~(Except ~~operations~~ for ~~the~~share ~~three~~and ~~months~~per ~~ended~~share ~~March~~amounts) ~~31, 2011, are not necessarily indicative of the operating results for the full year.~~

~~The Company’s operating results and operating cash flows historically have been subject to seasonal variations~~1. BASIS ~~The~~OF ~~Company’s~~PRESENTATION ~~revenues~~AND ~~are~~AGREEMENT ~~usually~~AND ~~higher~~PLAN inOF ~~the~~MERGER ~~second half of the year than in the first half, and the first quarter is usually the slowest quarter because fewer projects are undertaken during and around the Chinese spring festival.~~

2.(a) Basis ~~SUMMARY~~of OFpresentation ~~SIGNIFICANT ACCOUNTING POLICIES~~

The accompanying financial statements as of June 30, 2011 and for the three and six months ended June 30, 2011 and 2010, have been prepared by CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. (athe “Company”) ~~Use~~without an audit. Pursuant to the rules and regulations of ~~Estimates~~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, 2010, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, filed with the SEC on February 28, 2011, as amended on April 29, 2011. Amounts as of December 31, 2010, are derived from these audited consolidated financial statements.

~~The~~In ~~preparation~~the opinion of ~~financial~~management, ~~statements~~all inadjustments ~~conformity~~(which ~~with US~~include ~~GAAP~~only ~~requires~~normal ~~management~~recurring adjustments) necessary to ~~make~~present ~~estimates~~fairly ~~and~~the ~~assumptions~~financial position ~~that~~as ~~affect~~of ~~the reported~~June ~~amounts~~30, 2011, results of ~~assets~~operations ~~and~~for ~~liabilities~~the three and ~~disclosure~~six ofmonths ended ~~contingent~~June ~~assets~~ 30, 2011 and ~~liabilities~~2010, atand ~~the~~cash ~~date~~flows offor the ~~financial~~six ~~statements~~months ~~and~~ended ~~the~~June ~~reported amounts~~30, of2011 ~~revenues~~ and ~~expenses~~2010, ~~during~~have ~~the~~been ~~reporting periods~~made. ~~Management~~The ~~makes~~results ~~these estimates~~of ~~using~~operations for the ~~best~~three ~~information~~and ~~available~~six months atended ~~the~~June ~~time~~30, ~~the~~2011 ~~estimates~~ are ~~made;~~ ~~however~~not ~~actual~~necessarily ~~results~~indicative ~~could~~of ~~differ~~the ~~materially~~operating results ~~from~~for ~~those~~the ~~estimates~~full year.

~~(b)~~The ~~Fair~~Company’s ~~Value~~operating ~~Measurement~~results and operating cash flows historically have been subject to seasonal variations. The Company’s revenues are usually higher in the second half of the year than in the first half, and the first quarter is usually the slowest quarter because fewer projects are undertaken during and around the Chinese spring festival.

The Company utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (~~Level 1 measurements~~b) Agreement and ~~the lowest priority~~plan ~~to unobservable inputs (Level 3 measurements). The three levels~~ of ~~the~~merger ~~fair value hierarchy are described below:~~

~~Level~~On April 20, 2011, the Company entered into an Agreement and Plan of Merger with (1:) ~~Unadjusted~~Rightmark ~~quoted~~Holdings ~~prices~~Limited, ina ~~active~~British ~~markets~~Virgin ~~that~~Islands ~~are~~company ~~accessible~~and atwholly-owned subsidiary of Intelligent One Limited, a British Virgin Islands company wholly-owned by Mr. Guoshen Tu (“Rightmark”), (2) Rightmark Merger Sub Limited, a Delaware corporation and wholly-owned subsidiary of Rightmark (“Merger Sub”) and (3) Mr. Guoshen Tu, which was subsequently amended and restated by the ~~measurement~~Amended ~~date~~and ~~for~~Restated ~~identical~~Agreement and Plan of Merger, ~~unrestricted~~dated ~~assets~~as of orMay 3, 2011, by and among the same parties (such Agreement and Plan of ~~liabilities;~~merger, as amended and restated, the “Merger Agreement”). Under the Merger Agreement, Merger Sub will merge with and into the Company, with the Company continuing as the surviving corporation and a wholly-owned subsidiary of Rightmark (the “Merger”). Mr. Guoshen Tu is the Company’s Chief Executive Officer and the Chairman of the Company’s Board of Directors and beneficially owns approximately 20.9% of the Company’s outstanding shares of common stock.

~~Level~~Under 2:the ~~Quoted~~terms ~~prices~~of inthe ~~markets~~Merger ~~that~~Agreement, ~~are~~at ~~not~~the ~~active~~effective time of the Merger, each outstanding share of the Company’s common stock will be orconverted ~~inputs~~automatically ~~that~~into ~~are~~the ~~observable~~right to receive $6.50 in cash, ~~either~~without interest, ~~directly~~excluding certain shares as provided in the Merger Agreement. The Merger remains subject to the satisfaction or ~~indirectly,~~waiver ~~for~~of ~~substantially~~the conditions set forth in the ~~full~~Merger ~~term~~Agreement, including obtaining approval of the ~~asset~~existing stockholders orof ~~liability;~~the ~~and~~Company.

~~Level~~There 3:are ~~Prices~~a number of risks and uncertainties relating to the Merger. For example, the Merger may not be consummated or ~~valuation~~may ~~techniques~~not be consummated in the timeframe or manner currently anticipated, as a result of several factors, including, among other things, the failure of one or more of the Merger Agreement’s closing conditions, Parent’s failure to obtain sufficient financing to complete the Merger, or litigation relating to the Merger. In addition, there can be no assurance that ~~require~~approval of the Company’s stockholders will be ~~inputs~~obtained, that ~~are~~the ~~both~~other ~~significant~~conditions to ~~the~~closing ~~fair~~of ~~value~~the ~~measurement~~Merger ~~and~~will ~~unobservable~~be satisfied ~~(supported~~or bywaived ~~little~~or that other events will not intervene to delay or noresult in the termination of the Merger. If the Merger is not completed, the price of the Company’s common stock may change to the extent that the current market ~~activity)~~price of its common stock may reflect an assumption that the Merger will be consummated.

AtPending ~~March~~the 31closing of the Merger, ~~2011~~the Merger Agreement also restricts the Company from engaging in certain actions without Parent’s consent, which could prevent the Company from pursuing opportunities that may arise prior to the closing of the Merger. Any delay in closing or a failure to close could have a negative impact on the Company’s business and ~~December~~stock 31price as well as the Company’s relationships with its customers, ~~2010~~vendors or employees, as well as a negative impact on the Company’s ~~has~~ability ~~no financial~~to ~~assets~~pursue alternative strategic transactions and/or ~~liabilities~~the ~~subject~~Company’s ability to ~~recurring~~implement ~~fair~~alternative ~~value~~business ~~measurements~~plans. In addition, if the Merger Agreement is terminated under certain circumstances, the Company is required to pay a termination fee of up to $10,000.

~~The~~7 Company’s financial instruments include cash and cash equivalents, accounts receivable, other receivables, accounts and bills payable, notes payable, obligations under product financing arrangements, and guaranteed senior unsecured notes payable. Management estimates that the carrying amounts of these non-related party financial instruments approximate their fair values due to their short-term nature and/or based on market interest rates currently available.

8CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Expressed in thousands of U.S. dollars (Except for share and per share amounts)

~~CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC~~2. SUMMARY ~~AND~~OF ~~SUBSIDIARIES~~SELECTED SIGNIFICANT ~~NOTES~~ACCOUNTING TOPOLICIES ~~CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Expressed in thousands of U.S. dollars (Except for share and per share amounts)~~

2.(a) Use ~~SUMMARY~~of OFEstimates ~~SELECTED SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)~~

~~(c)~~The ~~Cash~~preparation of financial statements in conformity with US GAAP requires management to make estimates and ~~Cash~~assumptions ~~Equivalents,~~that affect the reported amounts of assets and ~~Restricted~~liabilities ~~Cash~~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.

~~The~~(b) Fair ~~Company~~Value ~~considers highly liquid investments purchased with~~Measurement ~~original maturities of three months or less to be cash equivalents.~~

~~Restricted~~The ~~cash~~Company asutilizes ofa ~~March~~fair ~~31,~~value ~~2011~~hierarchy ~~represents~~that ~~time deposits~~prioritizes onthe ~~account~~inputs to ~~secure~~valuation ~~short-term~~techniques ~~notes~~used ~~payable~~to measure fair value. ~~Also~~The ~~see~~hierarchy gives ~~Note~~the 10highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

~~(d)~~Level ~~Accounts~~1: ~~Receivable~~Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

~~Financial~~Level ~~instruments~~2: ~~that~~Quoted ~~potentially~~prices ~~subject the Company to concentrations of credit risk consist primarily of trade accounts receivable. The Company extends credit to its customers~~ in ~~the~~markets ~~normal~~that ~~course~~are ofnot ~~business and~~active, ~~generally~~or ~~does~~inputs ~~not~~that ~~require collateral. The Company’s credit terms in general~~ are ~~from~~ ~~30 to 330 days~~observable, ~~dependent~~either ~~upon~~directly ~~the~~or ~~segment~~indirectly, ~~the~~for ~~nature of the project, and~~substantially the ~~customer.~~full ~~The~~term ~~Company assesses the probability~~ of ~~collection from each customer at~~ the ~~outset~~asset ofor ~~the~~liability; ~~arrangement based on a number of factors, including the customer’s payment history~~ and ~~its current creditworthiness. If in management’s judgment collection is not probable, the Company does not record revenue until the uncertainty is removed.~~

~~Management~~Level ~~performs~~3: ~~ongoing~~Prices ~~credit~~or ~~evaluations,~~valuation ~~and~~techniques ~~the~~that ~~Company~~require ~~maintains~~inputs anthat ~~allowance~~are ~~for~~both ~~potential~~significant ~~credit~~to ~~losses based upon its loss history and its aging analysis. The allowance for doubtful accounts is~~ the ~~Company’s best~~fair ~~estimate~~value ofmeasurement the amount of credit losses in existing accounts receivable. Management reviews the allowance for doubtful accounts each reporting period based on a detailed analysis of trade receivables. In the analysis, management primarily considers the age of the customer’s receivable, and ~~also considers the~~unobservable ~~creditworthiness~~(supported ofby ~~the~~little ~~customer,~~or ~~the~~no ~~economic~~market ~~conditions of the customer’s industry, general economic conditions and trends, and the business relationship and history with its customers, among other factors~~activity). If any of these factors change, the Company may also change its original estimates, which could impact the level of the Company’s future allowance for doubtful accounts. If judgments regarding the collectability of receivables were incorrect, adjustments to the allowance may be required, which would reduce profitability.

~~Accounts~~At ~~receivable~~June ~~are~~30, ~~recognized~~2011 and ~~carried~~December at31, ~~the~~2010, ~~original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful accounts receivable is made when collection of~~ the ~~full~~Company ~~amount~~has is no ~~longer~~financial ~~probable.~~assets ~~Bad~~or ~~debts~~liabilities ~~are~~subject ~~written~~to ~~off~~recurring asfair ~~incurred~~value measurements.

AsThe ~~of March 31, 2011, one individual customer had an accounts receivable balance which represented approximately 23.4% of the~~ Company’s ~~total accounts~~financial ~~receivable.~~instruments ~~There~~include ~~were~~cash noand ~~other individual customers with a balance~~cash ~~greater~~equivalents, ~~than 10% of total~~ accounts receivable, atother ~~March 31~~receivables, ~~2011.~~accounts Asand ofbills ~~December 31~~payable, notes ~~2010~~payable, ~~one~~obligations ~~individual~~under ~~customer~~product ~~had~~financing anarrangements, ~~accounts~~and ~~receivable balance which~~guaranteed ~~represented~~senior ~~approximately~~unsecured 13notes payable.5% ofManagement ~~the~~estimates ~~Company’s~~that ~~total~~the ~~accounts~~carrying ~~receivable.~~amounts ~~There~~of ~~was~~the nonon-related ~~other~~party ~~individual~~financial ~~customer~~instruments ~~that~~approximate ~~had~~their anfair ~~accounts~~values ~~receivable balance~~due ~~greater~~to ~~than~~their ~~10%~~short-term ofnature ~~the~~and/or ~~Company’s~~based ~~total~~on ~~accounts~~market ~~receivable~~interest atrates ~~December 31,~~currently ~~2010~~available.

~~From~~8 time to time, the Company enters into receivable factoring arrangements. The Company accounts for these arrangements under ASC 860, “Transfers and Servicing.” These arrangements are without recourse, the receivables are isolated from the Company, the transferee has the right to pledge or exchange the receivables, and the Company does not maintain effective control over the receivables. Therefore, these arrangements satisfy the conditions to be accounted for as a sale and the Company recognizes any gain or loss in earnings. The Company did not enter into any receivable factoring agreements during the three months ended March 31, 2011 and 2010.

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (eUNAUDITED) ~~Inventories~~Expressed in thousands of U.S. dollars (Except for share and per share amounts)

Manufacturing, distribution and service segment inventories consist of raw materials, work in process and finished goods and are stated at the lower of cost, determined on a weighted average basis, or net realizable value2. SUMMARY ~~Net~~OF ~~realizable value is the estimated selling price in the ordinary~~SELECTED ~~course~~SIGNIFICANT ofACCOUNTING ~~business~~POLICIES ~~less~~(CONTINUED) 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 period 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 period the impairment or loss occurs.

~~Installation~~(c) Cash ~~segment contract costs are included within installations in process, a component of inventories,~~ and ~~include~~Cash ~~materials~~Equivalents, ~~labor~~ and ~~overhead~~Restricted ~~related~~Cash ~~to the installations.~~

AsThe ofCompany ~~March~~considers ~~31,~~highly ~~2011~~liquid ~~and~~investments ~~December~~purchased ~~31, 2010, inventories held~~with ~~under~~original ~~product~~maturities ~~financing~~of ~~arrangements~~three ~~(see~~months ~~Note~~or ~~11)~~less ~~were~~to ~~$20,008~~be ~~and~~cash ~~$19,808, respectively~~equivalents.

~~During~~Restricted ~~the~~cash ~~three~~as ~~months~~of ~~ended~~June ~~March 31~~30, 2011 ~~and 2010~~, ~~approximately~~ ~~34%~~represents ~~and~~time ~~46%,~~deposits on ~~respectively,~~account ofto ~~total~~secure ~~inventory~~short-term ~~purchases~~notes ~~were from five suppliers~~payable. ~~Management~~Also ~~believes~~see ~~that~~Note ~~should the Company lose any one of its major suppliers, other suppliers are available that could provide similar products to the Company on comparable terms~~10.

9(d) Accounts Receivable

~~CHINA~~Financial ~~SECURITY~~instruments &that ~~SURVEILLANCE~~potentially ~~TECHNOLOGY,~~subject ~~INC~~the Company to concentrations of credit risk consist primarily of trade accounts receivable. The ~~AND~~Company ~~SUBSIDIARIES~~extends ~~NOTES~~credit TOto ~~CONDENSED~~its ~~CONSOLIDATED~~customers ~~FINANCIAL~~in ~~STATEMENTS~~the ~~(UNAUDITED)~~normal ~~Expressed~~course of business and generally does not require collateral. The Company’s credit terms in ~~thousands~~general are from 30 to 330 days, dependent upon the segment, the nature of Uthe project, and the customer.S. ~~dollars~~The ~~(Except~~Company ~~for~~assesses ~~share~~the probability of collection from each customer at the outset of the arrangement based on a number of factors, including the customer’s payment history and ~~per~~its ~~share~~current ~~amounts)~~creditworthiness. If in management’s judgment collection is not probable, the Company does not record revenue until the uncertainty is removed.

2Management performs ongoing credit evaluations, and the Company maintains an allowance for potential credit losses based upon its loss history and its aging analysis. ~~SUMMARY~~The OFallowance ~~SELECTED~~for ~~SIGNIFICANT~~doubtful ~~ACCOUNTING~~accounts ~~POLICIES~~is the Company’s ~~(CONTINUED)~~best estimate of the amount of credit losses in existing accounts receivable. Management reviews the allowance for doubtful accounts each reporting period based on a detailed analysis of trade receivables. In the analysis, management primarily considers the age of the customer’s receivable, and also considers the creditworthiness of the customer, the economic conditions of the customer’s industry, general economic conditions and trends, and the business relationship and history with its customers, among other factors. If any of these factors change, the Company may also change its original estimates, which could impact the level of the Company’s future allowance for doubtful accounts. If judgments regarding the collectability of receivables were incorrect, adjustments to the allowance may be required, which would reduce profitability.

~~(f)~~Accounts ~~Accounting~~receivable are recognized and carried at the original invoice amount less an allowance for ~~Software~~any Touncollectible Beamounts. ~~Sold,~~An ~~Leased~~estimate orfor ~~Marketed~~doubtful accounts receivable is made when collection of the full amount is no longer probable. Bad debts are written off as incurred.

~~The~~As ~~Company~~of ~~accounts~~June ~~for~~30, ~~software~~2011, ~~development~~one ~~costs~~individual ~~in accordance~~customer ~~with~~had ~~ASC~~an ~~985-20~~accounts receivable ~~“Costs~~balance ofwhich ~~Software~~represented toapproximately Be29.1% ~~Sold,~~of ~~Leased~~the orCompany’s ~~Marketed~~total accounts ”receivable. ~~Costs~~There ~~related~~was tono ~~establishing~~other ~~the~~individual ~~technological~~customer ~~feasibility~~with of a ~~software~~balance ~~product~~greater ~~are~~than ~~expensed~~10% asof ~~incurred~~total asaccounts areceivable ~~part~~at ofJune ~~research~~30, ~~and~~2011. ~~development~~As inof December ~~general~~31, ~~and~~2010, ~~administrative~~one ~~expenses.~~individual ~~Costs~~customer ~~that~~had ~~are~~an ~~incurred~~accounts toreceivable ~~produce~~balance ~~the~~which ~~finished~~represented ~~product~~approximately ~~after~~13.5% ~~technological~~of ~~feasibility~~the isCompany’s ~~established~~total ~~are~~accounts ~~capitalized~~receivable. ~~and~~There ~~amortized~~was ~~over~~no ~~the~~other ~~estimated~~individual ~~economic~~customer ~~life~~that ofhad ~~five~~an ~~years.~~accounts ~~The~~receivable ~~Company~~balance ~~performs~~greater ~~periodic~~than ~~reviews~~10% toof ~~ensure~~the ~~that~~Company’s ~~unamortized~~total ~~software~~accounts ~~development~~receivable ~~costs remain~~at ~~recoverable~~December ~~from future revenue~~31, 2010.

AtFrom ~~March~~time 31to time, ~~2011~~the ~~and~~Company ~~December~~enters ~~31,~~into ~~2010,~~receivable ~~unamortized~~factoring agreements. ~~computer~~The Company accounts for these arrangements under Accounting ~~software~~Standards ~~costs~~Codification ~~were~~(“ASC”) ~~$5,297~~860 “Transfers and $5Servicing”. These arrangements are without recourse,~~331~~ the receivables are isolated from the Company, ~~respectively.~~the ~~During~~transferee has the ~~three~~right ~~months ended~~to ~~March~~pledge ~~31,~~or ~~2011~~exchange the receivables, and the ~~2010~~Company does not maintain effective control over the receivables. Therefore, these ~~$397~~arrangements satisfy the conditions to be accounted for as a sale and ~~$313,~~the Company ofrecognizes ~~amortization~~any ~~expenses~~gain ~~were~~or loss in earnings. The Company did not enter into ~~charged~~any toreceivable ~~income~~factoring agreements during the six months ended June 30, ~~respectively~~2011 and 2010.

(ge) Inventories ~~Goodwill~~

~~Goodwill~~Manufacturing, ~~represents~~distribution ~~the~~and ~~excess~~service segment inventories consist of ~~the~~raw ~~purchase~~materials, ~~price~~work ~~over~~in ~~the~~process and finished goods and are stated at the lower of cost, determined on a weighted average basis, or net ~~fair~~realizable value. Net realizable value ofis the ~~identifiable~~estimated ~~tangible~~selling ~~and~~price ~~intangible~~in ~~assets~~the ~~acquired and~~ordinary course of business less the ~~fair~~estimated ~~value~~cost of ~~liabilities~~completion ~~assumed~~and inthe ~~acquisitions~~estimated costs necessary to make the sale. ~~ASC~~When ~~350-30-50~~inventories ~~“Goodwill~~are sold, their carrying amount is ~~and~~charged ~~Other~~to ~~Intangible~~expense ~~Assets”,~~in ~~requires~~the period in which the ~~testing~~revenue ofis ~~goodwill~~recognized. ~~and indefinite~~Write-~~lived~~downs for ~~intangible~~declines ~~assets~~in ~~for~~net ~~impairment~~realizable atvalue ~~least~~or ~~annually.~~for ~~The~~losses ~~Company tests~~of ~~goodwill~~inventories ~~for~~are ~~impairment~~recognized as an expense in the ~~fourth~~period ~~quarter~~the ofimpairment ~~each~~or ~~year~~loss occurs.

~~Under~~Installation ~~applicable~~segment ~~accounting~~contract ~~guidance,~~costs ~~the~~are ~~goodwill~~included ~~impairment~~within ~~analysis~~installations isin aprocess, ~~two-step test. The first step of the goodwill impairment test involves comparing the fair value of each reporting unit with its carrying amount including goodwill. If the fair value of~~ a ~~reporting~~component ~~unit exceeds its carrying amount, goodwill~~ of ~~the reporting unit is considered not impaired; however~~inventories, ifand ~~the~~include ~~carrying amount of the reporting unit exceeds its fair value~~materials, ~~the~~labor ~~second~~and ~~step~~overhead ~~must~~related ~~be performed~~ to ~~measure~~the ~~potential impairment~~installations.

~~The~~9 second step involves calculating an implied fair value of goodwill for each reporting unit for which the first step indicated possible impairment. If the implied fair value of goodwill exceeds the goodwill assigned to the reporting unit, there is no impairment. If the goodwill assigned to a reporting unit exceeds the implied fair value of goodwill, an impairment charge is recorded for the excess.

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (hUNAUDITED) ~~Revenue~~Expressed ~~Recognition~~in thousands of U.S. dollars (Except for share and per share amounts)

~~Revenue~~2. SUMMARY ~~from~~OF ~~sales of surveillance and safety products and~~SELECTED ~~systems~~SIGNIFICANT ~~are~~ACCOUNTING ~~recognized~~POLICIES ~~in accordance with Staff Accounting Bulletin~~ (~~“SAB”~~CONTINUED) ~~No. 104: “ Revenue Recognition ” and related interpretations. Revenues are recognized when the following criteria are met:~~

(ie) Inventories ~~Persuasive evidence of an arrangement exists~~ – ~~The Company requires evidence of an agreement with a~~continued ~~customer specifying the terms and conditions of the products to be delivered typically in the form of a signed contract or purchase order;~~

~~(ii)~~As ~~Delivery~~of ~~has~~June ~~occurred~~30, –2011 ~~For product~~and ~~sales~~December 31, ~~delivery~~2010, ~~generally~~inventories ~~takes~~held under ~~place~~the ~~when~~product ~~titles~~financing toarrangements ~~the~~(see ~~products~~Note ~~are shipped~~11) towere or$12,544 ~~accepted~~and by$19,808, respectively. ~~the customer;~~

~~(iii)~~During ~~The~~the ~~fee~~three isand ~~fixed~~six ormonths ~~determinable~~ended June 30, 2011 and 2010, –approximately ~~Fees~~25%, ~~are~~26%, ~~fixed~~46% orand ~~determinable~~42%, ~~based~~respectively, onof total inventory purchases were from five suppliers. Management believes that should the ~~contract~~Company orlose ~~purchase~~any one ~~order~~of ~~terms;~~its major suppliers, other suppliers are available that could provide ~~and~~similar products to the Company on comparable terms.

(ivf) Accounting ~~Collection~~for isSoftware ~~probable – The~~to ~~Company~~Be ~~performs~~Sold, aLeased ~~credit~~or ~~review~~Marketed ~~of all customers with significant transactions to determine whether a customer is creditworthy and collection is probable.~~

~~All~~The ~~revenues~~Company accounts for software development costs in accordance with ASC 985-20 “Costs of Software to be Sold, Leased or Marketed”. Costs related to establishing the technological feasibility of a software product are ~~recognized~~expensed ~~net~~as incurred as a part of ~~any~~research and ~~taxes~~development ~~collected~~in ~~from~~general and administrative expenses. Costs that are incurred ~~customers~~to produce the finished product after technological feasibility is established are capitalized and ~~subsequently~~amortized ~~remitted~~over the estimated economic life of five years. The Company performs periodic reviews to ~~governmental~~ensure ~~authorities~~that unamortized software development costs remain recoverable from future revenue.

~~Product~~As ~~sales~~of ~~contracts~~June ~~generally~~30, ~~provide~~2011 aand ~~one-to-three-year product~~December ~~warranty~~31, to2010, ~~customers~~unamortized ~~from the date of purchase. The Company estimates~~computer ~~the~~software costs ofwere ~~satisfying~~$5,060 ~~warranty claims based on an analysis of past experience~~ and ~~provides~~$5,331, ~~for~~respectively. ~~future~~During ~~claims in~~ the ~~period~~three ~~the~~and ~~revenue~~six months isended ~~recognized.~~June ~~As of March 31~~30, 2011 and ~~December~~2010, 31$430, ~~2010~~$827, no$350 ~~material~~and ~~product~~$663 ~~warranty~~of ~~reserve~~amortization expense was ~~accrued.~~ ~~Warranty~~charged ~~costs~~to ~~incurred~~income, ~~by the Company have not been material~~respectively.

10(g) Goodwill

~~CHINA~~Goodwill ~~SECURITY~~represents &the ~~SURVEILLANCE~~excess ~~TECHNOLOGY,~~of ~~INC.~~the ~~AND~~purchase ~~SUBSIDIARIES~~price ~~NOTES~~over TOthe net ~~CONDENSED~~fair ~~CONSOLIDATED~~value ~~FINANCIAL~~of ~~STATEMENTS~~the ~~(UNAUDITED)~~identifiable ~~Expressed~~tangible and intangible assets acquired and the fair value of liabilities assumed in ~~thousands~~acquisitions. ASC 350-30-50 “Goodwill and Other Intangible Assets”, requires the testing of Ugoodwill and indefinite-lived intangible assets for impairment at least annually.S. ~~dollars~~The Company ~~(Except~~tests goodwill for ~~share~~impairment ~~and~~in ~~per~~the ~~share~~fourth ~~amounts)~~quarter of each year.

2Under applicable accounting guidance, the goodwill impairment analysis is a two-step test. ~~SUMMARY~~The OFfirst ~~SELECTED~~step ~~SIGNIFICANT~~of ~~ACCOUNTING~~the ~~POLICIES~~goodwill impairment test ~~(CONTINUED)~~involves comparing the fair value of each reporting unit with its carrying amount including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired; however, if the carrying amount of the reporting unit exceeds its fair value, the second step must be performed to measure potential impairment.

~~(h)~~The ~~Revenue~~second ~~Recognition~~step -involves ~~continued~~calculating an implied fair value of goodwill for each reporting unit for which the first step indicated possible impairment. If the implied fair value of goodwill exceeds the goodwill assigned to the reporting unit, there is no impairment. If the goodwill assigned to a reporting unit exceeds the implied fair value of goodwill, an impairment charge is recorded for the excess.

~~The~~(h) Revenue ~~Company derives a significant portion of its revenue from~~Recognition the supply and installation of surveillance and safety equipment in its Installation Segment; the two deliverables do not meet the separation criteria under ASC 605-25 “ Multiple-Element Arrangements. ” Installation segment contracts vary in terms of contract amount and period of performance. The performance period for short-term contracts is usually between three and six months. The period of performance for long-term contracts is typically between a year and 36 months. Long-term contracts generally are entered into with municipalities, provinces, or their affiliates located in China. These long-term contracts are further defined by agreed-upon detail specifications that outline defined stages. Completion of a defined stage represents basic service and products delivered, such as the installation of specified surveillance and safety systems in defined locations within the project area. Stages are typically planned to be completed over defined three to six-month periods. Each stage represents a discreet, defined phase of the total contract, for which completion can be readily determined. At the completion of a stage, and upon customer inspection, verification and acceptance of the work performed, the Company recognizes the fixed price per stage as revenue. At the time of stage completion, the Company considers the title to work performed passing to the customer. Other than a warranty reserve, discussed below, the Company has no further obligations to the customer for a completed stage.

~~The~~Revenues ~~use~~from ofsales ~~contract accounting requires significant judgment in estimating total contract pricing and costs, including assumptions relative to the length~~ of ~~time~~surveillance ~~to complete the contract, the nature~~ and ~~complexity~~safety ofproducts ~~the~~and ~~work~~systems toare berecognized ~~performed, anticipated increases~~ in ~~wages~~accordance ~~and~~with ~~prices~~Staff ~~for subcontractor~~Accounting ~~services~~Bulletin ~~and~~(“SAB”) ~~materials, and the availability of subcontractor services and materials~~No. ~~The Company's estimates are based upon the professional~~ ~~knowledge~~104: ~~and~~“Revenue ~~experience~~Recognition” ~~of its engineers, program managers~~ and ~~other~~related ~~personnel, who review each long-term contract continually to assess the contract's schedule, performance, technical matters and estimated cost at completion~~interpretations. ~~The risk~~Revenues ~~to the Company on fixed-price contracts is that if estimates to complete~~are ~~the~~recognized ~~contract~~when ~~change from one period to~~ the ~~next,~~following ~~profit~~criteria ~~levels~~are ~~will~~met: ~~vary from period to period.~~

~~Approximately~~(i) 1%Persuasive evidence of ~~contract~~an ~~installation~~arrangement ~~revenue~~exists is– ~~deferred for~~The ~~repair~~Company ~~work~~requires ~~during~~evidence of an agreement with a customer specifying the ~~one-year~~terms ~~warranty~~and ~~period.~~conditions ~~The~~of ~~Company~~the ~~monitors~~products to be delivered typically in the ~~warranty~~ ~~work~~form ~~requested~~of bya ~~its~~signed ~~customers,~~contract ~~and~~or purchase order; (ii) Delivery has ~~determined~~occurred ~~that~~– ~~minimal warranty~~For ~~work~~product ~~has~~sales, ~~historically~~delivery ~~been~~generally ~~requested~~takes toplace bewhen ~~performed.~~titles ~~Deferred~~to ~~income balances~~the asproducts ofare ~~March~~shipped ~~31,~~to ~~2011~~or ~~and~~accepted ~~December~~by ~~31,~~the ~~2010~~customer; ~~were~~(iii) ~~$2,768~~The ~~and~~fee ~~$3,201, respectively,~~is ~~and~~fixed ~~represented~~or ~~amounts~~determinable ~~invoiced~~– ~~but~~Fees ~~deferred~~are asfixed ~~revenue~~or asdeterminable ~~an estimated~~based ~~warranty~~on ~~reserve.~~the ~~Management~~contract ~~believes~~or ~~that~~purchase ~~this~~order 1%terms; ~~warranty~~and ~~reserve~~(iv) Collection is ~~adequate~~ asprobable – The Company performs a credit review of ~~March~~all ~~31,~~customers ~~2011~~with significant transactions to determine whether a customer is creditworthy and ~~December~~collection ~~31,~~is ~~2010~~probable.

~~Repairs~~All ~~and~~revenues ~~maintenance~~are ~~service~~recognized ~~revenue~~net isof ~~recognized~~any ~~when~~taxes ~~the~~collected from ~~service~~customers isand ~~performed~~subsequently remitted to governmental authorities.

~~The~~10 Company derives a portion of its revenue from one-year software upgrades. These services are typical post-contract service (“PCS”) arrangements according to ASC 985-605-25 “ Revenue Recognition ”. Under this guidance, PCS revenue may be recognized together with the initial licensing fee on delivery of the software if all of the following conditions are met:

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (iUNAUDITED) ~~The~~Expressed ~~PCS~~in ~~fee~~thousands isof ~~included~~U.S. ~~with~~dollars ~~the~~(Except ~~initial~~for ~~licensing~~share ~~fee;~~and per share amounts)

~~(ii)~~2. SUMMARY ~~The~~OF ~~PCS included with the initial~~SELECTED ~~license~~SIGNIFICANT isACCOUNTING ~~for~~POLICIES ~~one~~(CONTINUED) ~~year or less;~~

(~~iii~~h) Revenue ~~The~~Recognition ~~estimated cost of providing~~– ~~PCS~~continued ~~during the arrangement is insignificant; and~~

~~(iv)~~Product ~~Unspecified~~sales ~~upgrades/enhancements~~contracts generally provide a one to three-year ~~offered~~product ~~during~~warranty ~~PCS~~to ~~arrangements~~customers ~~historically~~from ~~have~~the ~~been~~date of purchase. The Company estimates the costs of satisfying warranty claims based on an analysis of past experience and ~~are~~provides ~~expected~~for tothe future claims in the period the revenue is recognized. As ~~continue~~of toJune be30, ~~minimal~~2011 and ~~infrequent~~December 31, 2010, no material product warranty reserve was accrued. Warranty costs incurred by the Company have not been material.

~~Revenue~~The Company derives a significant portion of its revenue from the supply and installation of surveillance and safety ~~system~~equipment ~~with~~in ~~one~~its Installation Segment; the two deliverables do not meet the separation criteria under ASC 605-~~year~~25 ~~software~~“Multiple-Element Arrangements”. Installation segment ~~upgrades~~contracts vary in terms of contract amount and period of performance. The performance period for short-term contracts is ~~recognized~~usually ~~when~~between ~~delivery~~three ~~occurs~~and six months. The period of performance for long-term contracts is typically between a year and 36 months. Long-term contracts generally are entered into with municipalities, provinces, or their affiliates located in China. These long-term contracts are further defined by agreed-upon detail specifications that outline defined stages. Completion of a defined stage represents basic service and products delivered, such as the ~~risk~~installation of ~~ownership~~specified ~~passes~~surveillance and safety systems in defined locations within the project area. Stages are typically planned to be completed over defined three to six-month periods. Each stage represents a discreet, defined phase of the ~~customers~~total contract, asfor which completion can be readily determined. At the completion of a stage, and upon customer inspection, verification and acceptance of the work performed, the Company ~~believes~~recognizes itthe ~~meets~~fixed price per stage as revenue. At the ~~conditions~~time ~~above~~of ~~related~~stage completion, the Company considers the title to work performed passing to the ~~its~~customer. ~~PCS~~Other ~~arrangements~~than ~~and~~a iswarranty ~~therefore~~reserve, indiscussed ~~compliance~~below, ~~with~~the ~~applicable~~Company ~~accounting~~has no ~~guidance~~further obligations to the customer for a completed stage.

~~During~~The ~~the~~use ~~three~~of ~~months~~contract ~~ended~~accounting ~~March~~requires 31significant judgment in estimating total contract pricing and costs, ~~2011and~~including ~~2010~~assumptions relative to the length of time to complete the contract, ~~one~~the ~~individual~~nature and complexity of the ~~customer~~work ~~accounted~~to be performed, anticipated increases in wages and prices for subcontractor ~~approximately~~services ~~47%~~ and ~~21%~~materials, ofand the availability of subcontractor services and materials. The Company’s ~~revenue,~~estimates are based upon the professional ~~respectively.~~knowledge ~~There~~and ~~was~~experience noof ~~other~~its ~~individual~~engineers, ~~customer~~program ~~who~~managers ~~accounted~~and ~~for~~other ~~greater~~personnel, ~~than~~who ~~10%~~review ofeach long-term contract continually to assess the ~~Company~~contract’s schedule, ~~revenue~~performance, intechnical ~~either~~matters and estimated cost at completion. The risk to the Company on fixed-price contracts is that if estimates to complete the contract change from one period to the next, profit levels will vary from period to period.

11Approximately 1% of contract installation revenue is deferred for repair work during the one-year warranty period. The Company monitors the warranty work requested by its customers, and has determined that minimal warranty work has historically been requested to be performed. Deferred income balances as of June 30, 2011 and December 31, 2010, were $2,806 and $3,201, respectively, and represented amounts invoiced but deferred as revenue as an estimated warranty reserve. Management believes that this 1% warranty reserve is adequate as of June 30, 2011 and December 31, 2010.

~~CHINA~~Repairs ~~SECURITY~~and &maintenance ~~SURVEILLANCE~~service ~~TECHNOLOGY,~~revenue ~~INC.~~is ~~AND~~recognized ~~SUBSIDIARIES~~when ~~NOTES~~the service TOis ~~CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Expressed in thousands of U~~performed.S. ~~dollars (Except for share and per share amounts)~~

2.The ~~SUMMARY~~Company OFderives ~~SELECTED~~a ~~SIGNIFICANT~~portion ~~ACCOUNTING~~of ~~POLICIES~~its revenue from one-year software upgrades. These services are typical post-contract service (~~CONTINUED~~“PCS”) arrangements according to ASC 985-605-25 “Revenue Recognition”. Under this guidance, PCS revenue may be recognized together with the initial licensing fee on delivery of the software if all of the following conditions are met:

(i) ~~Research~~The PCS fee is included with the initial licensing fee; (ii) The PCS included with the initial license is for one year or less; (iii) The estimated cost of providing PCS during the arrangement is insignificant; and ~~Development~~(iv) ~~Costs~~Unspecified upgrades/enhancements offered during PCS arrangements historically have been and are expected to continue to be minimal and infrequent.

~~Research~~Revenue ~~and~~from ~~development~~surveillance ~~costs~~and ~~are~~safety ~~expensed~~system aswith ~~incurred.~~one-year ~~Research~~software ~~and~~upgrades ~~development~~is ~~costs~~recognized ~~included~~when indelivery ~~general~~occurs and ~~administrative~~the ~~expenses~~risk of ownership ~~for~~passes to the ~~three~~customers, ~~months~~as ~~ended~~the ~~March~~Company ~~31,~~believes ~~2011~~it ~~and~~meets ~~2010~~the ~~amounted~~conditions toabove related ~~$649~~its PCS arrangements and ~~$633,~~is therefore in compliance with applicable ~~respectively~~accounting guidance.

~~(j)~~During ~~Advertising~~the ~~Costs~~three months ended June 30, 2011, three customers contributed to more than 10% of the Company’s revenue with each accounting for approximately 36.7%, 21.0% and 13.0% of the Company’s revenue, respectively. There was no individual customer that accounted for more than 10% of the Company’s revenue for the three months ended June 30, 2010. During the six months ended June 30, 2011, two customers contributed to more than 10% of the Company’s revenue with each accounting for approximately 40.7% and 14.6% of the Company’s revenue, respectively. During the six months ended June 30, 2010, one customer contributed to more than 10% of the Company’s revenue which accounted for approximately 14.5% of the Company’s revenue.

~~The~~11 Company expenses advertising costs as incurred or the first time advertising takes place. During the three months ended March 31, 2011 and 2010, the Company incurred advertising costs of approximately $1,134 and $649, respectively.

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (kUNAUDITED) ~~Retirement~~Expressed ~~Benefits~~in thousands of U.S. dollars (Except for share and per share amounts)

~~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~~2. SUMMARY ~~Retirement~~OF ~~benefit expense for~~SELECTED ~~the~~SIGNIFICANT ~~three~~ACCOUNTING ~~months~~POLICIES ~~ended~~(CONTINUED) ~~March 31, 2011 and 2010 were $447 and $290, respectively, and are included in both selling and marketing expenses and general and administrative expenses.~~

(li) Research ~~Income~~and ~~Taxes~~Development Costs

~~The~~Research ~~Company accounts for income taxes using the asset~~ and ~~liability~~ ~~method~~development ~~prescribed~~costs byare ~~ASC~~expensed ~~740~~as ~~“Income Taxes ”~~incurred. ~~Under this~~ ~~method,~~Research ~~deferred tax assets~~ and ~~liabilities~~development ~~are~~costs ~~determined~~included ~~based~~in ongeneral ~~the difference between the financial reporting~~ and ~~tax~~administrative ~~bases of assets and~~expenses ~~liabilities~~for ~~using enacted tax rates that will be in effect in~~ the ~~year~~three inand ~~which the~~six ~~differences~~months ~~are~~ended ~~expected~~June to30, ~~reverse.~~2011 ~~The~~and ~~Company~~2010, ~~records~~amounted ~~a valuation allowance~~ to ~~offset deferred tax assets if based on the weight of available~~$746, ~~evidence~~$1,395, it$661 isand ~~more-likely-than-not that some portion~~$1, ~~or all~~294, ~~of the deferred tax assets will not be realized~~respectively. ~~The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.~~

~~The~~(j) Advertising ~~Company~~Costs ~~does not have any material unrecognized tax benefits.~~

The Company ~~files~~expenses ~~income~~advertising ~~tax~~costs ~~returns~~as ~~with~~incurred or the ~~relevant~~first ~~government~~time ~~authorities~~advertising intakes ~~the U~~place.S. ~~and~~During the ~~PRC.~~three ~~The~~and ~~Company~~six ismonths ~~not~~ended ~~subject~~June to30, ~~U.S.~~2011 ~~federal~~and ~~tax~~2010, ~~examinations~~the ~~for years before 2007. The~~ Company ~~does~~incurred ~~not believe~~advertising ~~there~~costs ~~will~~of beapproximately ~~any material changes in its unrecognized tax positions~~$2,828, ~~over~~$3,962, ~~the~~$915 ~~next~~and 12$1,564, ~~months~~respectively.

~~The~~(k) Retirement ~~Company’s policy is to recognize interest and penalties~~Benefits accrued on any unrecognized tax benefits as a component of income tax expense. The Company does not have any accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized during the three months ended March 31, 2011 and 2010. The Company’s effective tax rate differs from the federal statutory rate primarily due to non-deductible expenses, preferential tax treatment, subsidiary tax rates different from the effective tax rate, and changes in the deferred tax valuation allowance.

~~(m)~~Retirement ~~Earnings~~benefits ~~Per~~in ~~Share~~the form of contributions under defined contribution retirement plans to the relevant authorities are charged to the consolidated statements of income as incurred. Retirement benefit expense for the three and six months ended June 30, 2011 and 2010, were $494, $941, $294 and $584, respectively, and are included in both selling and marketing expenses and general and administrative expenses.

~~ASC 260 “Earnings Per Share”, requires dual presentation of basic and diluted earnings per share~~ (~~“EPS”~~l) Income ~~with~~taxes 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.

~~Earning~~The ~~per~~Company ~~basic~~accounts ~~share~~for ofincome ~~common~~taxes ~~stock~~using isthe asset and liability method prescribed by ASC 740 “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference ~~weighted~~between ~~average~~the ~~number~~financial ofreporting ~~shares~~and tax bases of ~~common~~assets ~~stock~~and ~~outstanding~~liabilities ~~during~~using enacted ~~each~~tax rates that will be in effect in the year in which the differences ~~respective~~are ~~period.~~expected ~~Earnings~~to ~~per~~reverse. ~~diluted~~The ~~share~~Company ofrecords ~~common~~a ~~stock~~valuation ~~adds~~allowance to ~~basic~~offset ~~weighted~~deferred ~~shares~~tax ~~the~~assets ~~weighted~~if ~~average~~based ~~number~~on the weight of ~~shares~~available ~~issuable~~evidence, ~~under~~it ~~convertible~~is ~~securities~~more-likely-than-not that some portion, ~~contingent~~or ~~issuances~~all, ~~and~~of ~~warrants~~the ~~outstanding~~deferred ~~during~~tax ~~each~~assets will ~~respective~~not ~~period,~~be ~~using~~realized. ~~the~~The ~~if-converted~~effect on deferred taxes of a change in tax rates is recognized as income or ~~treasury-stock~~loss ~~methods~~in the period that includes the enactment date.

12The Company does not have any material unrecognized tax benefits.

~~CHINA~~The ~~SECURITY~~Company &files ~~SURVEILLANCE~~income ~~TECHNOLOGY,~~tax ~~INC.~~returns ~~AND~~with ~~SUBSIDIARIES~~the ~~NOTES~~relevant government TOauthorities ~~CONDENSED~~in ~~CONSOLIDATED~~the ~~FINANCIAL~~U.S. ~~STATEMENTS~~and ~~(UNAUDITED)~~the ~~Expressed~~PRC. inThe ~~thousands~~Company ofis not subject to U.S. ~~dollars~~federal ~~(Except~~tax examinations for ~~share~~years ~~and~~before ~~per~~2007. ~~share~~The ~~amounts)~~Company does not believe there will be any material changes in its unrecognized tax positions over the next 12 months.

2The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. The ~~SUMMARY~~Company OFdoes ~~SELECTED~~not ~~SIGNIFICANT~~have ~~ACCOUNTING~~any ~~POLICIES~~accrued interest or penalties associated with any ~~(CONTINUED)~~unrecognized tax benefits, nor was any interest expense recognized during the three and six months ended June 30, 2011 and 2010. The Company’s effective tax rate differs from the federal statutory rate primarily due to non-deductible expenses, preferential tax treatment, subsidiary tax rates different from the effective tax rate, and changes in the deferred tax valuation allowance.

(m) Earnings Per Share ~~– continued~~

~~Unvested~~ASC ~~restricted~~260 ~~shares~~“Earnings ~~issued~~Per ~~under~~Share”, ~~the~~requires ~~Equity~~dual ~~Incentive~~presentation ~~Plan~~of ~~are~~basic ~~not~~and ~~included~~diluted inearnings ~~basic~~per ~~weighted~~share ~~average~~(“EPS”) ~~number~~with ofa ~~shares~~reconciliation ~~but~~of ~~are~~the ~~considered~~numerator toand bedenominator ~~outstanding as~~ of the ~~grant~~basic ~~date~~EPS ~~for~~computation ~~purpose~~to ofthe ~~computing~~numerator and denominator of the diluted EPS ~~even~~computation. ~~though~~Basic EPS excludes dilution. Diluted EPS reflects the ~~shares~~potential ~~are~~dilution ~~subject~~that could occur if securities or other contracts to ~~vesting~~issue ~~requirements~~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.

~~The~~Earnings ~~calculation~~per ofbasic ~~diluted~~share ~~EPS also considers the dilutive effect~~ of ~~outstanding~~ ~~warrants~~common ~~for~~stock ~~the~~is ~~three~~based ~~months ended March 31, 2011 and 2010. With respect to outstanding warrants, the dilutive impact~~ on the weighted average number of shares asof ~~calculated~~common ~~under~~stock ~~the~~outstanding ~~if-converted~~during ~~method was 0 and 11,000~~each ~~for~~respective ~~the~~period. ~~three~~Earnings ~~months~~per ~~ended~~diluted ~~March~~share ~~31,~~of ~~2011~~common ~~and~~stock ~~2010,~~adds ~~respectively.~~to ~~Warrants which~~basic ~~were~~weighted ~~outstanding~~shares tothe ~~acquire~~weighted ~~157,373~~average ~~and~~number ~~3,498,296~~of shares ofissuable ~~common~~under ~~stock were~~convertible ~~not~~securities, ~~included~~contingent inissuances, ~~the~~and ~~dilutive~~warrants ~~calculation~~outstanding ~~for~~during ~~the three months ended March 31,~~each ~~2011~~respective ~~and 2010~~period, asusing the ~~effect~~if-converted ~~would~~or ~~be anti~~treasury-~~dilutive~~stock methods.

~~Basic~~Unvested ~~and~~restricted ~~diluted~~shares ~~earnings~~issued ~~per~~under ~~share~~the ~~for~~Equity Incentive Plan are not included in basic weighted average number of shares but are considered to be outstanding as of the ~~three~~grant ~~months~~date ~~ended~~for purposes of computing ~~March~~diluted ~~31,~~EPS ~~2011~~even ~~and~~though ~~2010,~~the ~~were~~shares ~~calculated~~are assubject ~~follows:~~to vesting requirements.

		2011		2010
Net income attributable to the Company	$	1,679	$	3,277
Weighted average number of common shares:
Basic		84,310,000		63,961,000
Effect of dilutive securities:
Warrants		--		11,000
Employee share-based compensation		5,386,000		4,397,000
Diluted		89,696,000		68,369,000
Earnings per share attributable to the Company
Basic	$	0.02	$	0.05
Diluted	$	0.02	$	0.05

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (nUNAUDITED) ~~Recently~~Expressed ~~Issued~~in ~~and~~thousands ~~Adopted~~of ~~Accounting~~U.S. dollars (Except ~~Pronouncements~~for share and per share amounts)

~~Business~~2. SUMMARY ~~Combinations~~OF SELECTED SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(~~Included~~m) Earnings inPer ~~ASC~~Share ~~805 “ Business Combination,” previously SFAS~~– ~~No.~~continued ~~141(R))~~

InThe ~~December~~calculation ~~2010,~~of ~~the~~diluted ~~Financial~~EPS ~~Accounting~~also ~~Standards~~considers ~~Board~~the dilutive ~~(FASB”)~~effect ~~issued~~of ~~Accounting~~outstanding ~~Standards~~warrants ~~Update~~for ~~(ASU”)~~the ~~No.~~three ~~2010-29,~~and ~~“Business Combinations”~~six ~~(Topic~~months ~~805):~~ended ~~“Disclosure~~June of30, ~~Supplementary~~2011 and ~~Pro~~2010. ~~Forma Information~~With ~~for~~respect ~~Business~~to ~~Combinations.”~~outstanding ~~This~~warrants, ~~ASU~~the ~~specifies~~dilutive ~~that~~impact ~~when~~on the ~~financial~~weighted ~~statements~~average ~~are~~number ~~presented,~~of ~~the~~shares ~~revenue~~as ~~and~~calculated ~~earnings~~under of the ~~combined~~if-converted method ~~entity~~was ~~should~~0, be0, ~~disclosed~~5,000 asand ~~though~~8,000 for the ~~business~~three ~~combination~~and ~~that~~six ~~occurred during~~months ~~the~~ended ~~current~~June ~~year~~30, ~~had~~2011 ~~occurred~~and 2010, asrespectively. ofWarrants ~~the~~which ~~beginning~~were ofoutstanding ~~the~~to ~~comparable~~acquire ~~prior~~144,509, 144,509, ~~annual~~3,498,296 ~~reporting~~and ~~period~~3,498,296 ~~only.~~shares ~~ASU~~of ~~2010-29~~common isstock, ~~effective~~respectively, ~~for~~were ~~business~~not ~~combinations~~included ~~with~~in ~~acquisition~~the ~~dates~~dilutive oncalculation orfor ~~after~~the ~~January~~three 1,and ~~2011.~~six ~~The~~months ~~adoption~~ended ofJune ~~this~~30, ~~update~~2011 and ~~did~~2010, ~~not~~as ~~have an impact on~~ the ~~Company's~~effect ~~consolidated~~would ~~financial~~be ~~statements~~anti-dilutive.

~~Goodwill~~Basic and diluted earnings per share for the three months ended June 30, 2011 and 2010 were calculated as follows:

(Included in ASC 350 "Intangibles-Goodwill and Other”)

		2011		2010
Net income attributable to the Company	$	5,966	$	17,803
Weighted average number of common shares:
Basic		84,833,000		71,480,000
Effect of diluted securities:
Warrants		--		5,000
Employee share-based compensation		4,876,000		4,521,000
Diluted		89,709,000		76,006,000
Earnings per share attributable to the Company
Basic	$	0.07	$	0.25
Diluted	$	0.07	$	0.23

InBasic ~~December 2010, the FASB issued ASU No. 2010-28, “Intangibles-Goodwill~~ and ~~Other”~~diluted ~~(Topic~~earnings ~~350):~~per ~~When~~share ~~to Perform Step 2 of the Goodwill Impairment Test~~ for ~~Reporting Units with Zero or Negative Carrying Amounts. This ASU requires that reporting units with zero or negative carrying amounts perform Step 2 of~~ the ~~goodwill~~six ~~impairment~~months ~~test if it~~ended isJune ~~more~~30, ~~likely~~2011 ~~than~~and ~~not that a goodwill impairment exists. ASU~~ 2010~~-28~~ ~~is effective~~were ~~for~~calculated ~~the~~as ~~Company~~follows: ~~beginning with this interim period. The adoption of this update did not have an impact on the Company’s financial condition or results of operations.~~

		2011		2010
Net income attributable to the Company	$	7,645	$	21,080
Weighted average number of common shares:
Basic		84,835,000		67,993,000
Effect of diluted securities:
Warrants		--		8,000
Employee share-based compensation		4,874,000		4,208,000
Diluted		89,709,000		72,209,000
Earnings per share attributable to the Company
Basic	$	0.09	$	0.31
Diluted	$	0.09	$	0.29

~~CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ (~~UNAUDITED~~n) Recently ~~Expressed~~Issued ~~in thousands of U.S. dollars (Except for share~~ and Adopted ~~per~~Accounting ~~share~~Pronouncements ~~amounts)~~

2.Business ~~SUMMARY~~Combinations ~~OF SELECTED SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)~~

(n)Included ~~Recently~~in ~~Issued~~ASC ~~and~~805 ~~Adopted~~“Business ~~Accounting~~Combination”, ~~Pronouncements~~previously -SFAS ~~continued~~No. 141 (R))

~~Multiple~~In ~~Deliverable~~December ~~Revenue~~2010, ~~Arrangements~~the Financial Accounting Standards Board (FASB”) issued Accounting Standards Update (ASU”) No. 2010-29, “Business Combinations” (Topic 805): “Disclosure of Supplementary Pro Forma Information for Business Combinations”. This ASU specifies that when financial statements are presented, the revenue and earnings of the combined entity should be disclosed as though the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. ASU 2010-29 is effective for business combinations with acquisition dates on or after January 1, 2011. The adoption of this update did not have an impact on the Company’s consolidated financial statements.

~~(Accounting Standards Updates 2009-13 and 2009-~~14)

InCHINA ~~October~~SECURITY ~~2009,~~& ~~the~~SURVEILLANCE ~~FASB issued a new accounting standard which provides guidance for arrangements with multiple deliverables. Specifically~~TECHNOLOGY, ~~the new standard requires an entity to allocate consideration at the inception of an arrangement to all of its deliverables based on their relative selling prices~~INC. ~~In the absence of the vendor-specific objective~~AND ~~evidence~~SUBSIDIARIES orNOTES ~~third-party~~TO ~~evidence~~CONDENSED ofCONSOLIDATED ~~the~~FINANCIAL ~~selling prices, consideration must be~~STATEMENTS ~~allocated~~(UNAUDITED) toExpressed ~~the~~in ~~deliverables~~thousands ~~based on management’s best estimate~~ of ~~the selling prices~~U. ~~In addition, the new standard eliminates the use of the residual method of allocation~~S. Indollars ~~October 2009, the FASB also issued a new accounting standard~~(Except ~~which changes revenue recognition~~ for ~~tangible~~share ~~products containing software~~ and ~~hardware~~ ~~elements.~~per ~~Specifically,~~share ~~tangible~~amounts) products containing software and hardware that function together to deliver the tangible products’ essential functionality are scoped out of the existing software revenue recognition guidance and will be accounted for under the multiple-element arrangements revenue recognition guidance discussed above. Both standards were effective for the Company beginning on January 1, 2011. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

32. SUMMARY ~~ACCOUNTS~~OF ~~AND~~SELECTED SIGNIFICANT ~~OTHER~~ACCOUNTING ~~RECEIVABLES~~POLICIES (CONTINUED)

~~The~~(n) Recently ~~Company~~Issued ~~provides an allowance for doubtful accounts receivable. The receivables~~ and ~~allowance balances at March 31, 2011 and~~Adopted ~~December~~Accounting ~~31,~~Pronouncements ~~2010~~- ~~are~~continued ~~as follows:~~

		March 31,			December 31,
		2011			2010
Accounts receivable	$	420,704		$	436,700
Less: allowance for doubtful accounts		(2,738	)		(2,714	)
Accounts receivable, net	$	417,966		$	433,986

Goodwill

~~Other~~(Included ~~receivables~~in ~~primarily~~ASC ~~represent~~350 ~~unsecured, short~~“Intangibles-~~term advances~~Goodwill ~~that~~and ~~the Company makes from time-to-time to third-party entities. These~~Other”) ~~advances are due on demand.~~

4In December 2010, the FASB issued ASU No. ~~INVENTORIES~~2010-28, “Intangibles-Goodwill and Other” (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. This ASU requires that reporting units with zero or negative carrying amounts perform step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. ASU 2010-28 is effective for the Company beginning with this interim period. The adoption of this update did not have an impact on the Company’s financial condition or results of operations.

~~Inventories~~Multiple ~~consist~~Deliverable ofRevenue ~~the~~Arrangements ~~following as of March 31, 2011 and December 31, 2010:~~

		March 31,			December 31,
		2011			2010
Raw materials	$	13,330		$	12,449
Work in progress		3,161			2,713
Finished goods		15,158			13,465
Installations in process		13,606			32,953
Total		45,255			61,580
Less: allowance for obsolete inventories		(2,229	)		(2,212	)
Inventories, net	$	43,026		$	59,368

(Accounting Standards Updates 2009-13 and 2009-14)

14In October 2009, the FASB issued a new accounting standard which provides guidance for arrangements with multiple deliverables. Specifically, the new standard requires an entity to allocate consideration at the inception of an arrangement to all of its deliverables based on their relative selling prices. In the absence of the vendor-specific objective evidence or third-party evidence of the selling prices, consideration must be allocated to the deliverables based on management’s best estimate of the selling prices. In addition, the new standard eliminates the use of the residual method of allocation. In October 2009, the FASB also issued a new accounting standard which changes revenue recognition for tangible products containing software and hardware elements. Specifically, tangible products containing software and hardware that function together to deliver the tangible products’ essential functionality are scoped out of the existing software revenue recognition guidance and will be accounted for under the multiple-element arrangements revenue recognition guidance discussed above. Both standards were effective for the Company beginning on January 1, 2011. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

~~CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC~~3. ACCOUNTS AND ~~SUBSIDIARIES~~OTHER RECEIVABLES ~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Expressed in thousands of U.S. dollars (Except for share and per share amounts)~~

5The Company provides an allowance for doubtful accounts receivable. ~~PREPAYMENTS~~The ~~AND~~receivables ~~DEPOSITS~~and allowance balances at June 30, 2011 and December 31, 2010 are as follows:

Prepayments and deposits consist of the following as of March 31, 2011 and December 31, 2010:

		June 30, 2011			December 31, 2010
Accounts receivable	$	494,142		$	436,700
Less: allowance for doubtful accounts		(2,773	)		(2,714	)
Accounts receivable, net	$	491,369		$	433,986

		March 31,		December 31,
Current assets		2011		2010
Prepaid expenses	$	3,426	$	3,392
Installation contract deposits		53,383		52,849
	$	56,809	$	56,241
Non-current assets
Deposits paid for business acquisitions	$	47,770	$	42,888
Deposits paid for acquisition of land use rights, properties and intangible assets		105,887		103,355
	$	153,657	$	146,243

Other receivables primarily represent unsecured, short-term advances that the Company makes from time-to-time to third-party entities. These advances are due on demand.

~~Installation contract deposits are made from time-to-time by the Company to demonstrate capital and resources in connection with bidding on certain projects~~4. INVENTORIES ~~Such amounts are refundable upon the grant of the contract.~~

~~Non-current~~Inventories ~~deposits~~consist ~~are~~of ~~refundable~~the onfollowing ~~demand,~~as ~~and~~of ~~there~~June ~~are~~30, no2011 and ~~binding~~December ~~commitments~~31, to2010: ~~acquire these assets.~~

6. ADVANCES TO SUPPLIERS AND SUBCONTRACTORS

		June 30, 2011			December 31, 2010
Raw materials	$	13,218		$	12,449
Work in progress		2,394			2,713
Finished goods		15,619			13,465
Installations in process		14,128			32,953
Total		45,359			61,580
Less: allowance for obsolete inventories		(2,258	)		(2,212	)
Inventories, net	$	43,101		$	59,368

~~The~~15 Company has made advances to third-party suppliers in advance of receiving inventory parts. These advances are generally made to expedite the delivery of required inventory when needed and to help to ensure priority and preferential pricing on such inventory. The amounts advanced to suppliers are fully refundable on demand and totaled $81,509 and $48,977 as of March 31, 2011 and December 31, 2010, respectively. The Company has also made advances to third-party subcontractors for work to be performed on certain projects, as work is performed by sub-contractors, such costs are allocated to installations in process (a component of inventories). Any unused amounts of such advances are refundable to the Company on demand. Advances to subcontractors were $22,192 and $39,383 at March 31, 2011 and December 31, 2010.

7.CHINA ~~PLANT~~SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES ~~EQUIPMENT~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Expressed in thousands of U.S. dollars (Except for share and per share amounts)

~~Plant~~5. PREPAYMENTS ~~and~~AND ~~equipment~~DEPOSITS ~~consists of the following as of March 31, 2011 and December 31, 2010:~~

		March 31, 2011			December 31, 2010
Buildings	$	64,942		$	64,029
Leasehold improvements		4,517			4,362
Plant and equipment		8,513			8,687
Electronic equipment		10,029			9,872
Motor vehicles		5,439			5,327
		93,440			92,277
Less: accumulated depreciation		(18,304	)		(16,983	)
Plant and equipment, net	$	75,136		$	75,294

Prepayments and deposits consist of the following as of June 30, 2011 and December 31, 2010:

Depreciation expense for the three months ended March 31, 2011 and 2010, was $1,439 and $1,209, respectively.

		June 30,		December 31,
		2011		2010
Current assets
- Prepaid expenses	$	3,406	$	3,392
- Installation contract deposits		165,183		52,849
	$	168,589	$	56,241
Non-current assets
- Deposits paid for business acquisition	$	45,145	$	42,888
- Deposits paid for acquisition of land used rights, properties and intangible assets		87,608		103,355
	$	132,753	$	146,243

15Installation contract deposits are made from time-to-time by the Company to demonstrate capital and resources in connection with bidding on certain projects. Such amounts are refundable upon the grant of the contract.

~~CHINA~~Non-current ~~SECURITY~~deposits &are ~~SURVEILLANCE~~refundable ~~TECHNOLOGY~~on demand, ~~INC.~~and ~~AND~~there ~~SUBSIDIARIES~~are ~~NOTES~~no binding TOcommitments ~~CONDENSED~~to ~~CONSOLIDATED~~acquire ~~FINANCIAL~~these ~~STATEMENTS (UNAUDITED) Expressed in thousands of U~~assets.S. ~~dollars (Except for share and per share amounts)~~

86. ADVANCES ~~LAND~~TO ~~USE~~SUPPLIERS ~~RIGHTS~~AND SUBCONTRACTORS

~~Land~~The ~~use~~Company ~~rights~~has ~~consist~~made advances to third-party suppliers in advance of receiving inventory parts. These advances are generally made to expedite the ~~following~~delivery of required inventory when needed and to help to ensure priority and preferential pricing on such inventory. The amounts advanced to suppliers are fully refundable on demand and totaled $133,292 and $48,977 as of June ~~March~~30, 2011 and December 31, ~~2011~~2010, respectively. The Company has also made advances to third-party subcontractors for work to be performed on certain projects. As work is performed by sub-contractors, such costs are allocated to installations in process (a component of inventories). Any unused amounts of such advances are refundable to the Company on demand. Advances to subcontractors were $21,468 and $39,383 as of June 30, 2011 and December 31, 2010:, respectively.

		March 31, 2011			December 31, 2010
Cost of land use rights	$	8,877		$	8,791
Less: accumulated amortization		(920	)		(895	)
Land use rights, net	$	7,957		$	7,896

7. PLANT AND EQUIPMENT

~~Amortization~~Plant ~~expense~~and ~~for~~equipment consists of the ~~three~~following ~~months~~as ~~ended~~of ~~March~~June 3130, ~~2011~~ ~~and~~2011 ~~2010 was $96~~ and ~~$42~~December 31, ~~respectively.~~2010:

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

		June 30,			December 31,
		2011			2010
Buildings	$	68,655		$	64,029
Leasehold improvements		3,738			4,362
Plant and equipment		8,712			8,687
Electronic equipment		10,220			9,872
Motor vehicles		5,942			5,327
		97,267			92,277
Less: accumulated depreciation		(19,946	)		(16,983	)
Plant and equipment, net	$	77,321		$	75,294

2011 (remaining nine months)	$	133
2012		177
2013		177
2014		177
2015		177
2016		177
Thereafter		6,939
Total	$	7,957

Depreciation expense for the three and six months ended June 30, 2011 and 2010, was $1,452, $2,891, $1,179 and $2,388, respectively.

9.16 ~~INTANGIBLE ASSETS~~

~~Intangible~~CHINA ~~assets~~SECURITY ~~consist~~& ofSURVEILLANCE ~~the~~TECHNOLOGY, ~~following~~INC. asAND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Expressed in thousands of ~~March~~U.S. ~~31,~~dollars ~~2011~~(Except for share and ~~December~~per ~~31,~~share ~~2010:~~amounts)

		March 31, 2011			December 31, 2010
Trademarks (life of 11 to 25 years)	$	17,222		$	17,222
Exclusive cooperation agreements (life of 20 years)		13,632			13,632
Customer base (life of 5 to 10 years)		10,448			10,448
Patents (life of 10 years)		4,542			4,542
Technical know-how (life of 9 to 10 years)		17,085			17,072
Non-compete agreements (life of 5 years)		1,303			1,303
Contracts in progress (life of 2 to 9 months)		410			410
Surveillance software (life of 5 years)		11,581			11,219
Surveillance recording system (life of 5 years)		500			500
		76,723			76,348
Less: accumulated amortization		(29,377	)		(27,656	)
Intangible assets, net	$	47,346		$	48,692

8. LAND USE RIGHTS

~~Amortization~~Land ~~expense~~use ~~for~~rights consist of the ~~three~~following ~~months~~as ~~ended~~of ~~March~~June 3130, 2011 and ~~2010~~December ~~was $1~~31,~~692~~ ~~and~~2010: ~~$1,983, respectively.~~

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

		June 30, 2011			December 31, 2010
Cost of land use rights	$	8,994		$	8,791
Less: accumulated amortization		(952	)		(895	)
Land use rights, net	$	8,042		$	7,896

2011 (remaining nine months)	$	5,237
2012		6,216
2013		5,635
2014		5,295
2015		3,998
2016		3,553
Thereafter		17,412
Total	$	47,346

Amortization expense for the three and six months ended June 30, 2011and 2010, was $53, $149, $58 and $100, respectively.

16Estimated amortization expense for the next five years and thereafter is as follows:

2011 (for the remaining six months)	$	90
2012		179
2013		179
2014		179
2015		179
2016		179
Thereafter		7,057
Total	$	8,042

109. INTANGIBLE ~~NOTES~~ASSETS ~~PAYABLE~~

~~The~~Intangible ~~following~~assets isconsist ~~a summary~~ of the ~~Company’s~~following ~~short-term and long-term notes payable~~ as of ~~March~~June 3130, 2011 and December 31, 2010:

		March 31, 2011			December 31, 2010
		June 30, 2011			December 31, 2010
Bank loans	$	482,560		$	256,899
Trademarks (life of 11 to 25 years)	$	17,222		$	17,222
Less: current portion		(182,657	)		(196,329	)
Exclusive cooperation agreements (life of 20 years)		13,632			13,632
Long-term portion	$	299,903		$	60,570
Customer base (life of 5 to 10 years)		10,448			10,448
Patents (life of 10 years)		4,542			4,542
Technical know-how (life of 9 to 10 years)		17,103			17,072
Non-compete agreements (life of 5 years)		1,303			1,303
Contracts in progress (life of 2 to 9 months)		410			410
Surveillance software (life of 5 years)		11,779			11,219
Surveillance recording system (life of 5 years)		500			500
		76,939			76,348
Less: accumulated amortization		(31,140	)		(27,656	)
Intangible assets, net	$	45,799		$	48,692

AsAmortization ofexpense ~~March~~for 31the three and six months ended June 30, 2011 and 2010, ~~notes~~was ~~payable~~$1,720, ~~are~~$3,412, ~~due~~$2,016 asand ~~follows:~~$3,999, respectively.

		Long-term		Short-term		Total
		notes		notes
2011(remaining nine months)	$	1,783	$	138,920	$	140,703
2012		23,717		41,340		65,057
2013		152,686		--		152,686
2014		102,867		--		102,867
2015		3,060		--		3,060
2016		3,265		--		3,265
Thereafter		14,922		--		14,922
Total	$	302,300	$	180,260	$	482,560

OnCHINA ~~March~~SECURITY 1,& ~~2011,~~SURVEILLANCE ~~the Company entered into a term loan facility agreement with the China Development Bank Corporation Hong Kong Branch (“CDB”)~~TECHNOLOGY, ~~pursuant~~ ~~to which CDB agreed to make available to the Company a term loan facility in an aggregate principal amount of up to $200,000, subject to terms and conditions of the agreement~~INC. ~~The Company borrowed $200,000 from this~~AND ~~facility~~SUBSIDIARIES onNOTES ~~March~~TO 1,CONDENSED ~~2011.~~CONSOLIDATED ~~The~~FINANCIAL ~~loan carries an annual interest rate of 3% per~~STATEMENTS ~~annum over the applicable six-month London Inter Bank Offered Rate~~ (~~3.46% as of March 31, 2011~~UNAUDITED). ~~Approximately~~Expressed ~~$800 of other costs directly associated with the facility were recorded as deferred financing costs~~ in ~~the~~thousands ~~balance sheet on March 1, 2011. The Company is amortizing these financing costs over the term~~ of ~~the loan~~U. The loan under the facility will mature on the third anniversary of the first date when the facility is utilized by the Company with 50% of the principal due in August 2013 and the remaining 50% due in February 2014S. ~~Pursuant~~ todollars ~~the term loan facility agreement, if the Company’s chairman and chief executive officer, Mr. Guoshen Tu,~~ (~~the “CEO” or “Mr. Tu”) ceases to~~Except befor ~~the~~share ~~beneficial owner of at least 10% of the Company’s outstanding capital stock, the facility may be cancelled~~ and ~~all~~per ~~outstanding~~share amounts) under the facility may become immediately due and payable with no less than 30 days notice. As of March 31, 2011, this condition was satisfied, and management believes the Company is in compliance with all terms and conditions of the term loan facility agreement.

In October 2010, the Company entered into a term loan facility agreement with CDB, pursuant to which CDB agreed to make available to the Company a term loan facility in an aggregate principal amount of up to $50,000, subject to terms and conditions of the agreement9. INTANGIBLE ~~The~~ASSETS ~~Company borrowed a total of $50,000 on October 29, 2010 under the facility. The loan carries an annual interest rate of 3% per annum over the applicable six-month London Inter Bank Offered Rate~~ (~~3.46% as of March 31, 2011~~CONTINUED)~~. Approximately $1,000 of other costs~~ directly associated with the facility were recorded as deferred financing costs in the balance sheet on October 29, 2010. The Company is amortizing these financing costs over the term of the loan. The loan under the facility is due in October 2013. Pursuant to the term loan facility agreement, if Mr. Tu ceases to be the beneficial owner of at least 10% of the Company’s outstanding capital stock, the facility may be cancelled and all outstanding amounts due under the facility may become immediately due and payable with no less than 30 days notice. As of March 31, 2011, this condition was satisfied, and management believes the Company is in compliance with all terms and conditions of the term loan facility agreement.

OnEstimated ~~March~~amortization ~~24,~~expense ~~2011,~~for the ~~Company~~next ~~entered~~five ~~into~~years ~~a loan agreement~~and ~~with~~thereafter ~~China~~is ~~Merchants Bank. The Company borrowed RMB31,500 (approximately $4,804) with an annual interest rate equal to the 1 to 6 month’s benchmark lending rate of the People’s Bank of China (5.60%~~ as offollows: ~~March 31, 2011), with interest payable on the 20th of each month. The loan is due in September 2011. The loan is guaranteed by a subsidiary of the Company.~~

2011 (remaining six months)	$	3,496
2012		6,300
2013		5,670
2014		5,330
2015		4,038
2016		3,553
Thereafter		17,412
Total	$	45,799

~~CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC~~10. ~~AND SUBSIDIARIES~~ NOTES TOPAYABLE ~~CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Expressed in thousands of U.S. dollars (Except for share and per share amounts)~~

~~10.~~The ~~NOTES~~following ~~PAYABLE~~is ~~(CONTINUED)~~a summary of the Company’s short-term and long-term notes payable as of June 30, 2011 and December 31, 2010:

On March 21, 2011, the Company entered into a loan agreement with China Construction Bank. The Company borrowed RMB50,000 (approximately $7,626) with an annual interest rate equal to 7.20%, with interest payable on the 20th of each month. The loan is due in March 2012. The loan is guaranteed by the CEO and two subsidiaries of the Company, and is collateralized by the property of a subsidiary.

		June 30, 2011			December 31, 2010
Bank loans	$	490,959		$	256,899
Less: current portion		(191,014	)		(196,329	)
Long-term portion	$	299,945		$	60,570

OnAs ~~March 16, 2011, the Company entered into a loan agreement with Guangdong Development Bank. The Company borrowed RMB121,000 (approximately $18,455) with an annual interest rate equal to 105%~~ of ~~the~~June ~~1 to 6 month’s benchmark lending rate of the People’s Bank of China (5.88% as of March 31~~30, 2011), ~~with~~notes ~~interest~~ payable onare ~~the 20th of each month. The loan is~~ due inas ~~March 2012.~~follows: ~~The loan is collateralized by a restricted cash amount of $20,000 of a subsidiary of the Company.~~

On February 9, 2011, the Company entered into a loan agreement with Societe Generale. The Company borrowed RMB27,000 (approximately $4,118) with an annual interest rate equal to 9.10%, with interest payable on the due date of the loan. The loan was due and repaid in March 2011. The loan was guaranteed by a subsidiary of the Company.

		Long-term Notes		Short-term Notes		Total
2011(for the remaining six months)	$	1,214	$	97,273	$	98,487
2012		24,028		91,273		115,301
2013		152,721		--		152,721
2014		102,904		--		102,904
2015		3,100		--		3,100
2016		3,308		--		3,308
Thereafter		15,138		--		15,138
Total	$	302,413	$	188,546	$	490,959

On ~~February~~March 1, 2011, the Company entered into a term loan ~~agreement~~facility agreement with the China ~~Merchants~~Development Bank. ~~The~~Corporation ~~Company~~Hong ~~borrowed~~Kong ~~RMB59,000~~Branch (~~approximately $8,999~~“CDB”), ~~with~~pursuant to which CDB agreed to make available to the Company a term loan facility in an ~~annual~~aggregate ~~interest~~principal ~~rate~~amount ~~equal~~of up to ~~105%~~$200,000, subject to terms and conditions of the 1agreement. toThe 3Company ~~year’s~~borrowed ~~benchmark~~$200,000 from this ~~lending~~facility on March 1, 2011. The loan carries an annual interest rate of 3% per annum over the ~~People’s~~applicable six-month London Inter Bank ofOffered ~~China~~Rate (63.4140% as of June ~~March 31~~30, 2011),. Approximately $800 of other costs directly associated with the ~~interest~~facility ~~payable~~were recorded as deferred financing costs in the balance sheet on March 1, 2011. The Company is amortizing these financing costs over the ~~20th~~term of ~~each month~~the loan. The loan under the facility will mature on the third anniversary of the first date when the facility is utilized by the Company with 50% of the principal due in ~~November~~August ~~2012~~2013 and the remaining 50% due in February 2014. ~~The~~Pursuant to the term loan isfacility ~~guaranteed~~agreement, byif the ~~CEO~~Company’s chairman and chief executive officer, ~~his~~Mr. ~~wife~~Guoshen ~~and~~Tu, a(the ~~subsidiary~~“CEO” or “Mr. Tu”) ceases to be the beneficial owner of at least 10% of the Company’s outstanding capital stock, the facility may be cancelled and is ~~collateralized~~all byoutstanding amounts under the ~~property~~facility may become immediately due and ~~land~~payable ~~use~~with ~~rights~~no less than 30 days notice. As of aJune 30, ~~subsidiary~~2011, this condition was satisfied, and management believes the Company is in compliance with all terms and conditions of the term loan facility agreement.

On18 January 31, 2011, the Company entered into a loan agreement with the Industrial and Commercial Bank of China. The Company borrowed RMB100,040 (approximately $15,259) with an annual interest rate equal to 95% of the 12 month’s benchmark lending rate of the People’s Bank of China (5.76% as of March 31, 2011), with interest payable on the 20th of each month. The loan is due in January 2012. The loan is guaranteed by four subsidiaries of the Company.

OnCHINA ~~January~~SECURITY ~~12,~~& ~~2011~~SURVEILLANCE TECHNOLOGY, ~~the Company entered into a loan agreement with China Zheshang Bank~~INC. ~~The Company borrowed RMB20,000 (approximately $3,050)~~AND ~~with~~SUBSIDIARIES anNOTES ~~annual~~TO ~~interest~~CONDENSED ~~rate~~CONSOLIDATED ~~equal~~FINANCIAL ~~to 120% of the 6 to 12 month’s benchmark~~STATEMENTS ~~lending rate of the People’s Bank of China~~ (~~7.27% as of March 31, 2011~~UNAUDITED), ~~with interest~~Expressed ~~payable~~in onthousands ~~the 20th~~ of ~~each month~~U. ~~The loan is due in August 2011~~S. ~~The loan~~dollars is(Except ~~guaranteed~~for byshare ~~the CEO~~ and per ~~two~~share ~~subsidiaries~~amounts) ~~of the Company.~~

~~On January~~ 10~~, 2011, the Company entered into a loan agreement with China Merchants Bank~~. NOTES ~~The~~PAYABLE ~~Company borrowed RMB40,000~~ (~~approximately $6,101~~CONTINUED) on January 10, 2011, and RMB169,340 (approximately $25,829) on February 9, 2011 with an annual interest rate equal to 105% of the 5 to 10 year’s benchmark lending rate of the People’s Bank of China (6.93% as of March 31, 2011), with principal and interest payable in each quarter. In March 2011, the Company repaid principal of the loan in the amount of RMB5,439 (approximately $830) in accordance with the terms of the loan. The loan matures in January 2021. The loan is guaranteed by Shenzhen Zhonghe Industrial Limited, an independent third party, and is secured by the rights of properties currently under construction and which will be acquired by the Company upon their completion.

OnIn ~~January~~October 42010, ~~2011,~~ the Company entered into a term loan ~~agreement~~facility agreement with ~~China~~CDB, ~~Merchants~~pursuant ~~Bank.~~to ~~The~~which CDB agreed to make available to the Company ~~borrowed~~a ~~RMB10,000~~term ~~(approximately~~loan facility in an aggregate principal amount of up to $150,~~525)~~000, ~~with~~subject anto ~~annual~~terms ~~interest~~and ~~rate~~conditions ~~equal~~of tothe ~~105%~~agreement. The Company borrowed a total of $50,000 on October 29, 2010 under the 1facility. toThe 3loan ~~year’s~~carries ~~benchmark~~an annual ~~lending~~interest rate of 3% per annum over the ~~People’s~~applicable ~~Bank~~six-month ofLondon ~~China~~Inter Bank Offered Rate (63.4140% as of ~~March~~June 3130, 2011). Approximately $1,000 of other costs directly associated with the facility were recorded as deferred financing costs ~~interest~~in ~~payable~~the balance sheet on October 29, 2010. The Company is amortizing these financing costs over the ~~20th~~term of ~~each~~the ~~month~~loan. The loan under the facility is due in October ~~November~~2013. ~~2012~~Pursuant to the term loan facility agreement, if Mr. Tu ceases to ~~The~~be ~~loan~~the isbeneficial ~~guaranteed~~owner byof at least 10% of the ~~CEO~~Company’s outstanding capital stock, ~~his~~the ~~wife~~facility may be cancelled and aall ~~subsidiary~~outstanding ofamounts due under the facility ~~Company~~may become immediately due and payable with no less than 30 days notice. As of June 30, 2011, this condition was satisfied, and management believes the Company is ~~collateralized~~in bycompliance ~~the~~with ~~property~~all terms and ~~land~~conditions ~~use~~of ~~rights~~the ofterm loan afacility ~~subsidiary~~agreement.

On ~~December~~June 2917, ~~2010~~2011, the Company entered into a loan agreement with Bank of ~~China~~Jiangsu. The Company borrowed ~~RMB71~~RMB5,~~100~~000 (approximately $~~10,844~~773) with an ~~annual~~ an interest rate equal to ~~5.15~~the 115%, ~~with~~of ~~interest~~the ~~payable~~12 onmonth’s ~~the~~benchmark ~~20th~~lending rate of the ~~each~~People’s ~~month~~Bank of China (7.26% as of June 30, 2011). The loan is due in ~~December 2011~~June 2012. The loan is guaranteed by the CEO and a subsidiary of the Company, and is collateralized by the ~~property~~properties and land use rights of atwo ~~subsidiary~~subsidiaries.

On ~~December~~June 2414, ~~2010~~2011, the Company entered into a loan agreement with ~~Bank~~Guangdong ofDevelopment ~~China~~Bank. The Company borrowed ~~RMB71~~RMB49,~~100~~600 (approximately $107,~~844~~664) with an annual interest rate equal to 5110% of the 12 months’ benchmark lending rate of the People’s Bank of China (6.1594% as of June 30, ~~with~~2011), with interest payable on the 20th of each month. The loan is due in ~~December~~June ~~2011.~~2012 ~~The loan is~~ and guaranteed by the CEO and a subsidiary of the Company~~, and collateralized by the property and land use rights of a subsidiary~~.

18On June 13, 2011, the Company entered into a loan agreement with China Everbright Bank Co., Ltd. The Company borrowed RMB16,000 (approximately $2,472) with an interest rate equal to 5.27% as of June 30, 2011, with interest payable on the 20th of each month. The loan is due in December 2011. The loan is guaranteed by a subsidiary of the Company and collateralized by a restricted cash amount of RMB16,000 (approximately $2,472) of a subsidiary of the Company.

~~CHINA~~On ~~SECURITY~~May &27, ~~SURVEILLANCE TECHNOLOGY~~2011, ~~INC.~~the ~~AND~~Company ~~SUBSIDIARIES~~entered ~~NOTES~~into TOa ~~CONDENSED~~loan ~~CONSOLIDATED~~agreement ~~FINANCIAL~~with Bank ~~STATEMENTS~~of Jiangsu. The Company borrowed RMB15,000 (~~UNAUDITED~~approximately $2,318) ~~Expressed~~with inan interest ~~thousands~~rate equal to the 110% of Uthe 12 month’s benchmark lending rate of the People’s Bank of China (6.S94% as of June 30, 2011). ~~dollars~~The ~~(Except~~loan ~~for~~is ~~share~~due in May 2012. The loan is guaranteed by the CEO and ~~per~~a ~~share~~subsidiary ~~amounts)~~of the Company and collateralized by the properties and land use rights of two subsidiaries.

10On May 3, 2011 the Company entered into a loan agreement with Shanghai Pudong Development Bank. ~~NOTES~~The ~~PAYABLE~~Company borrowed RMB80,000 (~~CONTINUED~~approximately $12,362) with an interest rate equal to 108% of the 12 month’s benchmark lending rate of the People’s Bank of China (6.81% as of June 30, 2011), with interest payable on the 20th of each month. The loan is due in May 2012. The loan is guaranteed by the CEO and a subsidiary of the Company and collateralized by the properties and land use rights of a subsidiary of the Company.

On ~~December~~April 1029, ~~2010~~2011, the Company entered into a loan agreement with Shanghai Pudong Development Bank. The Company borrowed ~~RMB66~~RMB80,000 (approximately $1012,~~066~~362) with an ~~annual~~ interest rate equal to 108% of the 612 month’s benchmark lending rate of the People’s Bank of China (56.6081% as of ~~March~~June 3130, 2011), with interest payable on the 20th of each month. The loan is due in ~~June~~April ~~2011~~2012. The loan is ~~collateralized~~guaranteed by athe ~~cash~~CEO ~~deposit~~and ofcollateralized ~~Whitehorse Technology Limited, a company wholly-owned~~ by the ~~CEO~~properties ~~of the Company. The Company repaid~~and ~~RMB6,650~~land ~~(approximately~~use ~~$1,014)~~rights ~~and~~of ~~RMB6,600~~a ~~(approximately~~subsidiary ~~$1,007)~~of inthe ~~January and March 2011, respectively~~Company.

On ~~December~~April 220, ~~2010~~2011, the Company entered into a loan agreement with ~~China~~Bank ~~Merchants~~of ~~Bank~~Jiangsu. The Company borrowed ~~RMB70~~RMB50,000 (approximately $107,~~676~~726) with an ~~annual~~ interest rate equal to ~~105~~110% of the 112 ~~to 3 year~~month’s benchmark lending rate of the People'’s Bank of China (6.1494% as of ~~March~~June 3130, 2011)~~, with interest payable on the 20th of each month~~. The loan is due in ~~November~~ April 2012. The loan is guaranteed by the CEO, ~~his wife~~ and a subsidiary of the Company, and is collateralized by the ~~property~~properties and land use ~~rights~~right of atwo subsidiaries of the ~~subsidiary~~Company.

On ~~November~~April 191, ~~2010~~2011, the Company entered into a loan agreement with the Industrial and Commercial Bank of China. The Company borrowed ~~RMB30~~RMB27,~~000~~270 (approximately $4,~~576~~214) on ~~December~~April 211, ~~2010,~~2011 ~~RMB30,000 (approximately $4,576) on December 29, 2010~~ and ~~RMB40~~RMB12,~~000~~770 (approximately $61,~~101~~973) on May ~~January 31~~17, 2011 with an ~~annual~~ interest rate equal to ~~95% of the~~ 12 month'’s benchmark lending rate of ~~the~~ the People’s Bank of China (56.7631% as of ~~March~~June 3130, 2011), with interest payable on the 20th of each month. The loan is due in ~~December~~March ~~2011.~~2012 ~~The~~and ~~loan is~~ guaranteed by three subsidiaries of the Company and is collateralized by the ~~property~~properties and land use rights of a subsidiary of the Company.

On ~~November~~April 171, ~~2010~~2011, the Company entered into a loan agreement with ~~Bank~~Societe ofGenerale ~~China.~~with ~~The~~loan ~~Company~~facility ~~borrowed~~up ~~RMB48~~to RMB27,~~600~~000 (approximately $74,~~413~~172) ~~with~~, anand ~~annual~~in ~~interest~~the ~~rate~~same ~~equal~~month, tothe ~~5.15%~~Company withdrew RMB27,000 (approximately $4,172) from the loan facility with annual interest ~~payable~~rates onranging ~~the~~from ~~20th~~6.56% ~~of each~~to ~~month~~6.84% and ~~The~~are ~~loan~~all is due in ~~May~~October 2011. The ~~loan~~loans isare guaranteed by ~~the CEO of the Company and~~ a subsidiary of the ~~Company, and was collateralized by the~~ ~~property and land use rights of a subsidiary~~Company.

On ~~October~~March 2924, ~~2010~~2011, the Company entered into a loan agreement with ~~the~~China ~~Industrial~~Merchants ~~and Commercial~~ Bank ~~of China~~. The Company borrowed ~~RMB51~~RMB31,~~000~~ 500 (approximately $74,~~779~~867) with an annual interest rate equal to ~~95%~~the of1 ~~the~~to 12 6 month'’s benchmark lending rate of the People’s Bank of China (5.7685% as of ~~March 31~~June 30, 2011), with interest payable on the 20th of each month. The loan is due in ~~November~~ September 2011. ~~The~~and ~~loan is~~ guaranteed by ~~three~~a subsidiary ~~subsidiaries~~ of the Company~~, and is collateralized by the property of a subsidiary~~.

On October 18, 2010, the Company entered into a loan agreement with China Merchants Bank. The Company borrowed RMB25,000 (approximately $3,813) with an annual interest equal to 110% of the 12 month's benchmark lending rate of the People’s Bank of China (6.67% as of March 31, 2011), with interest payable on the 20th of each month. The loan is due in October 2011. The loan is guaranteed by the Chief Operating Officer of the company, the CEO of the Company and his wife.19

OnCHINA ~~August~~SECURITY ~~18,~~& ~~2010~~SURVEILLANCE TECHNOLOGY, ~~the~~INC. ~~Company entered into a loan agreement~~AND ~~with~~SUBSIDIARIES ~~Shenzhen~~NOTES ~~Development~~TO ~~Bank.~~CONDENSED ~~The~~CONSOLIDATED ~~Company~~FINANCIAL ~~borrowed RMB40,000 (approximately~~STATEMENTS ~~$6,101~~(UNAUDITED) ~~with~~Expressed anin ~~annual~~thousands ~~interest rate equal to 6.06%, with interest payable on the 20th~~ of ~~each month~~U. ~~The loan is due in August 2011~~S. ~~The~~dollars ~~loan is guaranteed~~(Except byfor ~~the~~share ~~CEO of the Company~~ and ~~two~~per ~~subsidiaries~~share ofamounts) ~~the Company, and is collateralized by the property of a subsidiary.~~

~~On August 9, 2010, the Company entered into a loan agreement with Societe Generale~~10. NOTES ~~The~~PAYABLE ~~Company borrowed RMB27,000~~ (~~approximately $4,118~~CONTINUED) with an annual interest rate equal to 5.35%, with interest payable on the due date of the loan. The loan was due and repaid in February 2011. The loan was guaranteed by a subsidiary of the Company.

On ~~July~~March 2621, ~~2010~~2011, the Company entered into a loan agreement with China ~~Everbright~~Construction Bank Co., ~~Ltd.~~ The Company borrowed ~~RMB40~~RMB50,000 (approximately $67,~~101~~726) with an annual interest rate equal to 57.3120%, with interest payable on the 20th of each month. The loan is due in ~~July~~March ~~2011~~2012. The loan is guaranteed by the CEO and two subsidiaries of the Company, and collateralized by the property of a subsidiary of the Company ~~and Chuang Guan~~.

On ~~July~~March 2116, ~~2010~~2011, the Company entered into a loan agreement with ~~the~~Guangdong ~~Industrial~~Development ~~and Commercial~~ Bank ~~of China~~. The Company borrowed ~~RMB54~~RMB121,~~600~~ 000 (approximately $818,~~328~~697) with an annual interest rate equal to 105% of the 1 to 6 month’s benchmark lending rate of the People’s Bank of China (6.0614% as of June 30, 2011), with interest payable on the 20th of each month. The loan is due in ~~July 2011. The~~March ~~loan~~2012 isand ~~guaranteed~~collateralized by ~~three~~a ~~subsidiaries~~restricted ofcash ~~the~~amount ~~Company~~of ~~and~~$20,000 isof ~~collateralized~~a bysubsidiary ~~the property~~ of athe ~~subsidiary~~Company.

19On February 9, 2011, the Company entered into a loan agreement with Societe Generale. The Company borrowed RMB27,000 (approximately $4,172) with an annual interest rate equal to 9.10%, with interest payable on the due date of the loan. The loan was due and repaid in March 2011 and guaranteed by a subsidiary of the Company.

~~CHINA~~On ~~SECURITY~~February &1, ~~SURVEILLANCE TECHNOLOGY~~2011, ~~INC~~the Company entered into a loan agreement with China Merchants Bank. ~~AND~~The ~~SUBSIDIARIES~~Company ~~NOTES~~borrowed TORMB59,000 ~~CONDENSED~~(approximately ~~CONSOLIDATED~~$9,117) with ~~FINANCIAL~~an ~~STATEMENTS~~annual interest rate equal to 105% of the 1 to 3 year’s benchmark lending rate of the People’s Bank of China (~~UNAUDITED~~6.72% as of June 30, 2011), ~~Expressed~~with interest inpayable ~~thousands~~on the 20th of Ueach month.S The loan is due in November 2012. The ~~dollars~~loan ~~(Except~~is ~~for~~guaranteed ~~share~~by the CEO, his wife and ~~per~~a ~~share~~subsidiary ~~amounts)~~of the Company and collateralized by the property and land use rights of a subsidiary of the Company.

10On January 31, 2011, the Company entered into a loan agreement with the Industrial and Commercial Bank of China. ~~NOTES~~The ~~PAYABLE~~Company borrowed RMB100,040 (~~CONTINUED~~approximately $15,458) with an annual interest rate equal to 95% of the 12 month’s benchmark lending rate of the People’s Bank of China (5.99% as of June 30, 2011), with interest payable on the 20th of each month. The loan is due in January 2012 and guaranteed by four subsidiaries of the Company.

On ~~July~~January 1512, ~~2010~~2011, the Company entered into a loan agreement with China ~~Construction~~Zheshang Bank. The Company borrowed ~~RMB30~~RMB20,000 (approximately $43,~~576~~090) with an annual interest rate equal to 120% of the 6 to 12 month’s benchmark lending rate of the People’s Bank of China (7.6757% as of June 30, ~~with~~2011), with interest payable on the 20th of each month. The loan is due in ~~July~~August 2011 and guaranteed ~~is collateralized~~ by the ~~property~~CEO and two subsidiaries of athe ~~subsidiary~~Company.

On ~~July~~January 110, ~~2010~~2011, the Company entered into a loan agreement ~~with~~ ~~Guangdong~~with ~~Development~~China Merchants Bank. The Company borrowed ~~RMB49~~RMB40,~~600~~000 (approximately $6,180) on January 10, 2011, and RMB169,340 (approximately $726,~~565~~167) on February 9, 2011 with an annual interest rate equal to 6105% of the 5 to 10 year’s benchmark lending rate of the People’s Bank of China (7.6714% as of June 30, 2011), with principal and interest payable onin each quarter. In March and June 2011, the Company repaid principal of the ~~20th~~loan in the amount of ~~each~~RMB5,439 ~~month.~~(approximately $840) ~~The~~and ~~loan~~RMB3,704 is(approximately ~~due~~$572) in ~~June~~accordance ~~2011~~with the terms of the loan, respectively. The final maturity of the loan is January 2021. The loan is guaranteed by ~~the~~ ~~CEO~~Shenzhen Zhonghe Industrial Limited, an independent third party, and ais ~~subsidiary~~secured by the rights of properties currently under construction which will be acquired by the Company upon their completion.

On ~~June~~January 184, ~~2010~~2011, the Company entered into a loan agreement with ~~Industrial and Commercial Bank of~~ China ~~(Asia)~~Merchants ~~Limited~~Bank. The Company borrowed $8RMB10,000 ~~and~~(approximately $21,~~000 on July 15, 2010 and August 12, 2010, respectively,~~545) with an ~~effective~~annual interest rate atequal 3to 105% ~~per~~of ~~annum over~~ the ~~applicable~~1 ~~one~~to 3 year’s benchmark ~~London~~lending ~~Inter~~rate of the People’s Bank ~~Offered~~of ~~Rate~~China (36.7872% atas ~~March~~of 31June 30, 2011), with interest payable on ~~the due date of the loan. Interest payable is calculated~~ on the ~~basis~~20th of ~~the actual~~each ~~number of days elapsed and a 360-day year~~month. The loan is due in ~~July~~November ~~2011~~2012. The loan is guaranteed by the CEO, his wife and a subsidiary of the Company, and is collateralized by ~~fixed assets~~the ofproperty ~~a subsidiary~~ and ~~the~~land ~~shares~~use rights of a subsidiary.

On ~~April~~December 1629, 2010, the Company entered into a loan agreement with ~~Shanghai~~Bank ~~Pudong~~of ~~Development Bank~~China. The Company borrowed ~~RMB80~~RMB71,~~000~~ 100 (approximately $1210,~~202~~986) with an annual interest rate equal to 65.0615%, with interest payable on the 20th of each month. The loan ~~was~~is due ~~and repaid~~ in ~~April~~ December 2011. The loan ~~was~~is guaranteed by the CEO ~~of the Company~~ and a subsidiary of the Company, and ~~was~~ collateralized by the ~~properties~~property and land use rights of a subsidiary.

On ~~April~~December 1524, 2010, the Company entered into a loan agreement with ~~Shanghai~~Bank ~~Pudong~~of ~~Development Bank~~China. The Company borrowed ~~RMB80~~RMB71,~~000~~ 100 (approximately $1210,~~202~~986) with an annual interest rate equal to 65.0615%, with interest payable on the 20th of each month. The loan ~~was~~is due ~~and repaid~~ in ~~April~~ December 2011. The loan ~~was~~is guaranteed by the CEO and a subsidiary of the Company, and ~~was~~ collateralized by the ~~properties~~property and land use rights of a subsidiary.

On March 31, 2010, the Company entered into a loan agreement with China Merchants Bank. The Company borrowed RMB50,000 (approximately $7,626) with an annual interest rate equal to 5.81%, with interest payable on the 20th of each month. The loan was due and repaid in March 2011. The loan was guaranteed by the CEO of the Company, his wife and a subsidiary of the Company, and was collateralized by the property and land use rights of a subsidiary.20

OnCHINA ~~March~~SECURITY ~~25,~~& ~~2010~~SURVEILLANCE TECHNOLOGY, ~~the~~INC. ~~Company entered into a loan agreement~~AND ~~with~~SUBSIDIARIES ~~China~~NOTES ~~Citic~~TO ~~Bank.~~CONDENSED ~~The~~CONSOLIDATED ~~Company~~FINANCIAL ~~borrowed RMB90,000~~ STATEMENTS (~~approximately $13,727~~UNAUDITED) ~~with~~ anExpressed ~~annual~~in ~~interest~~thousands ~~rate equal to 5.81%, with interest payable on the 20th~~ of ~~each month~~U. ~~The loan was due and repaid in March 2011~~S. ~~The~~dollars ~~loan was~~(Except ~~guaranteed~~for byshare ~~the CEO of the Company, his wife~~ and aper ~~subsidiary~~share ofamounts) ~~the Company, and was collateralized by the properties of two subsidiaries of the Company.~~

~~On March 24, 2010, the Company entered into a loan agreement with China Citic Bank~~10. NOTES ~~The~~PAYABLE ~~Company borrowed RMB60,000~~ (~~approximately $9,151~~CONTINUED) with an annual interest rate equal to 5.81%, with interest payable on the 20th of each month. The loan was due and repaid in March 2011. The loan was guaranteed by the CEO of the Company, his wife and a subsidiary of the Company, and was collateralized by the properties of two subsidiaries of the Company.

On ~~March~~December 410, 2010, the Company entered into a loan agreement with ~~the~~Shanghai ~~Industrial~~Pudong ~~and~~Development ~~Commercial~~ Bank ~~of China~~. The Company borrowed ~~RMB31~~RMB66,000 (approximately $410,~~728~~198) with an annual interest rate equal to the 6 month’s benchmark lending rate of the People’s Bank of China (5.2385% as of June 30, 2011), with interest payable on the 20th of each month. The loan was due in ~~March 2011, but~~June ~~repaid in February~~ 2011. The loan was ~~guaranteed~~collateralized by ~~three~~a ~~subsidiaries~~cash deposit of ~~the~~Whitehorse Technology ~~Company~~Limited, ~~and~~a ~~was~~company ~~collateralized~~wholly-owned by the ~~property~~CEO. ofThe aCompany ~~subsidiary~~repaid RMB6,650 (approximately $1,028), RMB6,600 (approximately $1,020), RMB20,250 (approximately $3,129) and RMB32,500 (approximately $5,021) in January, March, April and June 2011, respectively.

On ~~March~~December 42, 2010, the Company entered into a loan agreement with ~~the~~China ~~Industrial~~Merchants ~~and Commercial~~ Bank ~~of China~~. The Company borrowed ~~RMB39~~RMB70,000 (approximately $510,~~948~~816) with an annual interest rate equal to 5105% of the 1 to 3 year’s benchmark lending rate of the People’s Bank of China (6.2372% as of June 30, 2011), with interest payable on the 20th of each month. The loan ~~was~~is due in ~~March 2011, but~~ ~~repaid~~November ~~in January 2011~~2012. The loan ~~was~~is guaranteed by ~~three~~the ~~subsidiaries~~CEO, ofhis ~~the~~wife and a subsidiary of the Company, and ~~was~~ collateralized by the property and land use rights of a subsidiary.

On ~~March~~November 319, 2010, the Company entered into a loan agreement with ~~China~~Industrial ~~Construction~~and Commercial Bank of China. The Company borrowed ~~RMB50~~RMB30,000 (approximately $4,636) on December 21, 2010, RMB30,000 (approximately $4,636) on December 29, 2010 and RMB40,000 (approximately $76,~~626~~181) ~~with~~on January 31, 2011 with an annual interest ~~rate~~ equal to 695% of the 12 month’s benchmark lending rate of the People’s Bank of China (5.1099% as of June 30, 2011), with interest payable on ~~the~~ the 20th of each month. The loan ~~was~~is due ~~and repaid~~ in ~~March~~December 2011. The loan ~~was~~ is guaranteed by three ~~the~~subsidiaries ~~CEO~~ of the Company and ~~a subsidiary of the Company, and was~~ collateralized by the property of a subsidiary.

20On November 17, 2010, the Company entered into a loan agreement with Bank of China. The Company borrowed RMB48,600 (approximately $7,510) with an annual interest rate equal to 5.15%, with interest payable on the 20th of each month. The loan was due and repaid in May 2011. The loan was guaranteed by the CEO and a subsidiary of the Company and collateralized by the property and land use rights of a subsidiary.

~~CHINA~~On ~~SECURITY~~October &29, ~~SURVEILLANCE TECHNOLOGY~~2010, ~~INC~~the Company entered into a loan agreement with the Industrial and Commercial Bank of China. ~~AND~~The ~~SUBSIDIARIES~~Company ~~NOTES~~borrowed TORMB51,000 (approximately ~~CONDENSED~~$7,881) ~~CONSOLIDATED~~with ~~FINANCIAL~~an ~~STATEMENTS~~annual interest rate equal to 95% of the 12 month’s benchmark lending rate of the People’s Bank of China (~~UNAUDITED~~5.99% as of June 30, 2011), ~~Expressed~~with ininterest ~~thousands~~payable on the 20th of Ueach month.S The loan is due in November 2011. ~~dollars~~The ~~(Except~~loan ~~for~~is ~~share~~guaranteed by three subsidiaries of the Company and collateralized ~~per~~by ~~share~~the ~~amounts)~~property of a subsidiary.

10On October 18, 2010, the Company entered into a loan agreement with China Merchants Bank. ~~NOTES~~The ~~PAYABLE~~Company borrowed RMB25,000 (~~CONTINUED~~approximately $3,863) with an annual interest equal to 110% of the 12 month’s benchmark lending rate of the People’s Bank of China (6.94% as of June 30, 2011), with interest payable on the 20th of each month. The loan is due in October 2011. The Company repaid RMB12,500 (approximately $1,932) in April 2011. The loan is guaranteed by the Chief Operating Officer of the Company, the CEO and his wife.

On ~~March~~August 218, 2010, the Company entered into a loan agreement with ~~China~~Shenzhen ~~Merchants~~Development Bank. The Company borrowed ~~RMB41~~RMB40,000 (approximately $6,~~253~~181) with an annual interest rate equal to 5the 12 month’s benchmark lending rate of the People’s Bank of China (6.8131% as of June 30, 2011), with interest payable on the 20th of each month. The loan ~~was~~is due ~~and repaid~~ in ~~March~~August 2011. The loan ~~was~~is guaranteed by the CEO ~~of the Company, his wife~~ and atwo ~~subsidiary~~subsidiaries of the Company, and ~~was~~ collateralized by the property ~~and land use rights~~ of a subsidiary.

On ~~February~~August 39, 2010, the Company entered into a loan agreement with ~~China~~Societe ~~Merchants Bank~~Generale. The Company borrowed ~~RMB59~~RMB27,000 (approximately $84,~~999~~172) with an annual interest rate equal to 5.8135%, with interest payable on the ~~20th~~due date of ~~each~~the ~~month~~loan. The loan was due and repaid in February 2011. ~~The~~and ~~loan was~~ guaranteed by ~~the CEO of the Company, his wife and~~ a subsidiary of the Company~~, and was collateralized by the property and land use rights of a subsidiary~~.

On ~~January~~July 26, 2010, the Company entered into a loan agreement with ~~the~~China ~~Industrial~~Everbright ~~and Commercial~~ Bank ofCo., ~~China~~Ltd. The Company borrowed ~~RMB100~~ RMB40,000 (approximately $156,~~252~~181) with an annual interest rate equal to 45.7831%, ~~with~~ with interest payable on the 20th of each month. The loan was due inand ~~January 2011. The Company~~ repaid ~~RMB80,000~~in ~~(approximately $12,202) and RMB 20,000~~July ~~(approximately~~2011 ~~$3,050) in June 2010~~ and ~~January 2011, respectively. The loan was~~ guaranteed by the CEO, a subsidiary of the Company and Chuang Guan.

11On July 21, 2010, the Company entered into a loan agreement with the Industrial and Commercial Bank of China. ~~OBLIGATIONS~~The ~~UNDER~~Company ~~PRODUCT~~borrowed ~~FINANCING~~RMB54,600 (approximately ~~ARRANGEMENTS~~$8,437) with an annual interest rate equal to 12 month’s benchmark lending rate of the People’s Bank of China (6.31% as of June 30, 2011), with interest payable on the 20th of each month. The loan was due and repaid in July 2011. The loan is guaranteed by three subsidiaries of the Company and collateralized by the property of a subsidiary.

In June 2010, the Company entered into product financing agreements with a financial institution. Under the terms of the agreements, the Company agreed to pay an annual interest rate of 8.23% on inventory financings. The Company borrowed RMB50,000 (approximately $7,626). The loans expire in June 2013, and payments of principal and interest are due at the end of each quarter.21

InCHINA ~~September~~SECURITY ~~2009,~~& ~~the~~SURVEILLANCE ~~Company~~TECHNOLOGY, ~~entered~~INC. ~~into product financing~~AND ~~agreements~~SUBSIDIARIES ~~with~~NOTES aTO ~~financial~~CONDENSED ~~institution.~~CONSOLIDATED ~~Under~~FINANCIAL ~~the terms of the agreements, the~~STATEMENTS ~~Company~~(UNAUDITED) ~~agreed~~Expressed toin ~~pay~~thousands ~~an annual interest rate~~ of 8U.~~46% on inventory financings~~S. ~~The~~ ~~Company~~dollars ~~borrowed RMB50,000~~ (~~approximately $7,626). The loans expire in~~Except ~~September~~for ~~2012,~~share and ~~payments~~per ofshare ~~principal~~amounts) ~~and interest are due at the end of each quarter.~~

~~In February 2009, the Company entered into product financing agreements with a financial institution. Under the terms of the agreements, the Company agreed to pay an annual interest rate of~~ 10.5% NOTES onPAYABLE ~~inventory financings. The Company borrowed RMB 7,114~~ (~~approximately $1,085~~CONTINUED)~~. The loans expire in~~ ~~September 2013, and payments of principal and interest are due at the end of each quarter.~~

InOn July ~~2008~~15, 2010, the Company entered into ~~product~~a ~~financing agreements~~loan agreement with aChina ~~financial~~Construction ~~institution~~Bank. ~~Under~~The ~~the~~Company ~~terms~~borrowed ~~of the agreements~~RMB30,000 ~~the~~(approximately ~~Company~~$4,636) ~~agreed~~with ~~to pay~~ an annual interest rate ofequal 10to 110% onof ~~inventory~~the ~~financings.~~12 month’s benchmark ~~The~~lending ~~Company~~rate ~~borrowed~~of ~~RMB53,492~~the ~~(approximately~~People’s ~~$8,158)~~Bank of China (6.94% ~~The~~as ~~loans~~of ~~expire~~June in30, ~~July~~ 2011), ~~and~~with interest ~~payments~~payable on the 20th of ~~principal~~each ~~and~~month. ~~interest~~The ~~are~~loan was due atand repaid in July 2011 and collateralized by the ~~end~~property of ~~each quarter~~a subsidiary.

On July 1, 2010, the Company entered into a loan agreement with Guangdong Development Bank. The Company ~~incurred~~borrowed RMB49,600 (approximately $~~287~~7,664) ~~and~~with ~~$271~~an ~~during~~annual interest rate equal to 110% of the ~~three~~12 ~~months~~month’s benchmark ~~ended~~lending ~~March~~rate ~~31,~~of ~~2011~~the ~~and~~People’s ~~2010,~~Bank of China (6.94% as of June 30, 2011), with interest ~~expense~~payable on the ~~product~~20th ~~financing~~of each month. The loan was guaranteed by the CEO ~~arrangements,~~and ~~respectively~~a subsidiary of the Company. The loan was due and repaid in June 2011.

21On June 18, 2010, the Company entered into a loan agreement with Industrial and Commercial Bank of China (Asia) Limited. The Company borrowed $8,000 and $2,000 on July 15, 2010 and August 12, 2010, respectively, with an effective interest rate at 3% per annum over the applicable one year London Inter Bank Offered Rate (3.73% at June 30, 2011), with interest payable on the due date of the loan. Interest payable is calculated on the basis of the actual number of days elapsed and a 360-day year. The loan was due in July 2011 and extended to July 2012 under a supplementary agreement signed on June 23, 2011. The loan is guaranteed by the CEO of the Company and collateralized by fixed assets of a subsidiary and the shares of a subsidiary.

~~CHINA~~On ~~SECURITY~~April &16, ~~SURVEILLANCE TECHNOLOGY~~2010, ~~INC.~~the ~~AND~~Company ~~SUBSIDIARIES~~entered ~~NOTES~~into TOa ~~CONDENSED~~loan ~~CONSOLIDATED~~agreement with ~~FINANCIAL~~Shanghai ~~STATEMENTS~~Pudong Development Bank. The Company borrowed RMB80,000 (~~UNAUDITED~~approximately $12,362) ~~Expressed~~with inan ~~thousands~~annual interest rate equal to 6.06%, with interest payable on the 20th of Ueach month.S The loan was due and repaid in April 2011. ~~dollars~~The ~~(Except~~loan ~~for~~was ~~share~~guaranteed by the CEO and ~~per~~a ~~share~~subsidiary ~~amounts)~~of the Company and collateralized by the properties and land use rights of a subsidiary.

~~11.~~On ~~OBLIGATIONS~~April ~~UNDER~~15, ~~PRODUCT~~2010, ~~FINANCING~~the ~~ARRANGEMENTS~~Company entered into a loan agreement with Shanghai Pudong Development Bank. The Company borrowed RMB80,000 (~~CONTINUED~~approximately $12,362) with an annual interest rate equal to 6.06%, with interest payable on the 20th of each month. The loan was due and repaid in April 2011. The loan was guaranteed by the CEO and collateralized by the properties and land use rights of a subsidiary of the Company.

~~The~~On ~~following~~March is31, 2010, the Company entered into a ~~summary~~loan ofagreement with ~~the~~China Merchants Bank. The Company’s ~~obligations~~borrowed ~~under~~RMB50,000 (approximately $7,726) ~~product~~with ~~financing~~an ~~arrangements~~annual asinterest rate equal to 5.81%, with interest payable on the 20th of each month. The loan was due and repaid in March 312011. The loan was guaranteed by the CEO, ~~2011~~his wife and ~~December~~a ~~31,~~subsidiary ~~2010:~~of the Company and collateralized by the property and land use rights of a subsidiary.

		March 31,			December 31,
		2011			2010
Obligations under product financing arrangements	$	11,274		$	13,161
Less: current portion		(6,110	)		(6,687	)
Long-term portion	$	5,164		$	6,474

On March 25, 2010, the Company entered into a loan agreement with China Citic Bank. The Company borrowed RMB90,000 (approximately $13,907) with an annual interest rate equal to 5.81%, with interest payable on the 20th of each month. The loan was due and repaid in March 2011. The loan was guaranteed by the CEO, his wife and a subsidiary of the Company and collateralized by the properties of two subsidiaries of the Company.

~~Estimated~~On ~~repayments~~March ~~for~~24, 2010, the ~~terms~~Company entered into a loan agreement with China Citic Bank. The Company borrowed RMB60,000 (approximately $9,271) with an annual interest rate equal to 5.81%, with interest payable on the 20th of each month. The loan was due and repaid in March 2011. The loan was guaranteed by the ~~arrangements~~CEO, ~~are~~his aswife and a subsidiary of the Company and ~~follows:~~collateralized by the properties of two subsidiaries of the Company.

2011 (remaining nine months)	$	5,341
2012		5,300
2013		1,629
Total		12,270
Less: amount representing interest		(996	)
Net	$	11,274

On March 4, 2010, the Company entered into a loan agreement with the Industrial and Commercial Bank of China. The Company borrowed RMB31,000 (approximately $4,790) with an annual interest rate equal to 5.23%, with interest payable on the 20th of each month. The loan was due in March 2011, but repaid in February 2011. The loan was guaranteed by three subsidiaries of the Company and collateralized by the property of a subsidiary.

~~Approximately~~On $1March 4,~~590~~ 2010, the Company entered into a loan agreement with the Industrial and ~~$1,863~~Commercial Bank of ~~other~~China. ~~costs~~The ~~directly~~Company borrowed RMB39,000 ~~associated~~(approximately $6,026) with ~~the~~an ~~product~~annual ~~financing~~interest ~~agreements~~rate ~~are~~equal ~~recorded~~to as5.23%, ~~deferred~~with ~~financing~~interest ~~costs~~payable inon the ~~balance~~20th ~~sheets~~of aseach ofmonth. ~~March~~The ~~31,~~loan ~~2011~~was ~~and~~due ~~December~~in 31March 2011, but ~~2010,~~repaid ~~respectively~~in January 2011. The ~~Company~~loan iswas ~~amortizing~~guaranteed ~~these~~by ~~financing~~three ~~costs~~subsidiaries ~~over~~of the ~~terms~~Company ofand ~~the~~collateralized ~~respective~~by ~~obligations.~~the ~~This~~property ~~amortization~~of isa ~~recorded as interest expense~~subsidiary.

~~12. GUARANTEED SENIOR UNSECURED NOTES PAYABLE~~22

AsCHINA ofSECURITY ~~March~~& ~~31,~~SURVEILLANCE ~~2011~~TECHNOLOGY, ~~the~~INC. ~~Company has outstanding Tranche B~~AND ~~Zero~~SUBSIDIARIES ~~Coupon~~NOTES ~~Guaranteed~~TO ~~Senior~~CONDENSED ~~Unsecured~~CONSOLIDATED ~~Notes~~FINANCIAL STATEMENTS (~~the “Tranche B Notes”~~UNAUDITED). ~~The Tranche~~Expressed ~~B Notes had an original principal amount of $84,000, zero coupon interest and a fair value of $78,440, resulting~~ in athousands ~~debt discount~~ of ~~$5,560 and an effective interest rate of approximately 5%~~U. ~~The notes mature on September 2, 2012~~S. ~~The~~dollars ~~Company is to repay the principal amount in six consecutive~~(Except ~~semi-annual~~for ~~installments,~~share ~~which began on March 2, 2010, with 46%, 46%~~ and 8%per ~~of the~~share ~~principal~~amounts) amount to be repaid in the first, second and third year, respectively. The Tranche B Notes are not convertible. The Company is entitled to redeem the Tranche B Notes at any time with no premium or penalty at a redemption price equal to 100% of the principal amount of the Tranche B Notes to be redeemed, plus default interest, if any. The Tranche B Notes are guaranteed by the Company's significant subsidiaries to the extent permitted under the applicable laws. The Company repaid $19,320 of principal on the Tranche B Notes in both March 2011 and March 2010.

~~The Company has recorded $524 and $950 of debt discount amortization for the three months ended March 31, 2011 and 2010, respectively, related to the Tranche B Notes~~10. NOTES ~~This~~PAYABLE ~~amount is included in interest expense.~~(CONTINUED)

~~Approximately~~On ~~$300~~March of3, ~~legal~~2010, ~~fees~~the ~~and~~Company ~~other~~entered ~~costs~~into ~~directly~~a loan agreement ~~associated~~with China Construction Bank. The Company borrowed RMB50,000 (approximately $7,726) with ~~the~~an ~~issuance~~annual ofinterest ~~the~~rate ~~Tranche~~equal Bto ~~Notes~~6.10%, iswith ~~recorded~~interest aspayable ~~deferred~~on ~~financing~~the ~~costs~~20th inof ~~the~~each ~~balance~~month. ~~sheet~~The atloan ~~March~~was ~~31,~~due and repaid in March 2011. The ~~Company~~loan iswas ~~amortizing~~guaranteed ~~these~~by ~~financing~~the ~~costs~~CEO ~~over~~and ~~the~~a ~~term~~subsidiary of the ~~Tranche~~Company Band ~~Notes~~collateralized by the property of a subsidiary.

22On March 2, 2010, the Company entered into a loan agreement with China Merchants Bank. The Company borrowed RMB41,000 (approximately $6,335) with an annual interest rate equal to 5.81%, with interest payable on the 20th of each month. The loan was due and repaid in March 2011. The loan was guaranteed by the CEO, his wife and a subsidiary of the Company and collateralized by the property and land use rights of a subsidiary.

~~CHINA~~On ~~SECURITY~~February &3, ~~SURVEILLANCE TECHNOLOGY~~2010, ~~INC.~~the ~~AND~~Company ~~SUBSIDIARIES~~entered ~~NOTES~~into TOa ~~CONDENSED~~loan ~~CONSOLIDATED~~agreement with ~~FINANCIAL~~China ~~STATEMENTS~~Merchants Bank. The Company borrowed RMB59,000 (~~UNAUDITED~~approximately $9,117) with ~~Expressed~~an inannual ~~thousands~~interest rate equal to 5.81%, with interest payable on the 20th of Ueach month.S The loan was due and repaid in February 2011. ~~dollars~~The ~~(Except~~loan ~~for~~was guaranteed ~~share~~by the CEO, his wife and ~~per~~a ~~share~~subsidiary ~~amounts)~~of the Company and collateralized by the property and land use rights of a subsidiary.

12On January 26, 2010, the Company entered into a loan agreement with the Industrial and Commercial Bank of China. ~~GUARANTEED~~The ~~SENIOR~~Company ~~UNSECURED~~borrowed RMB100,000 ~~NOTES~~(approximately ~~PAYABLE~~$15,452) with an annual interest rate equal to 4.78%, with interest payable on the 20th of each month. The loan was due in January 2011. The Company repaid RMB80,000 (~~CONTINUED~~approximately $12,362) and RMB20,000 (approximately $3,090) in June 2010 and January 2011, respectively. The loan was guaranteed by the CEO.

~~The~~11. OBLIGATIONS ~~following~~UNDER ~~is a summary of the Company’s guaranteed senior~~PRODUCT ~~unsecured~~FINANCING ~~notes~~ARRANGEMENTS ~~payable as of March 31, 2011 and December 31, 2010:~~

		March 31,			December 31,
		2011			2010
Total	$	25,192		$	43,988
Less: current portion		(21,907	)		(37,408	)
Long-term portion	$	3,285		$	6,580

In June 2010, the Company entered into product financing agreements with a financial institution. Under the terms of the agreements, the Company agreed to pay an annual interest rate of 8.23% on inventory financings. The Company borrowed RMB50,000 (approximately $7,726). The loans expire in June 2013, and payments of principal and interest are due at the end of each quarter.

~~Repayments~~In ~~under~~September 2009, the Company entered into product financing agreements with a financial institution. Under the terms of the ~~notes~~agreements, the Company agreed to pay an annual interest rate of 8.46% on inventory financings. The Company borrowed RMB50,000 (approximately $7,726). The loans expire in September 2012, and payments of principal and interest are asdue ~~follows:~~at the end of each quarter.

2011 (remaining nine months)	$	19,320
2012		6,720
Total		26,040
Less: amount representing unamortized discount		(848	)
Net	$	25,192

In February 2009, the Company entered into product financing agreements with a financial institution. Under the terms of the agreements, the Company agreed to pay an annual interest rate of 10.5% on inventory financings. The Company borrowed RMB 7,114 (approximately $1,099). The loans expire in September 2013, and payments of principal and interest are due at the end of each quarter.

13In July 2008, the Company entered into product financing agreements with a financial institution. ~~WARRANTS~~ Under the terms of the agreements, the Company agreed to pay an annual interest rate of 10% on inventory financings. The Company borrowed RMB53,492 (approximately $8,266). The loans were repaid in full in June 2011.

AThe ~~summary~~Company ofincurred ~~the~~$239, ~~status~~$526, of$192 ~~the Company's warrants~~ and ~~the changes~~$463 during the three and six months ended ~~March~~June 3130, 2011 and 2010, isof ~~presented~~interest expense on the product ~~below:~~financing arrangements, respectively.

	2011			2010
			Weighted			Weighted
			Exercise			Exercise
	Shares		Prices	Shares		Prices
Outstanding at January 1	157,373	$	18.05	3,528,302	$	8.72
Granted	--		--	--		--
Exercised	--		--	--		--
Outstanding at March 31	157,373	$	18.05	3,528,302	$	8.72
Warrants exercisable at March 31	157,373	$	18.05	3,528,302	$	8.72

14CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. ~~EQUITY~~AND SUBSIDIARIES ~~INCENTIVE~~NOTES ~~PLAN~~TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Expressed in thousands of U.S. dollars (Except for share and per share amounts)

On11. OBLIGATIONS ~~February~~UNDER ~~7, 2007, the Company adopted the 2007 Equity~~PRODUCT ~~Incentive~~FINANCING ~~Plan~~ARRANGEMENTS (~~the “Plan”~~CONTINUED), which was amended in February 2010. The plan, as amended, has a ten-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 is 12,000,000. These restricted stock awards represent share-based payments subject to the provisions of ASC 718 “ Stock Compensation ”. The fair value 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, 2011 and 2010, the Company granted 200,908 and 686,705 shares of restricted stock, respectively. During the three months ended March 31, 2011 and 2010, 0 and 59,165 shares of restricted stock were forfeited and retired, respectively. The ~~shares~~following ~~that~~is ~~have been issued vest over~~ a ~~four~~summary ~~to five-year period, and at issuance, resulted in total deferred compensation~~ of ~~$102,423 and $101,554 as of March 31, 2011 and December 31, 2010, respectively. The fair value of these restricted stock awards are equal to~~ the ~~fair value of the~~ Company'’s ~~stock~~obligations ~~on the date of grant,~~under ~~after~~product ~~taking~~financing ~~into~~arrangements ~~account~~as ~~certain discounts. Such restricted stock is subject to the risk~~ of ~~forfeiture~~June ~~upon the occurrence of certain events. During the three months ended March 31~~30, 2011 and ~~2010, the Company recognized $5,547 and $8,326, respectively, of compensation expense under the plan. As of March 31, 2011 and~~ December 31, 2010,: there was $36,216 and $40,895, respectively, of unrecognized compensation expense related to the nonvested restricted stock. This cost is expected to be recognized over a four to five-year period. During the three months ended March 31, 2011 and 2010, the Company has not recognized any tax benefits for the compensation expense under the Plan.

		June 30,			December 31,
		2011			2010
Obligation under product financing arrangements	$	9,322		$	13,161
Less: current portion		(5,512	)		(6,687	)
Long-term portion	$	3,810		$	6,474

~~CHINA~~Estimated ~~SECURITY~~repayments &for ~~SURVEILLANCE~~the ~~TECHNOLOGY,~~terms ~~INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Expressed in thousands~~ of ~~U.S.~~the ~~dollars~~arrangements ~~(Except~~are ~~for~~as follows: ~~share and per share amounts)~~

14. EQUITY INCENTIVE PLAN (CONTINUED)

2011 (for the remaining six months)	$	3,072
2012		5,369
2013		1,650
Total		10,091
Less: amount representing interest		(769	)
Net	$	9,322

~~The~~Approximately ~~following~~$1,223 ~~table~~and ~~summarizes~~$1,863 ~~the~~of ~~status~~other ofcosts directly associated with the ~~Company's nonvested~~product ~~restricted~~financing ~~stock~~agreements ~~awards~~are ~~during~~recorded as deferred financing costs in the ~~three~~balance ~~months~~sheet ~~ended~~as ~~March~~of 31June 30, 2011 and December 31, 2010:, respectively. The Company is amortizing these financing costs over the terms of the respective obligations. This amortization is recorded as interest expense.

	Nonvested Restricted					Nonvested Restricted
	Stock and Stock Unit					Stock and Stock Unit
	Awards					Awards
	2011					2010
				Weighted					Weighted
				Average					Average
				Grant Date					Grant Date
	Number of			Fair		Number of			Fair
	Shares			Values		Shares			Values
Outstanding at January 1	6,485,008		$	6.42		4,713,983		$	9.47
Granted	200,908			4.32		686,705			7.78
Vested	(694,228	)		(7.99	)	(857,055	)		(9.71	)
Forfeited	--			--		(59,165	)		(13.79	)
Outstanding at March 31	5,991,688		$	6.16		4,484,468		$	9.11

12. GUARANTEED SENIOR UNSECURED NOTES PAYABLE

15As of June 30, 2011, the Company has outstanding Tranche B Zero Coupon Guaranteed Senior Unsecured Notes (the “Tranche B Notes”). ~~CONSOLIDATED~~The ~~SEGMENT~~Tranche ~~DATA~~B Notes had an original principal amount of $84,000, zero coupon interest and a fair value of $78,440, resulting in a debt discount of $5,560 and an effective interest rate of approximately 5%. The notes mature on September 2, 2012. The Company is to repay the principal amount in six consecutive semi-annual installments, which began on March 2, 2010, with 46%, 46% and 8% of the principal amount to be repaid in the first, second and third year, respectively. The Tranche B Notes are not convertible. The Company is entitled to redeem the Tranche B Notes at any time with no premium or penalty at a redemption price equal to 100% of the principal amount of the Tranche B Notes to be redeemed, plus default interest, if any. The Tranche B Notes are guaranteed by the Company’s significant subsidiaries to the extent permitted under the applicable laws. The Company repaid $19,320 of the principal on the Tranche B Notes in each of March 2011 and March 2010.

~~Segment~~The ~~information~~Company ishas ~~consistent~~recorded ~~with~~$300, ~~how~~$824, ~~management~~$731 ~~reviews the~~and ~~businesses~~$1,681 ~~makes~~of ~~investing~~debt discount ~~and~~amortization ~~resource~~for ~~allocation~~the ~~decisions~~three and ~~assesses operating~~six ~~performance.~~months ~~The~~ended ~~segment~~June ~~data~~30, ~~presented~~2011 ~~reflects~~and ~~this segment~~2010, ~~structure.~~respectively, ~~The~~related ~~Company~~to ~~reports~~the ~~financial~~Tranche ~~and~~B ~~operating~~Notes. ~~information~~This inamount ~~the~~is included in ~~following~~interest ~~four~~expense. ~~segments:~~

~~(a)~~Approximately ~~System~~$300 ~~installation:~~of ~~designs,~~legal ~~sells,~~fees ~~installs,~~and ~~services~~other ~~and~~costs directly ~~monitors~~associated ~~electronics~~with ~~surveillance~~the ~~and~~issuance ~~safety~~of ~~systems~~the toTranche ~~residential,~~B ~~commercial,~~Notes was recorded as deferred ~~industrial~~financing ~~and~~costs. ~~governmental~~The ~~customers~~Company (is amortizing these financing costs over the ~~“Installation~~term of ~~segment”);~~the Tranche B Notes.

(b) Manufacturing of surveillance and safety products: designs, manufactures and sells surveillance and safety products, including intrusion security, access control and video management systems (the “Manufacturing segment”);24

~~(c)~~CHINA ~~Distribution~~SECURITY of& ~~surveillance~~SURVEILLANCE ~~and~~TECHNOLOGY, ~~safety~~INC. ~~products: sells~~AND ~~surveillance~~SUBSIDIARIES ~~and~~NOTES ~~safety~~TO ~~products,~~CONDENSED ~~including~~CONSOLIDATED ~~intrusion~~FINANCIAL ~~security,~~STATEMENTS (UNAUDITED) ~~access~~Expressed ~~control and~~in ~~video~~thousands ~~management~~of ~~systems~~U.S. dollars (~~the~~Except for ~~“Distribution~~share ~~segment”~~and per share amounts); ~~and~~

~~(d)~~12. ~~Providing~~GUARANTEED ~~surveillance~~SENIOR ~~and~~UNSECURED ~~safety~~NOTES ~~services:~~PAYABLE provides a full range of surveillance and safety services, including network alarm response services, surveillance and safety products and solutions’ post-sale, maintenance services, software upgrading services, project integration services, security guard services, surveillance and safety consulting services, and surveillance and safety trustee services (~~the “Service segment”~~CONTINUED).

The ~~Company~~following ~~also~~is ~~provides~~a ~~general~~summary ~~corporate~~of ~~services~~the toCompany’s ~~its~~guaranteed senior ~~segments~~unsecured ~~and~~notes ~~these~~payable ~~costs~~as ~~are~~of ~~reported~~June as30, ~~“Corporate~~2011 and ~~others”.~~December 31, 2010:

Selected information in the segment structure is presented in the following tables for the three months ended March 31, 2011 and 2010:

		June 30,			December 31,
		2011			2010
Total	$	25,492		$	43,988
Less: current portion		(22,168	)		(37,408	)
Long-term portion	$	3,324		$	6,580

~~Revenues~~Repayments byunder ~~segment for~~ the ~~three~~terms ~~months~~of ~~ended~~the ~~March~~notes ~~31, 2011 and 2010~~ are as follows:

		March 31,
2011 (remaining six months)	$	19,320
Revenues(1)		2011			2010
2012		6,720
Installation Segment	$	79,749		$	92,749
Total		26,040
Manufacturing Segment		14,204			16,009
Less: amount representing unamortized discount		(548	)
Distribution Segment		4,856			11,432
Net	$	25,492
Service Segment		245			--
Total	$	99,054		$	120,190

~~(1)~~13. ~~Revenues~~WARRANTS ~~by operating segments exclude intercompany transactions.~~

24A summary of the status of the Company’s warrants and the changes during the three months ended June 30, 2011 and 2010, is presented below:

	2011			2010
			Weighted			Weighted
			Average			Average
	Shares		Exercise Prices	Shares		Exercise Prices
Outstanding at April 1	157,373	$	18.05	3,528,302	$	8.72
Granted	--		--	--		--
Exercised	--		--	--		--
Outstanding at June 30	157,373	$	18.05	3,528,302	$	8.72
Warrants exercisable at June 30	157,373	$	18.05	3,528,302	$	8.72

~~15.~~A ~~CONSOLIDATED~~summary ~~SEGMENT~~of ~~DATA~~the ~~(CONTINUED)~~status of the Company’s warrants and the changes during the six months ended June 30, 2011 and 2010, is presented below:

Income (loss) by segment for the three months ended March 31, 2011 and 2010 are as follows:

	2011			2010
			Weighted			Weighted
			Average			Average
	Shares		Exercise Prices	Shares		Exercise Prices
Outstanding at January 1	157,373	$	18.05	3,528,302	$	8.72
Granted	--		--	--		--
Exercised	--		--	--		--
Outstanding at June 30	157,373	$	18.05	3,528,302	$	8.72
Warrants exercisable at June 30	157,373	$	18.05	3,528,302	$	8.72

		March 31,
Income from operations		2011			2010
Installation Segment	$	24,530		$	19,742
Manufacturing Segment		(2,789	)		(1,051	)
Distribution Segment		(970	)		(661	)
Service Segment		(854	)		--
Corporate and others (1)		(11,792	)		(11,067	)
Income from operations		8,125			6,963
Corporate interest income		141			78
Corporate interest expense		(5,114	)		(2,295	)
Corporate other income		596			246
Income before income taxes		3,748			4,992
Income taxes		(2,069	)		(1,717	)
Net income	$	1,679		$	3,275

~~(1)~~CHINA ~~Includes~~SECURITY ~~non-cash~~& ~~employee~~SURVEILLANCE ~~compensation~~TECHNOLOGY, INC. AND ~~professional~~SUBSIDIARIES ~~fees~~NOTES ~~and~~TO ~~consultancy~~CONDENSED ~~fees~~CONSOLIDATED ~~for~~FINANCIAL ~~the~~STATEMENTS (UNAUDITED) ~~Company~~Expressed in thousands of U.S. dollars (Except for share and per share amounts)

~~Non-cash~~14. EQUITY ~~employee~~INCENTIVE ~~compensation~~PLAN ~~by segment for the three months ended March 31, 2011 and 2010 is as follows:~~

		March 31,
Non-cash employee compensation		2011		2010
Installation Segment	$	370	$	566
Manufacturing Segment		956		936
Distribution Segment		273		362
Service Segment		26		--
Corporate and others		3,922		6,462
	$	5,547	$	8,326

On February 7, 2007, the Company adopted the 2007 Equity Incentive Plan, which was amended in February 2010 (the “Plan”). The Plan, as amended, has a ten-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 is 12,000,000. These restricted stock awards represent share-based payments subject to the provisions of ASC 718 “Stock Compensation”. The fair value 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.

~~Depreciation~~During the three and ~~amortization~~six bymonths ~~segment~~ended ~~for~~June 30, 2011 and 2010, the Company granted 0, 200,908, 568,987 and 1,255,692 shares of restricted stock, respectively. During the three and six months ended June 30, 2011 and 2010, 18,250, 18,250, 16,089 and 75,254 shares of restricted stock were forfeited and retired, respectively. The shares that have been issued vest over a four to five-year period, and at issuance, resulted in total deferred compensation of $102,258 and $101,554 as of June 30, 2011 and December 31, 2010, respectively. The fair values of these restricted stock awards are equal to the fair value of the Company’s common stock on the date of grant, after taking into account certain discounts. Such restricted stock is subject to the risk of forfeiture upon the occurrence of certain events. During the three and six months ended ~~March~~June 30, 2011 and 2010, the Company recognized $5,017, $10,564, $5,055 and $13,381, respectively, of compensation expense under the Plan. As of June 30, 2011 and December 31, 2010, there was $31,034 and $40,895, respectively, of unrecognized compensation expense related to the nonvested restricted stock. This cost is expected to be recognized over a four to five-year period. During the three and six months ended June 30, 2011 and 2010, the ~~are~~Company ashas ~~follows:~~not recognized any tax benefits for the compensation expense under the Plan.

		March 31,
Depreciation and amortization		2011		2010
Installation Segment	$	837	$	1,091
Manufacturing Segment		1,754		1,586
Distribution Segment		216		352
Service Segment		7		--
Corporate and others		413		205
	$	3,227	$	3,234

The following table summarizes the status of the Company’s nonvested restricted stock awards during the three months ended June 30, 2011 and 2010:

	Nonvested Restricted Stock					Nonvested Restricted Stock
	and Stock Unit					and Stock Unit
	2011					2010
	Number of			Weighted Average		Number of			Weighted Average
	Shares			Grant Date Fair		Shares			Grant Date Fair
				Values					Values
Outstanding at April 1	5,991,688		$	6.16		4,484,468		$	9.11
Granted	--			--		568,987			6.42
Vested	(594,037	)		(8.45	)	(463,323	)		(10.91	)
Forfeited	(18,250	)		(9.06	)	(16,089	)		(8.97	)
Outstanding at June 30	5,379,401		$	5.90		4,574,043		$	8.60

~~CHINA~~The ~~SECURITY~~following &table ~~SURVEILLANCE~~summarizes ~~TECHNOLOGY,~~the ~~INC.~~status ~~AND~~of ~~SUBSIDIARIES~~the ~~NOTES~~Company’s nonvested TOrestricted ~~CONDENSED~~stock ~~CONSOLIDATED~~awards ~~FINANCIAL~~during ~~STATEMENTS~~the ~~(UNAUDITED)~~six ~~Expressed~~months inended ~~thousands~~June of30, ~~U.S.~~2011 ~~dollars (Except for share~~ and 2010: ~~per share amounts)~~

15. CONSOLIDATED SEGMENT DATA (CONTINUED)

	Nonvested Restricted Stock					Nonvested Restricted Stock
	and Stock Unit					and Stock Unit
	2011					2010
	Number of			Weighted Average		Number of			Weighted Average
	Shares			Grant Date Fair		Shares			Grant Date Fair
				Values					Values
Outstanding at January 1	6,485,008		$	6.42		4,713,983		$	9.47
Granted	200,908			4.32		1,255,692			7.16
Vested	(1,288,265	)		(8.20	)	(1,320,378	)		(10.13	)
Forfeited	(18,250	)		(9.06	)	(75,254	)		(12.76	)
Outstanding at June 30	5,379,401		$	5.90		4,574,043		$	8.60

~~Total assets by segment as of March 31, 2011 and December 31, 2010 are as follows:~~26

Total assets		March 31,		December 31,
		2011		2010
Installation Segment	$	682,433	$	585,439
Manufacturing Segment		195,923		197,899
Distribution Segment		40,049		46,074
Service Segment		13,398		13,905
Corporate and others (1)		415,730		267,705
	$	1,347,533	$	1,111,022

CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Expressed in thousands of U.S. dollars
(Except for share and per share amounts)

~~(1)~~15. CONSOLIDATED ~~Includes~~SEGMENT ~~deposits paid for acquisition of~~DATA ~~subsidiaries, properties and intangible assets.~~

~~Goodwill~~Segment byinformation ~~segment~~is asconsistent ofwith ~~March~~how 31management reviews the businesses, ~~2011~~makes investing and ~~December~~resource ~~31,~~allocation ~~2010,~~decisions and assesses isoperating asperformance. ~~follows~~The segment data presented reflects this segment structure. The Company reports financial and operating information in the following four segments:

Goodwill		March 31,		December 31,
		2011		2010
Installation Segment	$	11,079		11,079
Manufacturing Segment		56,456		56,456
Distribution Segment		11,981		11,981
Service Segment		--		--
Total	$	79,516	$	79,516

(a) System installation: designs, sells, installs, services and monitors electronics surveillance and safety systems to residential, commercial, industrial and governmental customers (the “Installation segment”);

~~16.~~(b) Manufacturing ~~CONTINGENCIES~~of surveillance and safety products: designs, manufactures and sells surveillance and safety products, including intrusion security, access control and video management systems (the “Manufacturing segment”);

~~From~~(c) Distribution ~~time to time, the Company may have disputes that arise in the ordinary course~~ of ~~its business. Currently, there are no material legal~~ ~~proceedings~~surveillance toand ~~which~~safety ~~the~~products: ~~Company~~sells issurveillance aand ~~party,~~safety ~~or to which any of the Company's~~products, ~~property~~including isintrusion ~~subject~~security, ~~that~~access ~~the~~control ~~Company~~and ~~expects~~video tomanagement ~~have~~systems ~~a material adverse effect~~(the on“Distribution ~~the~~segment”); ~~Company's~~and ~~financial condition except the following.~~

~~The Company and the members of the Company’s board of directors are named as defendants in purported class action lawsuits~~ (~~the “Stockholder Actions”~~d) Providing surveillance ~~brought~~and insafety ~~the~~services: ~~Delaware~~provides ~~Court~~a offull ~~Chancery~~range ~~by several stockholders~~ of ~~the~~ ~~Company:~~surveillance ~~Dziak, Levine, Smith~~ and ~~O’Conner on March 15, 2011, March 16,~~ ~~2011,~~safety ~~March 17~~services, ~~2011~~including ~~and~~network ~~March~~alarm ~~18,~~response ~~2011~~services, ~~respectively.~~surveillance ~~The Stockholder Actions~~and ~~generally~~safety ~~allege~~products ~~that the Company~~ and ~~all~~solutions’ ~~of its directors breached their fiduciary duties in connection with the transaction contemplated by the Merger Agreement (see Note 17). The Stockholder Actions seek~~post-sale, ~~among~~maintenance ~~other things: to declare that the contemplated Merger Transaction (see Note 17) is unfair~~services, ~~unjust~~software ~~and~~upgrading ~~inequitable~~services, ~~enjoin~~project ~~the~~integration ~~Company~~services, ~~from~~security ~~taking~~guard ~~any steps necessary to accomplish or implement the proposed Merger Transaction~~services, ~~and compensate~~ ~~plaintiff~~surveillance and ~~the~~safety ~~members~~consulting ofservices, ~~the class for all losses~~ and ~~damages~~surveillance ~~suffered~~ and to besafety ~~suffered by them as a result of the Merger Transaction. The Company~~trustee ~~believes~~services (the ~~Stockholder~~“Service ~~Actions are without merit and plans to defend against them vigorously~~segment”). At this stage of the proceedings, the Company cannot predict the outcome of this litigation or whether it will have a material effect on the Company’s results of operations, liquidity or capital resources.

~~17.~~The ~~SUBSEQUENT~~Company ~~EVENTS~~also provides general corporate services to its segments and these costs are reported as “Corporate and others”.

AsSelected ~~disclosed~~information in ~~a current report on Form 8-K filed by~~ the ~~Company~~ onsegment ~~April~~structure ~~21,~~is ~~2011,~~presented ~~on April 20, 2011, the Company entered into an~~in ~~Agreement and Plan of Merger (~~the ~~“Merger~~following ~~Agreement”~~tables orfor the ~~“Merger”)~~three ~~with Rightmark Holdings Limited, a British Virgin Islands company~~ and ~~wholly~~six ~~owned~~months ~~subsidiary~~ended ~~of Intelligent~~June ~~One Limited~~30, a2011 ~~British Virgin Islands company wholly owned by Mr. Guoshen Tu (“Rightmark”), Rightmark Merger Sub Limited, a Delaware corporation~~ and ~~wholly owned subsidiary of Rightmark (“Merger Sub”) and Mr. Guoshen Tu~~2010: (solely for the purpose of Section 6.15 of the Merger Agreement), pursuant to which Merger Sub will merge with and into the Company, with the Company continuing as the surviving corporation and a wholly owned subsidiary of Rightmark (the “Merger Transaction”). Mr. Guoshen Tu is the Company’s Chief Executive Officer and the Chairman of Board of Directors and beneficially owns approximately 20.9% of the Company’s outstanding shares of common stock (the “Common Stock”).

~~Pursuant~~Revenues to the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of Common Stock issued and outstanding immediately prior to the Effective Time (other than (i) Rollover Shares (as defined in the Merger Agreement), (ii) shares owned by ~~Rightmark~~segment ~~and Merger~~for ~~Sub and (iii) shares in respect of which appraisal rights have been properly exercised under Delaware law) will be canceled and will be automatically converted into~~ the ~~right~~three tomonths ~~receive~~ended ~~$6.50~~June ~~in cash (the “Merger Consideration”)~~30, ~~without interest. In connection with the Merger, each~~2011 ~~outstanding share of Common Stock that is subject to vesting~~ and~~/or~~ ~~forfeiture restrictions will become fully vested immediately prior to the Effective Time. In addition~~2010, ~~each~~are ~~warrant~~as ~~that~~follows: is outstanding at the Effective Time will be cancelled and each holder of such warrant will receive an amount in cash (without interest) equal to the product of (i) the excess of the Merger Consideration over the exercise price per share of such warrant and (ii) the number of shares of Company Common Stock subject to such warrant; provided, that if the exercise price per share of any such warrant is equal to or greater than the Merger Consideration, such warrant shall be cancelled without any cash payment being made in respect thereof.

Revenues⁽¹⁾		2011		2010
Installation segment	$	118,048	$	129,349
Manufacturing segment		30,338		21,979
Distribution segment		7,150		13,673
Service segment		803		3,353
Total	$	156,339	$	168,354

~~CHINA~~Revenues ~~SECURITY~~by &segment ~~SURVEILLANCE~~for ~~TECHNOLOGY,~~the ~~INC.~~six ~~AND~~months ~~SUBSIDIARIES~~ended ~~NOTES~~June TO30, ~~CONDENSED~~2011 ~~CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Expressed in thousands of U.S. dollars (Except for share~~ and 2010 ~~per~~are ~~share~~as ~~amounts)~~follows:

17. SUBSEQUENT EVENTS (CONTINUED)

Revenues⁽¹⁾		2011		2010
Installation segment	$	197,797	$	222,098
Manufacturing segment		44,542		37,988
Distribution segment		12,006		25,105
Service segment		1,048		3,353
Total	$	255,393	$	288,544

Each of the Company, Rightmark and Merger Sub has made customary representations and warranties to each other in the Merger Agreement. Completion of the Merger is subject to customary closing conditions, including, but not limited to, (i1) ~~adoption~~Revenues ~~of the Merger Agreement~~ by ~~the~~operating ~~Company’ stockholders,~~segments ~~(ii) the absence of any order or injunction prohibiting the~~exclude ~~consummation~~intercompany ~~of the Merger and (iii) truth and correctness of each party’s representations and warranties at closing~~transactions. The Merger Agreement may be terminated under certain circumstances, including, among others, termination by mutual agreement of the parties, termination by either party if the Merger is not consummated on or before April 20, 2012 and termination by the Company at any time for any reason on or prior to May 4, 2011, as set forth in the Merger Agreement.

In connection with the Merger Agreement, Mr. Guoshen Tu also entered into a limited guaranty (the “Guaranty”) in favor of the Company with respect to certain payment obligations of Rightmark and Merger Sub under the Merger Agreement.27

27CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Expressed in thousands of U.S. dollars (Except for share and per share amounts)

~~ITEM 2~~15. CONSOLIDATED ~~MANAGEMENT'S~~SEGMENT ~~DISCUSSION~~DATA (CONTINUED) ~~AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.~~

~~Special~~Income ~~Note~~(loss) ~~Regarding~~by ~~Forward~~segment ~~Looking~~for the three months ended June 30, ~~Statements~~2011 and 2010 are as follows:

In addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. We use words such as “believe,” “expect,” “anticipate,” “project,” “target,” “plan,” “optimistic,” “intend,” “aim,” “will” or similar expressions which are intended to identify forward-looking statements. Such statements include, among others, those concerning market and industry segment growth and demand and acceptance of 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, 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 involve risks and uncertainties, as well as assumptions, that, if they were to ever materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties, among others, include:

Income (loss) from operations:		2011			2010
Installation segment	$	31,719		$	32,797
Manufacturing segment		(1,601	)		189
Distribution segment		(808	)		(1,008	)
Service segment		(634	)		206
Corporate and others⁽¹⁾		(14,029	)		(7,630	)
Income from operations		14,647			24,554
Corporate interest income		222			53
Corporate interest expense		(6,436	)		(3,064	)
Corporate other income		715			394
Income before income taxes		9,148			21,937
Income taxes		(3,182	)		(4,130	)
Net income	$	5,966		$	17,807

~~Our~~Income ~~ability~~(loss) toby ~~attract~~segment ~~new~~for ~~customers;~~the six months ended June 30, 2011and 2010 are as follows:

Our ability to employ and retain qualified employees;

Income (loss) from operations:		2011			2010
Installation segment	$	56,249		$	52,539
Manufacturing segment		(4,390	)		(862	)
Distribution segment		(1,778	)		(1,669	)
Service segment		(1,488	)		206
Corporate and others⁽¹⁾		(25,821	)		(18,697	)
Income from operations		22,772			31,517
Corporate interest income		363			131
Corporate interest expense		(11,550	)		(5,359	)
Corporate other income		1,311			640
Income before income taxes		12,896			26,929
Income taxes		(5,251	)		(5,847	)
Net income	$	7,645		$	21,082

~~Our~~(1) ~~ability~~Includes tonon-cash ~~successfully~~employee ~~integrate~~compensation, professional ~~companies~~fees ~~that we have acquired~~ and to ~~avoid~~consultancy orfees ~~mitigate~~for ~~potential damages arising from risks associated with acquired companies and~~ the ~~legal~~Company. ~~structures utilized to effectuate acquisitions of these companies;~~

~~Our~~Non-cash ~~ability~~employee tocompensation ~~keep~~by ~~pace~~segment ~~with~~for ~~technological~~the ~~developments~~three ~~in the~~months ~~surveillance~~ended ~~and~~June ~~safety industry~~30, 2011 and to2010 ~~develop~~are ~~and~~as ~~commercialize~~follows: ~~new products;~~

Competition and competitive factors in the markets in which we compete;

Non-cash employee compensation:		2011		2010
Installation segment	$	266	$	587
Manufacturing segment		954		968
Distribution segment		220		386
Service segment		25		12
Corporate and others		3,552		3,102
Total	$	5,017	$	5,055

~~General economic and business conditions in China and in the local economies in which we regularly conduct business, which can affect demand for the Company’s products and services;~~ 28

~~Changes~~CHINA inSECURITY ~~laws~~& SURVEILLANCE TECHNOLOGY, ~~rules~~INC. ~~and~~AND SUBSIDIARIES ~~regulations~~|NOTES ~~governing~~TO ~~the~~CONDENSED ~~business~~CONSOLIDATED ~~community~~FINANCIAL inSTATEMENTS ~~China~~(UNAUDITED) Expressed in ~~general~~thousands ~~and~~of ~~the~~U.S. ~~surveillance~~dollars ~~and~~(Except ~~safety~~for ~~industry~~share ~~in particular;~~ and per share amounts)

~~The~~15. CONSOLIDATED ~~risks~~SEGMENT ~~identified in the “Risk Factors” section included in the~~DATA ~~Company’s~~(CONTINUED) ~~annual report on Form 10-K for the year ended December 31, 2010 and the subsequent SEC filings.~~

~~All~~Non-cash ~~statements~~employee ~~other~~compensation ~~than~~by ~~statements~~segment offor ~~historical~~the ~~fact~~six ~~are~~months ~~statements~~ended ~~that~~June ~~could~~30, be2011 ~~deemed forward-looking statements. The Company assumes no obligation~~ and ~~does~~2010 ~~not~~are ~~intend to update these forward-looking statements, except~~ as ~~required~~follows: ~~by law.~~

Use of terms

Non-cash employee compensation:		2011		2010
Installation segment	$	636	$	1,153
Manufacturing segment		1,910		1,904
Distribution segment		493		748
Service segment		51		12
Corporate and others		7,474		9,564
Total	$	10,564	$	13,381

~~Except~~Depreciation asand ~~otherwise~~amortization ~~indicated~~ by ~~the~~segment ~~context,~~for ~~references to “CSR,” “we,” “us,” “our,” “our Company,” or “~~the ~~Company”~~three ~~are to China Security~~months &ended ~~Surveillance~~June ~~Technology~~30, ~~Inc.,~~2011 ~~a Delaware corporation,~~ and ~~its consolidated~~2010 ~~subsidiaries.~~are ~~Unless~~as ~~the context otherwise requires, all references to~~follows:

“Allied Rich” are to Allied Rich Limited, a Hong Kong corporation and an indirect, wholly-owned subsidiary of the Company;

Depreciation and amortization:		2011		2010
Installation segment	$	877	$	1,089
Manufacturing segment		1,712		1,590
Distribution segment		206		354
Service segment		5		13
Corporate and others		425		207
Total	$	3,225	$	3,253

~~“Chain~~Depreciation ~~Star”~~and ~~are~~amortization toby ~~Chain~~segment ~~Star~~for ~~Investments~~the ~~Limited,~~six ~~a Hong Kong corporation~~months ~~and~~ended anJune ~~indirect~~30, ~~wholly-owned~~2011 ~~subsidiary~~and of2010 ~~the~~are ~~Company;~~as follows:

“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;

Depreciation and amortization:		2011		2010
Installation segment	$	1,714	$	2,180
Manufacturing segment		3,466		3,176
Distribution segment		422		706
Service segment		12		13
Corporate and others		838		412
Total	$	6,452	$	6,487

~~“Chuang~~Total ~~Guan”~~assets ~~are~~by tosegment ~~Shenzhen~~as ~~Chuang~~of ~~Guan~~June ~~Intelligence Network Technology Co.~~30, ~~Ltd.,~~2011 aand ~~corporation~~December ~~incorporated~~31, 2010 inare ~~the~~as ~~People’s~~follows: ~~Republic of China;~~

“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;

Total assets		June 30, 2011		December 31, 2010
Installation segment	$	766,949	$	585,439
Manufacturing segment		214,947		197,899
Distribution segment		37,279		46,074
Service segment		16,073		13,905
Corporate and others ⁽¹⁾		383,393		267,705
Total	$	1,418,641	$	1,111,022

~~“CSSI” are to China Security & Surveillance Intelligence~~ (~~PRC~~1) ~~Inc., previously~~Includes ~~named~~deposits ~~China~~paid ~~Security~~for &acquisition ~~Surveillance Manufacturing (PRC) Inc.~~of subsidiaries, ~~a corporation~~properties ~~incorporated in the People’s Republic of China~~ and aintangible ~~direct, wholly-owned~~assets. ~~subsidiary of the Company;~~

~~“CSSD”~~Goodwill ~~are~~by tosegment ~~China~~as ~~Security~~of &June ~~Surveillance Distribution (PRC) Inc.~~30, ~~a corporation~~2011 ~~incorporated in the People’s Republic of China~~ and aDecember ~~direct~~31, 2010, ~~wholly-owned~~is ~~subsidiary~~as offollows: ~~the Company;~~

Goodwill		June 30, 2011		December 31, 2010
Installation segment	$	11,079	$	11,079
Manufacturing segment		56,456		56,456
Distribution segment		11,984		11,981
Total	$	79,519	$	79,516

“CSST Investment” are to China Security & Surveillance Investment (PRC) Inc., a corporation incorporated in the People’s Republic of China and a direct, wholly-owned subsidiary of the Company; 29

~~“CSSS”~~CHINA ~~are~~SECURITY to& ~~China~~SURVEILLANCE ~~Security~~TECHNOLOGY, &INC. ~~Surveillance~~AND SUBSIDIARIES ~~Services~~NOTES ~~(PRC)~~TO ~~Inc.,~~CONDENSED aCONSOLIDATED FINANCIAL STATEMENTS ~~corporation~~(UNAUDITED) ~~incorporated~~Expressed in ~~the~~thousands ~~People’s~~of ~~Republic~~U.S. ofdollars ~~China~~(Except ~~and~~for ashare ~~direct,~~and ~~wholly-owned~~per ~~subsidiary~~share ofamounts) ~~the Company;~~

~~“CSST HK” are to China Security & Surveillance Technology (HK) Ltd~~16., CONTINGENCIES ~~a Hong Kong corporation and an indirect, wholly-owned subsidiary of the Company;~~

Between March 15, 2011 and April 26, 2011, six purported class action complaints related to the Merger (the “~~CSST~~Stockholder ~~PRC~~Actions”) ~~are~~were tofiled against some or all of the following: the Company, the members of the board of directors of the Company and Merger Sub. On March 15, 2011, the first of the Stockholder Actions was filed in the Court of Chancery of the State of Delaware, captioned Dziak v. China Security & Surveillance Technology, ~~(PRC)~~ Inc., et al., aC.A. ~~corporation~~No. ~~incorporated~~6279-CS (the “Dziak Complaint”). The plaintiff in the ~~People~~Dziak Complaint alleges, among other things, (1) that members of our board of directors breached their fiduciary duties to the Company’s ~~Republic~~stockholders ofin ~~China~~connection with the Merger and a(2) ~~direct~~Mr. Tu engaged in acts of self-dealing, unfair dealing, gross ~~wholly-owned~~overreaching ~~subsidiary~~and breaches of his fiduciary duties. The Dziak Complaint seeks, among other things, an order enjoining the ~~Company;~~defendants from proceeding with the Merger unless and until such time the defendants have acted in accordance with their fiduciary duties to maximize shareholder value, an order directing the defendants to exercise their fiduciary duties to obtain a transaction that is in the best interests of our stockholders, an award of compensatory damages and an award of fees, expenses and costs.

~~“DIT”~~From ~~are~~March 16, 2011 to ~~DIT~~April ~~Industry~~26, 2011, five additional complaints were filed in the Court of Chancery of the State of Delaware, seeking substantially the same relief and making substantially the same allegations as the Dziak Complaint. The additional complaints have the following captions: Levine v. China Security & Surveillance Technology, Inc., et al., C.A. No. 6286-CS (Hfiled March 16, 2011); Smith v.K China Security & Surveillance Technology, Inc., et al., C.A. No. 6292-CS (filed March 17, 2011); ~~Limited~~O’Connor v. China Security & Surveillance Technology, aInc., ~~Hong~~et ~~Kong~~al., ~~corporation~~C.A. No. 6296-CS (filed March 18, 2011); Jamal v. China Security & Surveillance Technology, Inc., et al., C.A. No. 6408-CS (filed April 22, 2011); and anMusto v. China ~~indirect~~Security & Surveillance Technology, ~~wholly~~Inc., et al., C.A. No. 6418-~~owned~~CS ~~subsidiary~~(filed April 26, 2011). Certain of the Stockholder Actions additionally allege, among other things, that the Company; and Merger Sub have aided and abetted the individual defendants’ alleged breaches of fiduciary duties. Certain of the Stockholder Actions additionally seek, among other things, (1) an order enjoining, preliminarily and permanently, the Merger, and (2) an order rescinding the Merger or awarding plaintiff and the class rescissory damages in the event that the Merger is consummated prior to the entry of the court’s final judgment.

~~“DM”~~On ~~are~~May 23, 2011, plaintiffs’ counsel in Musto v. China Security & Surveillance Technology, Inc., et al., C.A. No. 6418-CS, filed a motion with the Court of Chancery of the state of Delaware seeking to ~~Beijing~~consolidate DMfive of the pending actions and to have counsel for Mr. Musto appointed as lead plaintiffs’ counsel in the consolidated action. On May 27, 2011, the Company, members of the special committee, Terence Yap, and Merger Sub, respectively, filed motions to dismiss the remaining action that was not part of the consolidation motion, Jamal v. China Security & Surveillance Technology, Inc., Coet al., ~~Ltd~~C.A. No. 6408-CS. On June 7, 2011, four plaintiffs (Levine, Smith, O’Connor, and Jamal) filed a ~~corporation~~joint Amended Complaint containing substantially ~~incorporated~~the same allegations and seeking substantially the same relief as the prior complaints. The joint Amended Complaint was accompanied by a motion for preliminary injunction to block the Merger and a motion to expedite discovery. On June 10, 2011, plaintiffs’ counsel in the ~~People~~Dziak, Levine, Smith, O’sConnor, ~~Republic~~and Jamal actions filed a joint cross-motion to the Musto consolidation motion. The joint cross-motion also sought consolidation of ~~China;~~all pending actions, but requested that the law firm of Rigrodsky & Long, P.A. be appointed as lead plaintiffs’ counsel in the consolidated action. At a hearing on June 30, 2011, the Court ordered that the six pending cases be consolidated and appointed Rigrodsky & Long, P.A. as the lead plaintiffs’ counsel in the consolidated action.

~~“Golden”~~In ~~are~~September to2010, ~~Golden~~the ~~Group~~Company ~~Corporation~~was ~~(Shenzhen)~~notified ~~Limited,~~by the staff of the SEC that it had initiated a ~~corporation~~SEC Investigation. On or around September 3, 2010 ~~incorporated~~and inMarch 29, 2011, the ~~People’s~~Company ~~Republic~~received two separate subpoenas from the SEC requesting the delivery of ~~China~~certain documents to the SEC. The Company is cooperating, and anintends ~~indirect~~to continue to cooperate, ~~wholly-owned~~with the SEC in connection ~~subsidiary~~with such investigation. Receipt of these subpoenas does not mean that the SEC has concluded that the Company; or anyone else has violated the law. The investigation does not mean that the SEC has a negative opinion of any person, entity or security. It is not possible to predict the outcome of the investigation, including whether or when any proceedings might be initiated, when these matters may be resolved or what, if any, penalties or other remedies may be imposed.

~~“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;~~ 30

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

~~“HiEasy”~~Special ~~are~~Note toRegarding ~~HiEasy~~Forward ~~Electronic~~Looking ~~Technology Development Co., Ltd., a~~Statements ~~corporation incorporated in the People’s Republic of China and an indirect, wholly-owned subsidiary of the Company;~~

In addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. We use words such as “~~Hongtianzhi~~believe,” “expect,” “anticipate,” “project,” “target,” “plan,” “optimistic,” “intend,” “aim,” “will” or similar expressions which are intended to ~~Shenzhen~~identify forward-looking ~~Hongtianzhi~~statements. ~~Electronics~~Such ~~Co.~~statements include, ~~Ltd.~~among others, athose ~~corporation~~concerning ~~incorporated~~market inand industry segment growth and demand and acceptance of new and existing products; any projections of sales, earnings, revenue, margins or other financial items, any statements of the ~~People’s~~plans, ~~Republic~~strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; uncertainties related to conducting business in China, ~~and~~as anwell ~~indirect~~as all assumptions, expectations, predictions, intentions or ~~wholly~~beliefs about future events. You are cautioned that any such forward-~~owned~~looking statements ~~subsidiary~~are not guarantees of future performance and involve risks and uncertainties, as well as assumptions, that, if they were to ever materialize or prove incorrect, could cause the ~~Company;~~results to differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties, among others, include:

~~“Huge~~Our ~~Long”~~ability ~~are~~ to ~~Huge~~attract ~~Long~~new ~~Limited, a Hong Kong corporation and an~~customers; ~~indirect, wholly-owned subsidiary of the Company;~~
~~“Jin~~Our ~~Lin”~~ability ~~are~~ to ~~Shenzhen~~employ ~~Jin Lin Technology Co., Ltd., a corporation incorporated in the People’s Republic of China~~ and anretain ~~indirect,~~qualified ~~wholly-owned~~employees; ~~subsidiary of the Company;~~
~~“Kit~~Our ~~Grant”~~ability ~~are~~ to ~~Kit~~successfully ~~Grant~~integrate ~~Limited,~~companies athat ~~Hong~~we ~~Kong~~have ~~corporation~~acquired and to anavoid or mitigate potential damages arising from risks associated with ~~indirect,~~acquired ~~wholly-owned~~companies ~~subsidiary~~and the legal structures utilized to effectuate acquisitions of ~~the~~these ~~Company~~companies;
~~“Link~~Our ~~Billion”~~ability ~~are~~ to ~~Link~~keep ~~Billion~~pace ~~Investment~~with ~~Limited,~~technological adevelopments ~~Hong~~in ~~Kong~~the ~~corporation~~surveillance and ansafety ~~indirect~~industry, ~~wholly-owned~~and ~~subsidiary~~to ofdevelop ~~the~~and ~~Company;~~commercialize new products;
~~“Long~~Competition ~~Top”~~and ~~are~~competitive tofactors ~~Long~~in ~~Top~~the ~~Limited,~~markets ain ~~Hong~~which ~~Kong~~we ~~corporation and an~~compete; ~~indirect, wholly-owned subsidiary of the Company;~~
~~“Longhorn”~~General ~~are~~economic toand ~~Shenzhen~~business ~~Longhorn~~conditions ~~Security~~in ~~Technology~~China ~~Co.,~~and ~~Ltd.,~~in athe local ~~corporation~~economies ~~incorporated~~ in ~~the~~which ~~People’s~~we ~~Republic~~regularly ofconduct ~~China~~business, ~~and~~which ancan ~~indirect,~~affect demand for ~~wholly-owned~~the ~~subsidiary~~Company’s ofproducts ~~the~~and ~~Company~~services;
~~“Minking”~~Changes ~~are~~in tolaws, ~~Changzhou~~rules ~~Minking~~and ~~Electronics~~regulations ~~Co.,~~governing ~~Ltd.,~~the abusiness ~~corporation~~community in ~~incorporated~~China in ~~the~~general ~~People’s~~and ~~Republic~~the ofsurveillance ~~China~~ and ansafety ~~indirect,~~industry ~~wholly-owned subsidiary~~in ~~of the Company~~particular; and
~~“Multiwin”~~The ~~are~~risks toidentified ~~Multiwin~~in ~~International~~the ~~Holdings~~“Risk ~~Limited,~~Factors” asection ~~Hong~~included ~~Kong~~in the ~~corporation~~Company’s ~~and~~annual anreport ~~indirect,~~on ~~wholly~~Form 10-~~owned~~K ~~subsidiary~~for ofthe year ended December 31, 2010, as amended, and the ~~Company;~~subsequent SEC filings.

As discussed below, we entered into an Agreement and Plan of Merger on April 20, 2011 which was amended and restated on May 3, 2011 (the “~~Ocean~~Merger ~~Pacific~~Agreement”) ~~are~~under which our Chief Executive Officer and Chairman Tu Guoshen has agreed to ~~Ocean~~acquire ~~Pacific~~all ~~Technology~~of ~~Limited~~our outstanding common stock for $6.50 per share in cash, asubject ~~Hong~~to ~~Kong~~the certain exceptions and conditions set forth in the ~~corporation~~Merger Agreement (the “Merger”). All forward-looking statements in this Management’s Discussion and anAnalysis ~~indirect~~of Financial Condition and Results of Operations do not include the potential impact of the Merger Agreement or the transaction contemplated thereunder. In addition, ~~wholly~~any forward-~~owned~~looking ~~subsidiary~~statements relating to the Merger are subject to various risks and uncertainties, including uncertainties as to the timing of the ~~Company~~Merger, the possibility that alternative acquisition proposals will be made, the possibility that alternative acquisition proposals will not be made, the possibility that various closing conditions for the Merger may not be satisfied or waived; the possibility that Parent and Merger Sub will be unable to obtain sufficient funds to close the Merger; the failure of the Merger to close for any other reason, the amount of fees and expenses related to the Merger, the diversion of management’s attention from ongoing business concerns, the effect of the announcement of the Merger on our business relationships, operating results and business generally, including our ability to retain key employees, the Merger Agreement’s contractual restrictions on the conduct of our business prior to the completion of the Merger, the possible adverse effect on our business and the price of our common stock if the Merger is not completed in a timely manner or at all, and the outcome of any legal proceedings, regulatory proceedings or enforcement matters that have been or may be instituted against us and others relating to the Merger.

~~“Safetech”~~Use ~~are to China Safetech Holdings Limited, a British Virgin Islands corporation and a direct, wholly-owned subsidiary~~ of ~~the~~terms ~~Company;~~

Except as otherwise indicated by the context, references to “~~Sharp~~CSR,” ~~Eagle~~“we,” “us,” “our,” “our Company,” or “the Company” are to ~~Sharp~~China ~~Eagle~~Security & ~~(HK)~~Surveillance ~~Limited~~Technology, Inc., a ~~Hong~~Delaware ~~Kong~~ corporation, and its anconsolidated ~~indirect,~~subsidiaries. ~~wholly-owned~~Unless ~~subsidiary~~the ofcontext ~~the~~otherwise ~~Company;~~requires, all references to:

“~~Sincere~~Allied OnRich” are to ~~Sincere~~Allied OnRich Limited, a Hong Kong corporation and an indirect, wholly- owned subsidiary of the Company;
29“Chain Star” are to Chain Star Investments Limited, a Hong Kong corporation and an indirect, wholly owned subsidiary of the Company;
“~~Stonesonic~~Cheng Feng” are to ~~Guangdong~~Shanghai ~~Stonesonic~~Cheng Feng Digital ~~Technique~~Technology Co., Ltd., a corporation incorporated in the People’s Republic of China and an indirect, wholly- owned subsidiary of the Company;
“~~Tsingvision~~Chuang Guan” are to ~~Hangzhou~~Shenzhen ~~Tsingvision~~Chuang Guan Intelligence ~~System~~Network Technology Co., Ltd., a corporation incorporated in the People’s Republic of China ~~and an indirect,~~; ~~wholly-owned subsidiary of the Company;~~
“~~WDH~~Coson” are to Shenzhen ~~Wandaiheng~~Coson ~~Industry~~Electronic ~~Limited~~Co., Ltd., a corporation incorporated in the People’s Republic of China and an indirect, wholly-owned subsidiary of the Company;

~~“BVI” are to the British Virgin Islands;~~ 31

“~~PRC~~CSSD” ~~and~~are “to China” ~~are~~Security to& Surveillance Distribution (PRC) Inc., a corporation incorporated in the People’s Republic of China; and a direct, wholly-owned subsidiary of the Company;
“~~Renminbi~~CSSI” ~~and~~are ~~“RMB”~~to ~~refer~~China toSecurity & Surveillance Intelligence (PRC) Inc., previously named China Security & Surveillance Manufacturing (PRC) Inc., a corporation incorporated in the ~~legal~~People’s ~~currency~~Republic of China; and a direct, wholly-owned subsidiary of the Company;
“~~U.S.~~CSST ~~dollars,~~Investment” ~~“dollars”~~are ~~and~~to ~~“$”~~China ~~refer~~Security to& Surveillance Investment (PRC) Inc., a corporation incorporated in the ~~legal~~People’s ~~currency~~Republic of ~~the~~China ~~United~~and a ~~States;~~direct, wholly-owned subsidiary of the Company;
“~~Exchange Act~~CSSS” are to ~~the~~China ~~Securities~~Security ~~Exchange~~& ~~Act~~Surveillance ofServices ~~1934~~(PRC) Inc., asa corporation ~~amended;~~incorporated in the People’s Republic of China and a direct, wholly-owned subsidiary of the Company;
“~~Securities~~CSST ~~Act~~HK” are to ~~the~~China ~~Securities~~Security ~~Act~~& ofSurveillance ~~1933,~~Technology as(HK) ~~amended~~Ltd., a Hong Kong corporation and an indirect, wholly-owned subsidiary of the Company;
~~Overview~~“CSST PRC” are to China Security & Surveillance Technology (PRC) Inc., a corporation incorporated in the People’s Republic of ~~Our~~China ~~Business~~and a direct, wholly-owned subsidiary of the Company;
We“DIT” ~~manufacture,~~are ~~distribute,~~to ~~install~~DIT ~~and~~Industry ~~service surveillance and safety products and systems and develop surveillance and safety related software in China~~(H.K.) ~~We generate revenues within four primary operating segments: Installation Segment~~Limited, ~~Manufacturing~~a ~~Segment,~~Hong ~~Distribution~~Kong ~~Segment~~corporation and ~~Service~~an ~~Segment. A majority of our revenues is derived from the provision of surveillance and safety packaged solutions which include the products~~ indirect, ~~installation~~ ~~and~~wholly ~~after-sale~~owned ~~service~~subsidiary ~~maintenance to our customers. Because the majority~~ of ~~our revenues are derived from installations, they are generally non-recurring. Maintenance services in our packaged solution are included for~~ the ~~first year from the date of completion. Our customers may~~Company; ~~extend our maintenance program after the first year for an additional fee.~~
~~Our~~“DM” ~~Manufacturing~~are ~~Segment~~to ~~revenue~~Beijing isDM ~~primarily~~Security ~~derived~~& ~~from~~Technology ~~the sales of our products, excluding products sold in connection with the installation projects described above~~Co. ~~The acquisitions of: Hongtianzhi~~, HiEasy, and Minking in 2007; the acquisitions of Stonesonic, Longhorn and DIT in 2008; and the acquisition of Coson in 2009 collectively expanded and are expected to continue to expand our manufacturing businessLtd. ~~We sell our cameras~~, ~~DVRs, software,~~a ~~alarm systems, access control systems, and other products to various~~corporation ~~vendors~~ incorporated ~~primarily~~ in ~~China. Although we have sold a small number of manufactured products internationally, we do not anticipate that~~ the ~~international~~People’s ~~market will~~Republic ~~be a significant source~~ of ~~revenues for us in the foreseeable future.~~ China;
~~Our~~“Golden” ~~customers~~ are ~~primarily~~to ~~comprised~~Golden ~~of:~~Group Corporation (1Shenzhen) ~~Chinese governmental entities and their affiliates~~Limited, ~~such~~a ~~as cities, municipalities,~~corporation ~~provinces,~~ incorporated ~~customs~~in ~~agencies,~~the ~~courts,~~People’s ~~public~~Republic ~~security~~of ~~bureaus,~~China and ~~prisons;~~an ~~(2) non-profit organizations~~indirect, ~~including~~wholly ~~schools, museums, sports arenas, and~~owned ~~libraries;~~ subsidiary ~~and~~of ~~(3)~~the ~~commercial entities, such as airports, hotels, real estate~~Company; ~~developments, banks, mines, railways, supermarkets, and entertainment venues.~~
In“Guanling” ~~the Installation Segment, contracts vary in amount and period of performance. The performance period for short-term contracts is usually between three and six months. Short-term contract award amounts~~ are ~~typically~~ ~~less~~to ~~than~~Beijing $7Aurine ~~million.~~Divine ~~Our~~Land ~~long-term~~Technology ~~contracts are typically in excess of one year~~Co., ~~and up to 36 months~~Ltd. ~~In general~~, long-term contract awards have historically been in excess of $40 million, and have been entered into with municipalities, cities and provinces, or their affiliates located in China. These long-term contracts are further defined by agreed-upon detailed specifications that outline defined stages. Completion of a ~~defined stage~~ ~~represents~~ corporation ~~basic~~incorporated ~~service and products delivered, such as the installation of specified surveillance and safety systems~~ in ~~defined locations within~~ the ~~project~~ ~~area.~~People’s ~~Stages~~Republic ~~are typically planned to be completed over defined three to six-month periods. Each stage represents a discreet, defined phase~~ of ~~the~~China ~~total contract, for which completion can be readily determined. At the completion of a stage,~~ and ~~upon~~an ~~customer inspection~~indirect, wholly ~~verification~~owned ~~and~~subsidiary ~~acceptance~~ of the ~~work~~Company; performed, we recognize as revenue, the agreed-upon fixed price for the installation work completed in the respective stage. Other than a warranty reserve, we have no further obligations to the customer for a completed stage.
In“HiEasy” ~~the~~are ~~Manufacturing~~to ~~and~~HiEasy ~~Distribution~~Electronic ~~Segments,~~Technology weDevelopment ~~sell products~~Co., ~~under purchase agreements~~Ltd., ~~supply contracts and purchase orders on~~ a ~~routine~~ corporation ~~basis.~~incorporated ~~Purchase~~in ~~orders~~the ~~tend~~People’s toRepublic be of aChina ~~relatively short duration. The pricing is generally fixed~~ and ~~the~~an ~~quantities are based on individual purchase orders. The individual contract amount in these segments is typically less than RMB1 million (approximately $150~~indirect,~~000). Revenue is recognized when title~~ ~~transfers,~~ wholly ~~which~~owned issubsidiary ~~usually upon shipment~~ of ~~products,~~the ~~and when all revenue~~Company; ~~recognition criteria have been satisfied.~~
30“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;
~~The~~“Huge ~~use~~Long” ofare ~~contract accounting requires significant judgment in estimating total contract pricing and costs, including assumptions relative~~ to ~~the~~ ~~length~~Huge ofLong ~~time to complete the contract~~Limited, ~~the~~a ~~nature~~Hong ~~and~~Kong ~~complexity~~corporation ~~of the work to be performed, anticipated increases in wages~~ and ~~prices for~~an ~~subcontractor services and materials~~ indirect, ~~and~~wholly ~~the~~owned ~~availability~~subsidiary of ~~subcontractor services and materials. Our estimates are based upon~~ the ~~professional knowledge~~Company; and experience of our engineers, program managers and other personnel, who review each long-term contract continually to assess the contract’s schedule, performance, technical matters and estimated cost at completion. Our risk on fixed-price contracts is that if estimates to complete the contract change from one period to the next, profit levels will vary from period to period.
~~Our~~“Jin ~~sales~~Lin” ~~network~~are ~~covers~~to ~~most~~Shenzhen ofJin ~~China’s~~Lin ~~populated~~Technology ~~areas~~Co., ~~and we~~Ltd., doa ~~not~~corporation incorporated ~~rely~~in onthe ~~any~~People’s ~~particular~~Republic ~~region~~of ~~for~~China ~~our~~and ~~business.~~an ~~Our~~indirect, ~~subsidiaries~~wholly owned ~~collectively~~ subsidiary ~~have~~of ~~more~~the ~~than 150 branch offices and distribution points.~~ Company;
~~Reportable~~“Kit ~~Operating~~Grant” ~~Segments~~are to Kit Grant Limited, a Hong Kong corporation and an indirect, wholly owned subsidiary of the Company;
~~Segment~~“Link ~~information~~Billion” isare ~~consistent~~to ~~with~~Link ~~how~~Billion ~~management~~Investment ~~reviews the businesses~~Limited, ~~makes investing and resource allocation decisions and assesses operating performance. We have set up~~ a ~~new~~Hong ~~Service Segment for provision of a~~Kong ~~full~~ corporation ~~range of surveillance~~ and ~~safety~~an ~~services and realigned our management and segment reporting structure effective April 1~~indirect, ~~2010.~~wholly Weowned ~~now~~subsidiary ~~report~~of ~~financial and operating information in~~ the ~~following four segments:~~Company;
~~(a)~~“Long ~~The~~Top” ~~Installation~~are ~~Segment~~to ~~provides~~Long ~~design,~~Top ~~sales~~Limited, ~~installation,~~ ~~services~~a ~~and~~Hong ~~monitoring~~Kong ofcorporation ~~electronics surveillance~~ and ~~safety~~an ~~systems to residential~~ indirect, ~~commercial,~~wholly ~~industrial~~owned ~~and~~subsidiary ~~governmental~~of ~~customers~~the Company;
~~(b)~~“Longhorn” ~~The~~are ~~Manufacturing~~to ~~Segment~~Shenzhen ~~provides~~Longhorn ~~design~~Security Technology Co., ~~manufacturing~~Ltd., a ~~and~~ corporation ~~sales~~incorporated ofin ~~surveillance~~the ~~and~~People’s ~~safety~~Republic ~~products,~~of ~~including~~China ~~intrusion~~and ~~security~~an indirect, ~~access~~ wholly ~~control~~owned ~~and~~subsidiary ~~video~~of ~~management~~the ~~systems~~Company;
~~(c)~~“Minking” ~~The~~are ~~Distribution~~to ~~Segment~~Changzhou ~~provides~~Minking ~~distribution~~Electronics ~~and~~Co., ~~sales~~Ltd., ofa corporation ~~surveillance~~ incorporated ~~and~~in ~~safety~~the ~~products~~People’s ~~and~~Republic ~~services,~~of ~~including~~China ~~intrusion~~and ~~security~~an indirect, ~~access~~ ~~control~~wholly ~~and~~owned subsidiary ~~video~~of ~~management~~the ~~systems~~Company; ~~and~~
~~(d)~~“Multiwin” ~~The~~are ~~Service~~to ~~Segment~~Multiwin ~~provides~~International aHoldings ~~full range of surveillance and safety services~~Limited, ~~including~~a ~~network~~Hong ~~alarm response services, surveillance and~~Kong ~~safety~~ corporation ~~products~~ and ~~solutions’~~an ~~post-sale~~indirect, ~~maintenance~~wholly ~~services,~~owned ~~software upgrading~~subsidiary ~~services,~~of ~~project~~the ~~integration services, security guard services,~~Company; ~~surveillance and safety consulting services, and surveillance and safety trustee services.~~
We“Ocean ~~also~~Pacific” ~~provide~~are ~~general~~to ~~corporate~~Ocean ~~services~~Pacific toTechnology ~~our~~Limited, ~~segments~~a ~~and~~Hong Kong ~~these~~ corporation ~~costs~~and ~~are~~an ~~reported~~indirect, aswholly ~~“Corporate~~owned ~~and~~subsidiary ~~Others.”~~of the Company;
~~The~~“Safetech” ~~Service~~are ~~Segment~~to ~~represents~~China ~~approximately~~Safetech ~~0.3%~~Holdings ofLimited, ~~revenues and~~a ~~approximately~~British ~~10.5%~~Virgin Islands ofcorporation ~~operating~~and ~~loss~~a ~~for the three months ended March 31~~direct, ~~2011.~~ ~~However,~~wholly ~~because~~owned wesubsidiary ~~believe~~of the ~~Service Segment will expand substantially~~Company; ~~in the future, we have made the decision to show it as a separate segment.~~
~~Recent~~“Sharp ~~Development~~Eagle” are to Sharp Eagle (H.K.) Limited, a Hong Kong corporation and an indirect, wholly owned subsidiary of the Company;
~~On April 20, 2011, we entered into an Agreement and Plan of Merger (the~~ “~~Merger~~Sincere ~~Agreement~~On”) ~~with~~are ~~Rightmark~~to ~~Holdings~~Sincere ~~Limited,~~On ~~a British Virgin Islands company and wholly owned subsidiary of Intelligent One~~ Limited, a ~~British~~ ~~Virgin~~Hong ~~Islands~~Kong ~~company wholly owned by Mr. Guoshen Tu (“Rightmark”), Rightmark Merger Sub Limited, a Delaware~~ corporation and ~~wholly owned subsidiary~~an ~~of Rightmark (“Merger Sub”) and Mr. Guoshen Tu (solely for the purpose of Section 6.15 of the Merger Agreement)~~ indirect, ~~pursuant to which Merger Sub will merge with and into the Company, with the Company continuing as the surviving corporation and a~~ wholly owned subsidiary of ~~Rightmark (~~the ~~“Merger~~Company; Transaction” or the “Merger”). Mr. Guoshen Tu is our Chief Executive Officer and the Chairman of Board of Directors and beneficially owns approximately 20.9% of our outstanding shares of common stock, $0.0001 par value per share (the “Common Stock”).
~~Pursuant to the terms of the Merger Agreement, at the effective time of the Merger (the~~ “~~Effective Time~~Stonesonic”), ~~each~~are ~~share of Common Stock issued and outstanding immediately prior~~ to ~~the~~Guangdong ~~Effective~~Stonesonic ~~Time~~Digital ~~(other~~Technique than (i) Rollover Shares (as defined in the Merger Agreement), (ii) shares owned by Rightmark and Merger Sub and (iii) shares in respect of which appraisal rights have been properly exercised under Delaware law) will be canceled and will be automatically converted into the right to receive $6Co.~~50 in cash (the “Merger Consideration”)~~, ~~without interest~~Ltd. ~~In connection with the Merger~~, ~~each~~a ~~outstanding~~ corporation ~~share~~incorporated ofin ~~Common Stock that is subject to vesting and/or forfeiture restrictions will become fully vested immediately prior to~~ the ~~Effective~~People’s ~~Time. In~~Republic ~~addition,~~of ~~each~~China ~~warrant that is outstanding at the Effective Time will be cancelled~~ and ~~each holder of such warrant will receive~~ an ~~amount in cash~~indirect, ~~(without~~ wholly ~~interest)~~owned ~~equal~~subsidiary ~~to the product~~ of ~~(i)~~ the ~~excess of the Merger Consideration over the exercise price per share of such warrant and (ii) the number of shares of~~ Company ~~Common Stock subject to such warrant~~; ~~provided, that~~ ~~if the exercise price per share of any such warrant is equal to or greater than the Merger Consideration, such warrant shall be cancelled without any cash payment being made in respect thereof.~~
~~We,~~“Tsingvision” ~~Rightmark~~are ~~and~~to ~~Merger~~Hangzhou ~~Sub~~Tsingvision ~~each~~Intelligence ~~has~~System ~~made~~Co., ~~customary~~Ltd., a ~~representations~~ corporation ~~and~~incorporated ~~warranties~~in tothe ~~each~~People’s ~~other~~Republic inof ~~the~~China ~~Merger~~and ~~Agreement.~~an indirect, wholly owned subsidiary of the Company;
31“WDH” are to Shenzhen Wandaiheng Industry Limited, a corporation incorporated in the People’s Republic of China and an indirect, wholly owned subsidiary of the Company;
~~Completion~~“BVI” ofare ~~the Merger is subject~~ to ~~customary closing conditions, including, but not limited to, (i) adoption of~~ the ~~Merger~~British ~~Agreement by~~Virgin ~~our stockholders, (ii) the absence of any order or injunction prohibiting the~~Islands; consummation of the Merger and (iii) truth and correctness of each party’s representations and warranties at closing. The Merger Agreement may be terminated under certain circumstances, including, among others, termination by mutual agreement of the parties, termination by either party if the Merger is not consummated on or before April 20, 2012 and termination by us at any time for any reason on or prior to May 4, 2011, as set forth in the Merger Agreement.
In“PRC” ~~connection~~and ~~with the Merger Agreement, Mr. Guoshen Tu also entered into a limited guaranty (the~~ “~~Guaranty~~China”) inare ~~favor~~to of the ~~Company~~People’s ~~with respect~~Republic ~~to certain payment obligations~~ of ~~Rightmark and Merger Sub under the~~China; ~~Merger Agreement.~~
~~The~~“Renminbi” ~~foregoing description of the Merger Agreement~~ and ~~Guaranty is~~“RMB” ~~qualified~~refer ~~in its entirety by reference~~ to the ~~full~~legal ~~text~~currency of ~~the Merger~~China; ~~Agreement and Guaranty, copies of which have been filed as Exhibits to our current report on Form 8-K dated April 21, 2011, and which are incorporated herein by reference.~~
~~First~~“U.S. ~~Quarter~~dollar”, ~~Financial~~“dollars” ~~Performance~~and “$” refer to the legal currency of United ~~Highlights~~ States;
~~Our~~“Exchange ~~financial~~Act” ~~results~~are into the ~~first~~Securities ~~quarter~~Exchange ofAct 2011 were affected by seasonality. As we succeeded in securing more larger scale installation projects which generally require longer installation time, we completed less installation projects in this quarter. Despite the revenue decrease, our gross margin and operating margin improved from 24.1% and 5.8% in the first quarter of ~~2010 to 31.8% and 8.3% in the first quarter of 2011~~1934, ~~respectively.~~ Weas ~~believe~~amended; ~~the surveillance~~ and ~~safety product market in China~~ ~~will remain strong due, in part, to favorable government initiatives and a~~ ~~general rise in affluence of the population of China. As the first quarter has historically been our slowest quarter, we expect our revenue will grow in the remainder of 2011.~~
~~Following~~“Securities Act” are ~~some~~to ~~financial~~the ~~highlights~~Securities ~~for~~Act ~~the~~of ~~first~~1933, ~~quarter of~~as ~~2011:~~amended.

~~Revenues: Revenues decreased $21.14 million, or 17.6%, to $99.05 million for the three months ended March 31, 2011, from $120.19 million for the three months ended March 31, 2010.~~ 32

~~Gross~~Overview ~~margin:~~of ~~Gross~~Our ~~margin~~Business ~~was 31.8% for the three months ended March 31, 2011, compared to 24.1% for the three months ended March 31, 2010.~~

~~Income~~We ~~from~~manufacture, ~~operations:~~distribute, ~~Income~~install ~~from~~and ~~operations~~service ~~increased~~surveillance and $1safety products and systems and develop surveillance and safety related software in China.16 We generate revenues within four primary operating segments: ~~million~~Installation Segment, orManufacturing ~~16.6%~~Segment, toDistribution $8Segment and Service Segment.13 ~~million~~A ~~for~~majority of our revenues is derived from the ~~three~~provision ~~months~~of surveillance ~~ended~~and ~~March~~safety ~~31,~~packaged ~~2011~~solutions which include the products, installation and after-sale service maintenance to our customers. Because the majority of our revenues are derived from $6installations, they are generally non-recurring.97 ~~million~~Maintenance services in our packaged solution are included for the first year from the ~~three~~date ~~months~~of ~~ended~~completion. ~~March~~Our ~~31,~~customers ~~2010~~may extend our maintenance program after the first year for an additional fee.

~~Operating~~Our ~~margin:~~Manufacturing ~~Operating~~Segment ~~margin~~revenue ~~(the~~is ~~ratio~~primarily ofderived ~~income~~ from the ~~operations~~sales toof ~~revenues~~our products, ~~expressed~~excluding asproducts asold ~~percentage)~~in ~~was~~connection 8with the installation projects described above.3% ~~for~~The acquisitions of: Hongtianzhi, HiEasy, and Minking in 2007; the ~~three~~acquisitions of Stonesonic, Longhorn and DIT in 2008; ~~months~~and ~~ended~~the ~~March~~acquisition 31of Coson in 2009 collectively expanded and are expected to continue to expand our manufacturing business. We sell our cameras, ~~2011~~DVRs, software, ~~compared~~alarm systems, access control systems, and other products to 5various vendors primarily in China.8% ~~for~~Although we have sold a small number of manufactured products internationally, we do not anticipate that the ~~same~~international ~~period~~market will be a significant source of revenues for us in ~~2010~~the foreseeable future.

~~Net~~Our ~~income~~customers ~~attributable~~are toprimarily ~~the~~comprised ~~Company~~of: ~~Net~~(1) ~~income~~Chinese governmental ~~attributable~~entities ~~to the~~and ~~Company~~their ~~decreased~~affiliates, ~~$1.60~~such ~~million~~as cities, ormunicipalities, provinces, ~~48.8%~~customs agencies, tocourts, ~~$1.68~~public ~~million~~security ~~for~~bureaus, ~~the~~and ~~three~~prisons; (2) ~~months~~non-profit ~~ended~~organizations, ~~March~~including 31schools, ~~2011~~museums, ~~from~~sports $arenas, and libraries; and (3~~.28~~) ~~million~~commercial ~~for~~entities, ~~the~~such ~~three~~as ~~months~~airports, ~~ended~~hotels, real estate ~~March~~developments, 31banks, ~~2010.~~mines, railways, supermarkets, and entertainment venues.

~~Net~~In ~~margin:~~the ~~Net~~Installation ~~margin~~Segment, ~~(the~~contracts ~~ratio~~vary in amount and period of ~~net~~performance. ~~income~~The ~~attributable~~performance toperiod ~~the~~for short-term contracts is ~~Company~~usually between three and six months. Short-term contract award amounts are typically less than $7 million. Our long-term contracts are typically in excess of one year, and up to ~~revenues~~36 months. In general, ~~expressed~~long-term ascontract aawards ~~percentage)~~have historically ~~was~~been 1in excess of $40 million, and have been entered into with municipalities, cities and provinces, or their affiliates located in China.7% These ~~for~~long-term contracts are further defined by agreed-upon detailed specifications that outline defined stages. Completion of a defined stage represents basic service and products delivered, such as the installation of specified surveillance and safety systems in defined locations within the project area. Stages are typically planned to be completed over defined three ~~months~~to ~~ended~~six-month ~~March~~periods. 31Each stage represents a discreet, ~~2011~~defined phase of the total contract, ~~compared~~for towhich 2completion can be readily determined.8% ~~for~~At the ~~three~~completion ~~months~~of ~~ended~~a stage, ~~March~~and 31upon customer inspection, verification and acceptance of the work ~~2010~~performed, we recognize as revenue, the agreed-upon fixed price for the installation work completed in the respective stage. Other than a warranty reserve, we have no further obligations to the customer for a completed stage.

~~Fully~~In ~~diluted~~the ~~net~~Manufacturing ~~income~~and ~~per~~Distribution ~~share:~~Segments, ~~Fully~~we ~~diluted~~sell products ~~net~~under ~~income~~purchase ~~per~~agreements, supply contracts and purchase orders on a ~~share~~routine ~~was~~basis. $0Purchase orders tend to be of a relatively short duration.02 ~~for~~The pricing is generally fixed and the ~~three~~quantities ~~months~~are ~~ended~~based ~~March~~on ~~31,~~individual ~~2011,~~purchase orders. asThe ~~compared~~individual tocontract amount in these segments is typically less than RMB1 million (approximately $0150,000).05 ~~for~~Revenue ~~the~~is ~~three~~recognized ~~months~~when ~~ended~~title transfers, ~~March~~which 31is usually upon shipment of products, ~~2010~~and when all revenue recognition criteria have been satisfied.

~~Non-cash~~The ~~expenses:~~use ~~Total~~of ~~non-cash~~contract ~~expenses~~accounting ~~were~~requires ~~$8.78~~significant ~~million~~judgment ~~for~~in estimating ~~the~~total ~~three months~~contract ~~ended~~pricing ~~March~~and 31costs, ~~2011,~~including ~~representing~~assumptions arelative ~~decrease~~to the length of ~~$2.78~~time ~~million~~to complete the contract, orthe nature and complexity of the ~~24.0%~~work to be performed, ~~from~~anticipated ~~$11.56~~increases ~~million~~in ~~during~~wages ~~the~~and ~~same~~prices ~~period~~for subcontractor services and materials, and the availability of ~~2010~~subcontractor services and materials. ~~Non-cash~~Our ~~expenses for~~estimates are based upon the ~~three~~professional ~~months~~knowledge and ~~ended~~experience ~~March~~of 31our engineers, ~~2011~~program ~~included~~managers ~~(i)~~and ~~depreciation~~other ~~and~~personnel, who ~~amortization~~review ofeach ~~$3.23~~long-term ~~million~~contract continually to assess the contract’s schedule, performance, technical matters and ~~(ii)~~estimated ~~non~~cost at completion. Our risk on fixed-~~cash~~price ~~employee~~contracts ~~compensation~~is ~~expense~~that if estimates to complete the contract change from ofone ~~$5.55~~period ~~million~~to the next, profit levels will vary from period to period.

32Our 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 150 branch offices and distribution points.

~~Results~~As previously disclosed, on April 20, 2011, we entered into an Agreement and Plan of ~~Operations~~Merger with Rightmark Holdings Limited, a British Virgin Islands company and wholly owned subsidiary of Intelligent One Limited, a British Virgin Islands company wholly owned by Mr. Guoshen Tu (“Rightmark”), Rightmark Merger Sub Limited, a Delaware corporation and wholly owned subsidiary of Rightmark (“Merger Sub”) and Mr. Guoshen Tu (solely for the purpose of Section 6.15) which was subsequently amended and restated by the Amended and Restated Agreement and Plan of Merger, dated as of May 3, 2011, by and among the same parties. Under the Merger Agreement, Merger Sub will merge with and into the Company, with the Company continuing as the surviving corporation and a wholly owned subsidiary of Rightmark. Mr. Guoshen Tu is the Company’s Chief Executive Officer and the Chairman of the Company’s Board of Directors and beneficially owns approximately 20.9% of the Company’s outstanding shares of common stock.

~~The following table sets forth key components of our results of operations for the three months ended March 31, 2011 and 2010, in dollars and as a percentage of revenues.~~33

(All amounts, other than percentages, in millions of U.S. dollars)
		March 31,
		2011				2010
Revenues	$	99.05		100.0%	$	120.19		100.0%
Cost of goods sold (including depreciation and amortization amounted $0.26 and $0.25, respectively)		(67.57	)	68.2%		(91.21	)	75.9%
Gross profit		31.48		31.8%		28.98		24.1%
Selling and marketing		(2.70	)	2.7%		(2.71	)	2.3%
General and administrative		(12.13	)	12.2%		(7.99	)	6.6%
Non-cash employee compensation		(5.55	)	5.6%		(8.33	)	6.9%
Depreciation and amortization		(2.97	)	3.0%		(2.98	)	2.5%
Income from operations		8.13		8.3%		6.97		5.8%
Other income		0.73		0.7%		0.32		0.3%
Interest expense		(5.11	)	5.2%		(2.29	)	1.9%
Income before income taxes		3.75		3.8%		5.00		4.2%
Income taxes		(2.07	)	2.1%		(1.72	)	1.4%
Net income attributable to the Company	$	1.68		1.7%	$	3.28		2.8%

Under the terms of the Merger Agreement, at the effective time of the Merger, each outstanding share of the Company’s common stock will be converted automatically into the right to receive $6.50 in cash, without interest, excluding certain shares as provided in the Merger Agreement. The Merger remains subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, including obtaining approval of the existing stockholders of the Company.

~~Revenues~~The foregoing description of the Merger Agreement and guaranty is qualified in its entirety by reference to the full text of the Merger Agreement and Guaranty, copies of which have been filed as Exhibits to our current report on Form 8-K dated April 21, 2011, and which are incorporated herein by reference.

~~Our~~Reportable ~~revenues~~Operating ~~are~~Segments primarily generated from system installations, manufacturing and distribution of surveillance and safety products and providing surveillance and safety services. Revenues decreased $21.14 million, or 17.6%, to $99.05 million for the three months ended March 31, 2011 from $120.19 million for the three months ended March 31, 2010. Due to our marketing efforts and increased brand recognition, we were able to secure a greater number of larger scale installation projects which requires longer periods of time to complete the installation. As a result, we completed a lesser number of installation projects in the first quarter of 2011, which led to the decrease in our revenues. Most of local government’s 2011 Safe City projects were at the bidding stage in the first quarter. Historically, the first quarter has generally been a slow quarter for us largely because fewer projects are undertaken during and around the Chinese New Year holiday, and the fourth quarter has generally been the strongest quarter. Management expects the same trend in 2011.

~~The~~Segment ~~following~~information ~~table~~is ~~shows~~consistent with how management reviews the ~~components~~businesses, makes investing and resource allocation decisions and assesses operating performance. We set up a new service segment for provision of ~~revenues~~a ~~recognized~~full range of surveillance and safety services and realigned our management and segment reporting structure effective April 1, 2010. We now report financial and operating information in the ~~first~~following ~~quarter~~four ofsegments: ~~2011.~~

(In millions of U.S. dollars)
Revenues from the Installation Segment recognized from contracts signed in 2010	$	77.15
Revenues from the Installation Segment recognized from contracts signed in the first quarter of 2011		2.59
Revenues from the Manufacturing Segment recognized from contracts signed in 2010		2.35
Revenues from the Manufacturing Segment recognized from contracts signed in the first quarter of 2011		11.85
Revenues from the Distribution Segment recognized from contracts signed in 2010		0.15
Revenues from the Distribution Segment recognized from contracts signed in the first quarter of 2011		4.71

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

33(b) The Manufacturing Segment provides design, manufacturing and sales of surveillance and safety products, including intrusion security, access control and video management systems;

Revenues from the Service Segment recognized from contracts signed in 2010		0.25
Revenues from the Service Segment recognized from contracts signed in the first quarter of 2011		--
Total revenues recognized in the first quarter of 2011	$	99.05
Revenues deferred	$	2.77
Backlog of sales contracts signed before March 31, 2011 (1)	$	330.97

(c) The Distribution Segment provides distribution and sales of surveillance and safety products and services, including intrusion security, access control and video management systems; and

(1d) WeThe ~~have~~Service ~~conservatively~~Segment ~~not~~provides ~~included~~a ~~the~~full ~~letter~~ range of ~~intents,~~surveillance and ~~framework~~safety ~~agreements~~services, ~~and~~including ~~various~~network ~~signed~~alarm ~~partnership~~response ~~agreements~~services, insurveillance and ~~our~~safety ~~backlog~~products ~~numbers~~and assolutions’ ~~they~~post-sale, ~~are~~maintenance ~~subject~~services, tosoftware upgrading ~~final~~services, ~~binding~~project ~~individual~~integration ~~agreements~~services, security guard services, tosurveillance beand ~~entered~~safety ~~into~~consulting atservices, ~~later~~and ~~dates~~surveillance and safety trustee services.

~~The~~We ~~following~~also ~~table~~provide ~~shows~~general ~~the~~corporate ~~different~~services ~~segments~~to ~~comprising~~ our ~~total~~ ~~revenues~~segments ~~for~~and these ~~the~~costs ~~three~~are ~~months~~reported ~~ended~~as ~~March~~“Corporate ~~31, 2011~~ and ~~2010~~Others.”

(All amounts in millions of U.S. dollars)
		March 31,
Revenues		2011			2010
Installation Segment	$	79.74	80.5%	$	92.75	77.2%
Manufacturing Segment		14.20	14.3%		16.01	13.3%
Distribution Segment		4.86	4.9%		11.43	9.5%
Service Segment		0.25	0.3%		--	--
Total	$	99.05	100.0%	$	120.19	100.0%

The Service Segment represents approximately 0.5% and 2.0% of revenues and approximately 4.3% and 0.8% of operating loss or income for the three months ended June 30, 2011 and 2010, respectively, and it represents approximately 0.4% of revenues and 6.5% of operating loss for the six months ended June 30, 2011. However, because we believe the Service Segment will expand substantially in the future, we have made the decision to show it as a separate segment.

~~For~~Second ~~the~~Quarter ~~three~~Financial ~~months~~Performance ~~ended March 31, 2011 and 2010, our~~Highlights Installation Segment generated revenues of $79.74 million and $92.75 million which represented 80.5% and 77.2% of our total revenues, respectively. This decrease in revenues was mainly because a lesser number of projects were completed during the first quarter of 2011 as compared to the same period last year. Many of our installation projects were in the progress at March 31, 2011. During the three months ended March 31, 2011 and 2010, one individual customer accounted for approximately 47% and 21% of our revenue, respectively. There were no other individual customers who accounted for greater than 10% of our revenue in either period.

~~For~~Our ~~the~~financial ~~three~~results ~~months~~in ~~ended~~the ~~March~~second ~~31,~~quarter of 2011 ~~and~~were affected ~~2010,~~by the structural change in our customer mix. During the second ~~Manufacturing~~quarter, ~~Segment~~the ~~generated~~majority of our revenues ofwas ~~$14.20~~generated ~~million~~from ~~and~~large ~~$16.01~~scale ~~million,~~government ~~representing 14~~projects.3% ~~and~~As ~~13.3%~~we ofsucceeded ~~our~~in ~~total~~securing ~~revenues,~~more ~~respectively.~~larger ~~Such~~scale ~~decrease~~installation projects ~~was~~which ~~mainly~~generally ~~because~~require ~~management~~longer ~~was~~installation ~~focused~~time, onwe completed less installation projects in this quarter. Despite the ~~segment~~revenue ~~integration~~decrease, ~~and~~our gross margin ~~research~~improved ~~and~~from ~~development~~25.8% in the second quarter of ~~new~~2010 ~~products~~to 26.9% ~~The~~in ~~integration~~the ~~and~~second ~~development~~quarter of ~~these~~2011. ~~new~~We ~~products~~believe ~~are~~the ~~part~~surveillance ofand ~~management’s~~safety ~~efforts~~product tomarket ~~develop~~in ~~our~~China will ~~Manufacturing~~remain ~~Segment~~strong ~~into~~due, ain ~~leading~~part, ~~provider~~to ~~of surveillance~~favorable government initiatives and ~~safety~~ ~~products~~a general rise in affluence of the ~~Chinese~~population ~~market~~of China.

~~For~~Following ~~the~~are ~~three~~some ~~months~~financial ~~ended~~highlights ~~March 31 2011, our Distribution Segment generated revenues of $4.86 million, representing 4.9% of our total revenues, as compared to $11.43 million~~ for the ~~three~~second ~~months ended March 31,~~quarter ~~2010, representing 9.5%~~ of ~~our~~2011: total revenues. The revenue decrease was mainly due to the decrease in selling prices due to market competition. In addition, we made a strategic decision to cease the distribution of some lower margin products.

~~For~~Revenues: ~~the~~Revenues ~~three~~decreased ~~months~~$12.01million, ~~ended~~or ~~March 31~~7.1%, ~~2011,~~to ~~our Service Segment,~~$156.34 ~~which~~ million ~~was~~for ~~established in~~ the second quarter of ~~2010~~2011, ~~generated~~from ~~revenues of~~ $0168.25 35 million, ~~representing~~for ~~0.3%~~the same quarter of ~~our~~last ~~total revenues~~year.
~~Cost~~Gross ofmargin: ~~goods~~Gross ~~sold~~margin was 26.9% for the three months ended June 31, 2011, compared to 25.8% for the three months ended June 30, 2010.
~~Our~~Income ~~cost~~from ofoperations: ~~goods~~Income ~~sold~~from ~~primarily~~operations ~~consists~~decreased ~~of the costs of our~~$9.91 ~~raw materials~~ million, ~~labor~~or ~~and overhead~~40.4%, ~~Cost~~to of$14.65 ~~goods~~million ~~sold~~ for the three months ended ~~March~~ 31June 30, 2011, from ~~decreased by 25.9% to~~ $6724.5756 million, ~~as compared to $91.21 million~~ for the three months ended ~~March~~June 3130, 2010.
~~The~~Operating ~~following~~margin: ~~table~~Operating ~~shows~~margin (the ~~segment~~ratio ~~components~~ of ~~cost~~income offrom ~~goods~~ operations ~~sold~~to ~~for~~revenues, ~~each~~expressed ofas a percentage) was 9.4% for the three months ended ~~March~~June 3130, 2011, ~~and~~compared to 14.6% for the same period in 2010.

(All amounts in millions of U.S. dollars)
		March 31,
Cost of goods sold		2011			2010
Installation Segment	$	52.38	77.5%	$	69.71	76.4%
Manufacturing Segment		10.74	15.9%		11.56	12.7%
Distribution Segment		4.24	6.3%		9.94	10.9%
Service Segment		0.21	0.3%		--	--
Total	$	67.57	100.0%	$	91.21	100.0%

Net income attributable to the Company: Net income attributable to the Company decreased $11.84 million, or 66.5%, to $5.97 million for the three months ended June 30, 2011, from $17.81 million for the three months ended June 30, 2010.
34Net margin: Net margin (the ratio of net income attributable to the Company to revenues, expressed as a percentage) was 3.9% for the three months ended June 30, 2011, compared to 10.6% for the three months ended June 30, 2010.
~~The~~Fully ~~cost~~diluted ofnet ~~goods~~income ~~sold~~per ~~related~~share: toFully ~~the~~diluted ~~Installation~~net ~~Segment decreased~~income ~~by $17.33 million, or 24.9% to $52.38 million for the three months~~per ~~ended~~ share ~~March 31, 2011, from $69.71 million for the three months ended March 31, 2010. The dollar decrease~~ was ~~mainly due to the decreased number of completed installation projects. The cost of goods sold related to the Manufacturing Segment decreased to~~ $100.7407 ~~million~~ for the three months ended ~~March~~June 3130, 2011 ~~as compared to $11.56 million for the three months ended March 31~~, 2010, mainly due to the decrease in revenues. The cost of goods sold related to our Distribution Segment accounted for approximately 6.3% of our total cost of goods sold for the three month ended March 31, 2011 as compared to 10$0.~~9% for the three months ended March~~23 ~~31, 2010. The cost of goods sold related to our Service Segment which was established in the second quarter of 2010~~ for the three months ended ~~March~~June 3130, ~~2011~~ ~~was $0~~2010.21 ~~million, representing 0.3% of our total cost of goods sold.~~

~~Gross profit and gross margin~~34

~~Our~~Results ~~gross profit is equal to the difference between our revenues and our cost~~ of ~~goods~~Operations sold. Our gross profit was $31.48 million and $28.98 million and our gross margin was approximately 31.8% and 24.1% for the three months ended March 31, 2011 and 2010, respectively. The increase was mainly driven by an increasing gross margin in the Installation Segment and disciplined execution of cost control initiatives.

The following table ~~shows~~sets ~~the~~forth ~~different~~key ~~segment~~ components ~~comprising~~ of our ~~gross~~results ~~profit~~of operations ~~margin~~for ~~over~~ the three and six months ended ~~March~~June 3130, 2011 and 2010, in dollars and as a percentage of revenues.

	March 31,
Gross Margin	2011	2010
Installation Segment	34.3%	24.8%
Manufacturing Segment	24.4%	27.8%
Distribution Segment	12.7%	13.0%
Service Segment	16.2%	--
Total	31.8%	24.1%

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

For the three months ended March 31, 2011, gross margins of the Installation Segment, Manufacturing Segment and Distribution Segment were approximately 34.3%, 24.4% and 12.7%, respectively, compared to 24.8%, 27.8% and 13.0% for the three months ended March 31, 2010.

		Three months ended								Six months ended
		June 30,								June 30,
		2011				2010				2011				2010
Revenues	$	156.34		100.0%	$	168.35		100.0%	$	255.39		100.0%	$	288.54		100.0%
Cost of goods sold (including depreciation and amortization for the three and six months ended June 30, 2011 and 2010 of $0.25, $0.51, $0.25 and $0.50, respectively)		(114.33	)	73.1%		(124.99	)	74.2%		(181.90	)	71.2%		(216.20	)	74.9%
Gross profit		42.01		26.9%		43.36		25.8%		73.49		28.8%		72.34		25.1%
Selling and marketing		(3.11	)	2.0%		(3.13	)	1.8%		(5.81	)	2.3%		(5.85	)	2.0%
General and administrative		(16.26	)	10.4%		(7.61	)	4.6%		(28.39	)	11.2%		(15.60	)	5.5%
Non-cash employee compensation		(5.02	)	3.2%		(5.05	)	3.0%		(10.57	)	4.1%		(13.38	)	4.6%
Depreciation and amortization		(2.97	)	1.9%		(3.01	)	1.8%		(5.94	)	2.3%		(5.99	)	2.1%
Income from operations		14.65		9.4%		24.56		14.6%		22.78		8.9%		31.52		10.9%
Other income		0.94		0.6%		0.44		0.3%		1.67		0.7%		0.77		0.3%
Interest expense		(6.44	)	4.1%		(3.06	)	1.8%		(11.55	)	4.5%		(5.36	)	1.9%
Income before income taxes		9.15		5.9%		21.94		13.1%		12.90		5.1%		26.93		9.3%
Income taxes		(3.18	)	2.0%		(4.13	)	2.5%		(5.25	)	2.1%		(5.85	)	2.0%
Net income attributable to the Company	$	5.97		3.9%	$	17.81		10.6%	$	7.65		3.0%	$	21.08		7.3%

~~The~~Revenues increase in our gross margin for the Installation Segment was primarily because a larger proportion of our revenue was generated from larger scale projects in the first quarter of 2011 as compared to the same period in 2010. We are generally able to demand higher price and enjoy higher margin for larger scale projects. The security installation competitive landscape in China is dominated by many small vendors (who may not have all the necessary qualifications to perform larger scale projects which we often bid on). These smaller vendors typically focus on the retail and small corporate customer market segments instead of larger scale projects. Many competitors we typically face in smaller scale projects are often either eliminated in the bidding process or disqualified from bidding on large scale projects. As a result, we typically face a significantly reduced number of competitors on larger scale projects, which generally allowed us to command relatively higher prices. In addition, we also benefited from our experiences gained from our past installation projects and our research in developing more cost-effective installation processes, project design and solutions for our customers. As a result, we were able to reduce certain hardware components used in our installation projects while maintaining or improving the level of services to our customers.

~~The~~Our ~~decrease~~revenues inare ~~our~~primarily ~~gross~~generated ~~margins~~from system installations, manufacturing and distribution of surveillance and safety products and providing surveillance and safety services. Revenues decreased $12.01 million, or 7.1%, to $156.34 million for the ~~Manufacturing~~three ~~Segment~~months ended June 30, 2011 from $168.35 million ~~and~~for the ~~Distribution~~three ~~Segment~~months ended June 30, 2010. Revenues decreased $33.15 million, or 11.5%, to $255.39 million for the six months ended June 30, 2011 from $288.54 million for the six months ended June 30, 2010. Due to our marketing efforts and increased brand recognition, we were able to secure a greater number of larger scale installation projects in the first ~~quarter~~half of 2011 ~~were~~which ~~primarily~~requires ~~driven~~longer byperiods of time to complete the ~~decrease~~installation. As a result, we completed a lesser number of ~~selling~~installation ~~prices~~projects in anthe ~~effort~~first half of 2011, which led to ~~maintain~~the decrease in our revenues in 2011. Most of local government’s 2011 Safe City projects were at the bidding stage in the first half of 2011. Historically, the first quarter has generally been a slow quarter for us largely because fewer projects are undertaken during and ~~expand~~around ~~our~~the Chinese New Year holiday, and the ~~customer~~fourth ~~base~~quarter has generally been the strongest quarter. Management expects the same trend in 2011.

The ~~gross~~following ~~margin~~table ofshows ~~our~~the ~~Service~~revenues ~~Segment~~recognized ~~which was established~~ in the second quarter of ~~2010 was 16.2% for the three months ended March 31,~~ 2011.:

Selling and marketing expenses

(In millions of U.S. dollars)
Revenues from the Installation Segment recognized from contracts signed before March 31, 2011	$	70.51
Revenues from the Installation Segment recognized from contracts signed in the second quarter of 2011		47.54
Revenues from the Manufacturing Segment recognized from contracts signed before March 31, 2011		17.82
Revenues from the Manufacturing Segment recognized from contracts signed in the second quarter of 2011		12.52
Revenues from the Distribution Segment recognized from contracts signed before March 31, 2011		7.09
Revenues from the Distribution Segment recognized from contracts signed in the second quarter of 2011		0.06
Revenues from the Service Segment recognized from contracts signed before March 31, 2011		0.80
Revenues from the Service Segment recognized from contracts signed in the second quarter of 2011		--
Total revenues recognized in the second quarter of 2011	$	156.34
Revenues deferred	$	2.81
Backlog of sales contracts signed before June 30, 2011 ⁽¹⁾	$	266.43

~~Our~~(1) ~~selling~~We ~~and~~have ~~marketing~~conservatively ~~expenses~~not ~~are~~included ~~composed~~letters ~~primarily~~ of ~~sales~~ ~~commissions~~intent, ~~the~~framework ~~cost~~agreements ofand ~~advertising~~various ~~and~~other ~~promotional~~agreements ~~materials,~~in ~~salaries and~~our ~~fringe~~backlog ~~benefits~~numbers ofas ~~sales~~they ~~personnel,~~are ~~after-sale~~subject ~~support~~to ~~services~~final ~~and~~binding ~~other sales~~agreements ~~related~~to ~~costs~~be entered into at later dates.

Our selling and marketing expenses decreased $0.01 million to $2.70 million for the three months ended March 31, 2011 from $2.71 million for the three months ended March 31, 2010. As a percentage of revenues, our selling and marketing expenses increased to 2.7% for the three months ended March 31, 2011 from 2.3% for the three months ended March 31, 2010. The percentage increase was mainly due to our decreased revenues.35

35The following table shows the different segments comprising our total revenues for the three and six months ended June 30, 2011 and 2010.

~~General~~(All ~~and~~amounts ~~administrative~~in ~~expenses~~millions of U.S. dollars)

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.

		Three months ended June 30,
Revenues		2011			2010
Installation Segment	$	118.05	75.5%	$	129.35	76.8%
Manufacturing Segment		30.34	19.4%		21.98	13.1%
Distribution Segment		7.15	4.6%		13.67	8.1%
Service Segment		0.80	0.5%		3.35	2.0%
Total	$	156.34	100.0%	$	168.35	100.0%

Our general and administrative expenses increased $4.14 million, or 51.8%, to $12.13 million for the three months ended March 31, 2011 from $7.99 million for the three months ended March 31, 2010. As a percentage of revenues, general and administrative expenses increased to 12.2% for the three months ended March 31, 2011 from 6.6% in the same period of 2010. The dollar and percentage increase was mainly due to the hiring of additional staff and professional expenses related to the proposed Merger Transaction.

		Six months ended June 30,
Revenues		2011			2010
Installation Segment	$	197.79	77.5%	$	222.10	76.9%
Manufacturing Segment		44.54	17.4%		37.99	13.2%
Distribution Segment		12.01	4.7%		25.10	8.7%
Service Segment		1.05	0.4%		3.35	1.2%
Total	$	255.39	100.0%	$	288.54	100.0%

~~Non-cash~~For ~~employee~~the ~~compensation~~three months ended June 30, 2011 and 2010, our Installation Segment generated revenues of $118.05 million and $129.35 million which represented 75.5% and 76.8% of our total revenues, respectively. For the six months ended June 30, 2011 and 2010, our Installation Segment generated revenues of $197.79 million and $222.10 million which represented 77.5% and 76.9% of our total revenues, respectively. This decrease in revenues was mainly because a fewer number of projects were completed during the first and second quarter of 2011 as compared to the same periods in last year. More of our installation projects were in progress at June 30, 2011. During the three months ended June 30, 2011, three customers contributed to more than 10% of our revenue with each accounting for approximately 36.7%, 21.0% and 13.0% of our revenue, respectively. There was no individual customer that accounted for more than 10% of our revenue for the three months ended June 30, 2010. During the six months ended June 30, 2011, two customers contributed to more than 10% of our revenue with each accounting for approximately 40.7% and 14.6% of our revenue, respectively. During the six months ended June 30, 2010, one customer contributed to more than 10% of our revenue which accounted for approximately 14.5% of our revenue.

~~Non-cash~~For ~~employee~~the ~~compensation~~three bymonths ~~segment~~ended ~~for~~June ~~the~~30, ~~three~~2011 ~~months~~and 2010, our Manufacturing Segment generated revenues of $30.34 million and $21.98 million, representing 19.4% and 13.1% of our total revenues, respectively. For the six months ended ~~March~~June 3130, 2011 and 2010, isour asManufacturing ~~follows:~~Segment generated revenues of $44.54 million and $37.99 million, representing 17.4% and 13.2% of our total revenues, respectively. This increase in revenues was primarily driven by the decrease of sales prices due to market competition which, in turn, increased sales volume.

(All amounts in millions of U.S. dollars)
		March 31,
Non-cash employee compensation		2011			2010
Installation Segment	$	0.37	6.7%	$	0.57	6.8%
Manufacturing Segment		0.96	17.3%		0.94	11.3%
Distribution Segment		0.27	4.9%		0.36	4.3%
Service Segment		0.03	0.5%		--	--
Corporate and Other		3.92	70.6%		6.46	77.6%
Total	$	5.55	100.0%	$	8.33	100.0%

For the three months ended June 30, 2011 and 2010, our Distribution Segment generated revenues of $7.15 million and $13.67 million, representing 4.6% and 8.1% of our total revenues. For the six months ended June 30, 2011 and 2010, our Distribution Segment generated revenues of $12.01 million, representing 4.7% of our total revenues for the six months ended June 30, 2011, as compared to $25.10 million and 8.7% for the same period last year. Such decrease was mainly due to a decrease of selling prices due to market competition.

~~Effective~~For ~~February~~the 7three months ended June 30, ~~2007~~2011 and 2010, our ~~board~~Service Segment generated revenues of ~~directors~~$0.80 ~~adopted~~million ~~the~~and $3.35 million, representing 0.5% ~~2007~~and ~~Equity~~2.0% ~~Incentive~~of ~~Plan~~our ~~which~~total ~~was~~revenues, ~~subsequently~~respectively. ~~amended~~Such decrease in ~~February~~amount ~~2010 (the~~and ~~“Plan”).~~percentage ~~The~~was ~~Plan~~mainly ~~provides~~because ~~for~~some ~~grants~~ of ~~stock~~our ~~options,~~service ~~stock~~contracts ~~appreciation~~will be rendered in ~~rights,~~the ~~performance~~second ~~units,~~half ~~restricted~~of ~~stock,~~2011 ~~restricted~~instead ~~stock~~of ~~units,~~being ~~and performance~~rendered ~~shares~~in the whole year range for 2010. AFor ~~total~~the ofsix ~~12,000,000~~months ~~shares~~ended ofJune 30, 2011, our ~~common~~Service ~~stock~~Segment, ~~may~~which bewas ~~issued~~established ~~under~~in the ~~Plan~~second quarter of 2010, generated revenues of $1.05 ~~The~~million, representing ~~Plan~~0.4% ~~has~~of aour ~~10-year~~total ~~term~~revenues.

~~For~~Management ~~the~~believes ~~three~~that ~~months~~revenues ~~ended~~from ~~March 31, 2011, we granted an aggregate of 200,908 shares of restricted stock pursuant to~~ the ~~Plan to our~~installation ~~employees~~projects ~~and consultants. These shares~~ will ~~vest~~continue ~~with respect~~ to ~~each~~be of the ~~employees~~ ~~and~~Company’s ~~consultants~~major ~~over~~revenue asource period of four-to-five-year. Non-cash employee compensation for the three months ended March 31, 2011 decreased to $5.55 million from $8.33 million for the three months ended March 31, 2010, primarily because part of the shares granted in ~~2007 was fully vested during~~ the ~~first~~next ~~quarter~~few ~~of 2011~~years.

~~Depreciation~~Cost ~~and~~of ~~amortization~~goods sold

~~Depreciation~~Our cost of goods sold is primarily comprised of the costs of our raw materials, labor and ~~amortization~~overhead. Cost of goods sold for the second quarter of 2011 decreased by ~~segment~~$10.66 million, or 8.5%, to $114.33 million, as compared to $124.99 million for the ~~three~~same ~~months~~period last year. Cost of goods sold for the six months ended ~~March~~June 3130, 2011 ~~and~~decreased ~~2010~~by is$34.30 million, or 15.9%, to $181.90 million, as ~~follows:~~compared to $216.20 million for the same period last year.

(All amounts in millions of U.S. dollars)
		March 31,
Depreciation and amortization		2011			2010
Installation Segment	$	0.84	26.0%	$	1.09	33.7%
Manufacturing Segment		1.75	54.2%		1.59	49.2%
Distribution Segment		0.22	6.8%		0.35	10.8%
Service Segment		0.01	0.3%		--	--
Corporate and Other		0.41	12.7%		0.20	6.3%
Total	$	3.23	100.0%	$	3.23	100.0%

~~Our~~The ~~depreciation~~following ~~and~~table ~~amortization~~shows ~~expense was $3.23 million (including $0.26 million of depreciation and amortization expense included in cost of goods sold) for~~ the ~~three~~different ~~months~~segments ~~ended~~comprising ~~March 31, 2011 as compared to~~our ~~$3.23 million (including $0.25 million of depreciation and amortization expense included in~~ cost of goods sold) for the three ~~months ended March 31, 2010. As a percentage of revenues, depreciation~~ and ~~amortization~~six ~~expenses increased to 3.3% for the three~~ months ended ~~March~~June 3130, 2011 ~~from~~and ~~2.7% for the three months ended March 31,~~ 2010. ~~This percentage increase was primarily due to the decrease in~~ ~~incremental revenue in the first quarter of 2011.~~

36(All amounts in millions of U.S. dollars)

Income (loss) from operations

		Three months ended June 30,
Cost of goods sold		2011			2010
Installation Segment	$	83.03	72.7%	$	93.41	74.8%
Manufacturing Segment		24.62	21.5%		15.98	12.8%
Distribution Segment		6.08	5.3%		12.81	10.2%
Service Segment		0.60	0.5%		2.79	2.2%
Total	$	114.33	100.0%	$	124.99	100.0%

Our income from operations increased $1.16 million, or 16.6%, to $8.13 million for the three months ended March 31, 2011 compared to $6.97 million for the three months ended March 31, 2010. As a percentage of revenues, income from operations increased to 8.3% for the three months ended March 31, 2011 from 5.8% for the three months ended March 31, 2010.

		Six months ended June 30,
Cost of goods sold		2011			2010
Installation Segment	$	135.41	74.5%	$	163.12	75.5%
Manufacturing Segment		35.36	19.4%		27.54	12.7%
Distribution Segment		10.32	5.7%		22.75	10.5%
Service Segment		0.81	0.4%		2.79	1.3%
Total	$	181.90	100.0%	$	216.20	100.0%

The ~~following~~cost ~~table~~of ~~shows~~goods sold related to the ~~different~~Installation ~~segments~~Segment decreased ~~comprising~~by ~~our~~$10.38 million, or 11.1% to $83.03 million for the three months ~~income~~ended ~~(loss)~~June 30, 2011, from ~~operations~~$93.41 million for the three months ended ~~March~~June 3130, 2010. ~~2011~~The ~~and~~cost of goods sold related to the Installation Segment decreased by $27.71 million, or 17.0% to $135.41 million for the six months ended June 30, 2011, from $163.12 million for the six months ended June 30, 2010. The dollar decrease was mainly due to the decreased number of completed installation projects in the three and six months ended June 30, 2011.

(All amounts in millions of U.S. dollars)
		March 31,
Income (loss) from operations		2011					2010
Installation Segment	$	24.53		301.7%		$	19.74		283.2%
Manufacturing Segment		(2.79	)	(34.3%	)		(1.05	)	(15.1%	)
Distribution Segment		(0.97	)	(11.9%	)		(0.66	)	(9.5%	)
Service Segment		(0.85	)	(10.5%	)		--		--
Corporate and others		(11.79	)	(145.0%	)		(11.06	)	(158.6%	)
Total	$	8.13		100.0%		$	6.97		100.0%

The cost of goods sold related to the Manufacturing Segment increased to $24.62 million for the three months ended June 30, 2011 as compared to $15.98 million for the three months ended June 30, 2010, mainly due to the increase in revenues. The cost of goods sold related to the Manufacturing Segment increased to $35.36 million for the six months ended June 30, 2011 as compared to $27.54 million for the six months ended June 30, 2010, this increase in cost of goods sold was mainly due to the increase in revenues.

~~Income~~The ~~from~~cost ~~operations~~of goods sold related to ~~the~~our ~~Installation~~Distribution Segment for ~~increased~~the ~~$4.79~~three ~~million~~months ended June 30, or2011 24was $6.3%08 million, todecreased from $2412.53 81 million for ~~the~~same ~~three~~period ~~months~~last ~~ended March~~year. ~~31,~~The ~~2011,~~cost ~~compared~~of goods sold related to ~~$19.74~~our Distribution ~~million~~Segment for the ~~three~~six months ended ~~March~~June 3130, ~~2010.~~ ~~This~~2011 ~~increase~~ was ~~mainly~~$10.32 ~~because~~million, decreased ~~the~~from ~~installation~~$22.75 ~~projects~~million wefor ~~finished in~~ the ~~first~~same ~~quarter~~period ofin ~~2011~~2010. ~~generally~~This ~~had~~decrease ~~higher~~in ~~margins~~cost of asgoods ~~compared~~sold towas ~~projects completed~~mainly indue to the ~~same~~decrease ~~period~~ in ~~2010~~revenues.

~~Loss~~The ~~from~~cost ~~operations~~of goods sold related to ~~the~~our ~~Manufacturing~~Service Segment, which ~~increased~~was established in the second quarter of 2010, was $10.7460 million toand $20.79 81 million for the three and six months ended ~~March~~June 3130, 2011, ~~from~~respectively, as compared to $12.0579 million for the ~~same~~three ~~period~~months inended June 30, 2010. InThe ~~the~~decrease in ~~first~~cost ~~quarter~~ of ~~2011,~~ wegoods ~~hired~~sold ~~additional~~in ~~staff~~2011 towas ~~meet~~generally ~~the~~in ~~anticipated~~line ~~growth~~with of the ~~Manufacturing~~ ~~Segment.~~revenue decrease.

~~Loss~~Gross ~~from~~profit ~~operations~~and related to the Distribution Segment was $0.97 million for the three months ended March 31, 2011, as compared to $0.66 million for the three months ended March 31, 2010. Such increase in loss from operations was mainly due to the decrease of gross margin ~~for the Distribution Segment.~~

~~Loss~~Our gross profit is equal to the difference between our revenues and our cost of goods sold. Our gross profit decreased $1.35 million, or 3.1%, to $42.01 million for the three months ended June 30, 2011, from ~~operations~~$43.36 million ~~related~~for the same period last year. Gross margin for the three months ended June 30, 2011 was 26.9%, as compared to 25.8% for the ~~Service~~same ~~Segment~~period ~~which~~of 2010. The decrease in gross profit was mainly driven by the fewer number of installation ~~established~~projects completed in the second quarter of ~~2010~~2011. ~~was~~Our gross profit increased $01.8515 million, or 1.6%, to $73.49 million for the ~~three~~six months ended June 30, 2010, from $72.34 million for the same period last year. Gross margin for the six months ended ~~March~~June 3130, 2011 was 28.8%, as compared to 25.1% for the same period of 2010. The increase was mainly driven by an increasing gross margin in the Installation Segment, as discussed in more detail below, and disciplined execution of cost control initiatives.

WeThe ~~also~~following ~~provide~~table ~~general~~shows ~~corporate~~the ~~services~~different tosegment ~~our segments.~~components ~~Costs~~comprising ~~attributable~~our togross ~~these~~profit ~~services~~margin ~~were~~over ~~reported as corporate and other expenses. These costs included amortization, depreciation, and non-cash compensation for employees. Loss from operations related to~~ the ~~Corporate~~three and ~~others~~ ~~for~~six ~~the three~~ months ended ~~March~~June 3130, 2011 and 2010 ~~was $11~~.79 ~~million and $11.06 million, respectively. The increase was mainly due to the hiring of additional staff, and professional expenses related to the proposed Merger Transaction.~~

Other income

	Three months ended June 30,		Six months ended June 30,
Gross Margin	2011	2010	2011	2010
Installation Segment	29.7%	27.8%	31.5%	26.6%
Manufacturing Segment	18.9%	27.3%	20.6%	27.5%
Distribution Segment	14.9%	6.3%	14.1%	9.4%
Service Segment	25.9%	16.7%	22.9%	16.7%
Total	26.9%	25.8%	28.8%	25.1%

Our other income for the three months ended March 31, 2011 increased $0.41 million, or 128.1%, to $0.73 million for the three months ended March 31, 2011 from $0.32 million for the three months ended March 31, 2010. As a percentage of revenues, other income for the three months ended March 31, 2011 was 0.7%, as compared to 0.3% for the three months ended March 31, 2010. The dollar and percentage increase was mainly due to a subsidy received from a local government in the first quarter of 2011.37

For the three months ended June 30, 2011, gross margins of the Installation Segment, Manufacturing Segment, Distribution Segment and Service Segment were approximately 29.7%, 18.9%, 14.9% and 25.9%, respectively, compared to 27.8%, 27.3%, 6.3% and 16.7% for the same period last year. For the six months ended June 30, 2011, gross margins for the Installation Segment, Manufacturing Segment, and Distribution Segment were approximately 31.5%, 20.6% and 14.1%, respectively, compared to 26.6%, 27.5% and 9.4% for the same period last year. For the six months ended June 30, 2011, gross margin of the Service Segment, which was established in the second quarter of 2010, was 22.9% .

~~Interest~~The ~~expense~~increase in our gross margin for the Installation Segment was primarily because a larger proportion of our revenue was generated from larger scale projects in the first half of 2011 as compared to the same period in 2010. We are generally able to demand higher price and enjoy higher margin for larger scale projects. The security installation competitive landscape in China is dominated by many small vendors (who may not have all the necessary qualifications to perform larger scale projects which we often bid on). These smaller vendors typically focus on the retail and small corporate customer market segments instead of larger scale projects. Many competitors we typically face in smaller scale projects are often either eliminated in the bidding process or disqualified from bidding on large scale projects. As a result, we typically face a significantly reduced number of competitors on larger scale projects, which generally allowed us to command relatively higher prices. In addition, we also benefited from our experiences gained from our past installation projects and our research in developing more cost-effective installation processes, project design and solutions for our customers. As a result, we were able to reduce certain hardware components used in our installation projects while maintaining or improving the level of services to our customers.

~~During~~The ~~the~~decrease ~~first~~in ~~quarter~~our ofgross ~~2011,~~margin wefor ~~had~~the ~~borrowings~~Manufacturing ~~under 9~~Segment ~~long-term loans and 28 short-term loans from banks and 4 product financing arrangements from financial institutions. We incurred total interest expense of $5.11 million~~ for the three and six months ended ~~March~~June 3130, 2011, aswas ~~compared~~primarily todriven ~~$2.29 million~~by ~~for~~ the decrease ~~same~~of ~~period~~selling prices in ~~2010.~~an Weeffort ~~incurred~~to ~~$0.52~~maintain ~~million~~ and ~~$0.95~~expand ~~million~~our customer inbase, ~~interest~~which ~~during~~resulted ~~the~~in ~~three~~a ~~months~~higher ~~ended~~volume ~~March~~of ~~31,~~sales. ~~2011~~The ~~and~~increase ~~2010, respectively,~~ in ~~connection with~~ our ~~outstanding Tranche B Zero Coupon Guaranteed Senior~~gross ~~Unsecured~~margins ~~Notes~~for (the ~~“Tranche~~Distribution BSegment ~~Notes”).~~and ~~The~~the ~~dollar~~Service ~~increase~~Segment infor ~~interest~~the ~~expense~~three and insix ~~the~~months ~~first~~ended ~~quarter~~June of30, 2011 ~~was~~were primarily due to ~~the~~cost ~~increase in the outstanding balance of our bank loans~~efficiency.

37Selling and marketing expenses

~~Income~~Our ~~before~~selling ~~taxes~~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 ~~income~~selling ~~before~~and ~~income~~marketing ~~taxes~~expenses decreased $10.2502 million, or ~~25.~~0.6%, to $3.7511 million for the three months ended ~~March~~June 3130, 2011 from $53.0013 million for the same period in 2010. As a percentage of revenues, ~~income~~our ~~before~~selling ~~income~~and ~~taxes~~marketing expenses increased to 2.0% for the three months ended ~~March~~June 3130, 2011, ~~decreased~~from ~~to 3~~1.8% ~~from 4.2%~~ for the same period in 2010. ~~Such~~In ~~dollar~~the ~~and~~first ~~percentage~~six ~~increase~~months ~~was~~of fiscal ~~primarily~~2011, ~~due~~our selling and marketing expenses decreased $0.04 million or 0.7% to $5.81 million from $5.85 million in the ~~decrease~~same period of ~~the~~last ~~incremental~~year. ~~revenue~~As a percentage of revenues, our selling and marketing expenses increased to 2.3% for the ~~increase~~six months ended June 30, 2011 from 2.0% for the same period in 2010. The ~~interest~~percentage ~~expenses~~increase was mainly due to our decreased revenues.

~~Income~~General ~~Taxes~~and administrative expenses

~~China~~General ~~Security~~and &administrative ~~Surveillance~~expenses ~~Technology,~~consist ~~Inc.~~primarily ~~is subject to the United States federal income tax at a tax rate~~ of ~~34%. No provision for~~ ~~income~~compensation ~~taxes~~and inbenefits ~~the~~to ~~United~~our ~~States~~general ~~has~~management, ~~been~~finance ~~made~~and ~~as China Security &~~administrative ~~Surveillance Technology~~staff, ~~Inc.~~professional ~~had~~advisor nofees, ~~United~~audit ~~States~~fees ~~taxable~~and ~~income~~other ~~for~~expenses ~~the~~incurred ~~three~~in ~~months~~connection ~~ended~~with ~~March~~general ~~31, 2011 or 2010~~operation.

Our ~~wholly-owned~~general ~~subsidiary~~and ~~Safetech~~administrative ~~was~~expenses ~~incorporated~~increased in$8.65 million, or 113.7%, to $16.26 million for the three months ended June 30, 2011 ~~British~~from ~~Virgin~~$7.61 ~~Island~~million of the same period in 2010. In the first six months of 2011, our general and administrative expenses increased $12.79 million, ~~under~~or 82.0% to $28.39 million from $15.60 million for the ~~current~~six ~~laws~~months ended June 30, 2010. As a percentage of revenues, general and administrative expenses increased to 10.4% and 11.2% for the ~~British~~three ~~Virgin~~and ~~Islands~~six months ended June 30, 2011, respectively, from is4.6% ~~not~~and ~~subject~~5.5% tofor ~~income~~the ~~taxes~~same periods in 2010. We have incurred significantly more professional expenses in connection with the Merger transaction in 2011. In addition, our general and administrative expenses were also negatively impacted by increased advertising expense and hiring of additional staff.

Our subsidiaries, Golden and Hongtianzhi are located in Shenzhen and Zhuhai DIT Digital Technology Limited is located in Zhuhai. They are each subject to an EIT rate of 24% in 2011. Chengfeng, HiEasy, Minking, Stonesonic, Tsingvision and Coson were each subject to an EIT rate of 15% in 2011 due to their highNon-~~technology~~cash ~~company~~employee ~~status.~~compensation CSST PRC, Longhorn and Jin Lin are located in Shenzhen and they are subject to an EIT rate of 12% in 2011 because they received the lower tax rate as high-technology companies. CSSI, CSSS, CSSD and Guanling were subject to an EIT rate of 25% in 2011.

~~Our~~Non-cash ~~income~~employee ~~taxes~~compensation ~~increased~~by ~~$0.35~~segment ~~million to $2.07 million~~ for the three and six months ended ~~March~~June 3130, 2011 ~~from~~and ~~$1.72 million for the three months ended March 31,~~ 2010. ~~Such~~is ~~increase~~as ~~was~~follows: ~~primarily because of the increase in certain subsidiaries’ income tax rates and an increase in the deferred tax valuation allowance on U.S. operating losses during the quarter.~~

~~Net~~(All ~~income~~amounts ~~attributable~~in tomillions ~~the~~of ~~Company~~U.S. dollars)

Net income attributable to the Company decreased $1.60 million, or 48.8%, to $1.68 million for the three months ended March 31, 2011 from $3.28 million for the same period in 2010. As a percentage of revenues, net income attributable to the Company decreased to 1.7% for the three months ended March 31, 2011 from 2.8% for the same period in 2010. This dollar and percentage decrease was mainly due to the decrease in incremental revenue and increase in interest expenses in the first quarter of 2011.

		Three months ended June 30,
Non-cash employee compensation		2011			2010
Installation Segment	$	0.27	5.4%	$	0.59	11.7%
Manufacturing Segment		0.95	18.9%		0.97	19.2%
Distribution Segment		0.22	4.4%		0.38	7.5%
Service Segment		0.03	0.6%		0.01	0.2%
Corporate and others		3.55	70.7%		3.10	61.4%
Total	$	5.02	100.0%	$	5.05	100.0%

~~Foreign Currency Translation Gains~~38

Our operating subsidiaries are located in China. Our operating subsidiaries purchase substantially all products and render all services in China, and receive payments from customers in China using RMB as the functional currency. We do not engage in currency hedging.

		Six months ended June 30,
Non-cash employee compensation		2011			2010
Installation Segment	$	0.64	6.1%	$	1.15	8.6%
Manufacturing Segment		1.91	18.1%		1.91	14.3%
Distribution Segment		0.49	4.6%		0.75	5.6%
Service Segment		0.06	0.6%		0.01	0.1%
Corporate and others		7.47	70.6%		9.56	71.4%
Total	$	10.57	100.0%	$	13.38	100.0%

OnEffective ~~July~~February 217, ~~2005~~2007, ~~China~~our ~~reformed~~board ~~its~~of ~~foreign~~directors ~~currency~~adopted ~~exchange~~the ~~policy,~~2007 ~~revalued~~Equity ~~the~~Incentive ~~RMB~~Plan bywhich ~~2.1~~was ~~percent~~subsequently ~~and~~amended ~~allowed~~in ~~the~~February ~~RMB~~2010 to(the “Plan”). ~~appreciate~~The ~~as much~~Plan asprovides ~~0.3~~for ~~percent~~grants ~~per~~of ~~day~~stock ~~against~~options, ~~the~~stock ~~U.S.~~appreciation rights, ~~dollar.~~performance Asunits, arestricted ~~result~~stock, werestricted ~~implemented different~~stock ~~exchange~~units, ~~rates~~and performance inshares. ~~translating~~A ~~RMB~~total ~~into~~of ~~U.S.~~12,000,000 ~~dollars~~shares inof our ~~financial~~common stock may be ~~statements~~issued ~~for~~under the ~~first~~Plan. ~~quarter~~The ofPlan ~~2011~~has ~~and~~a ~~2010~~10-year term.

~~For~~During the three and six months ended ~~March~~June 3130, 2011, we ~~utilized the~~granted ~~exchange~~an ~~rates~~aggregate of ~~6.56~~0, ~~6.57~~and 200,908 ~~and~~shares ~~8.04~~of inrestricted ~~calculating~~stock ~~the~~pursuant ~~assets~~to ~~and~~the Plan ~~liabilities,~~to ~~revenue~~our ~~and~~employees ~~expenses,~~ and ~~equity~~consultants, respectively~~, which resulted in an $6~~.83 ~~million~~These ~~foreign~~shares ~~currency~~will ~~translation~~vest ~~gain. For the three months ended~~with ~~March~~respect ~~31,~~to ~~2010,~~each ~~we implemented the exchange rates~~ of ~~6.83, 6.83, and 8.04 in calculating~~ the ~~assets~~employees and ~~liabilities,~~consultants ~~revenue~~over ~~and expenses, and equity, respectively, which resulted in~~ a ~~$0.12~~period ~~million foreign currency translation~~of ~~gain~~four-to-five-year.

~~Liquidity~~Non-cash employee compensation for the three months ended June 30, 2011 decreased to $5.02 million from $5.05 million for the same period in 2010. In the first six months of fiscal 2011, non-cash employee compensation decreased to $10.57 million from $13.38 million. The decrease in non-cash employee compensation was primarily because fewer shares were granted to employees and ~~Capital~~consultants ~~Resources~~under the Plan during the respective period.

~~General~~Depreciation and amortization

AsDepreciation ~~of March 31, 2011~~ and ~~December~~amortization ~~31,~~by ~~2010,~~segment wefor ~~had~~the ~~cash~~three and ~~cash~~ ~~equivalents of $278.74 million and $65.63 million, respectively. The~~six ~~following table provides detailed information about our net cash flow for the three~~ months ended ~~March~~June 3130, 2011 and 2010. is as follows:

~~Cash~~(All ~~Flow~~amounts in millions of U.S. dollars)

(All amounts in millions of U.S. dollars)
		Three months ended June 30,
		March 31,
Depreciation and amortization		2011						2010
		2011			2010
Installation Segment	$	0.88			27.3%		$	1.09	33.4%
Net cash provided by (used in) operating activities	$	37.17		$	(60.88	)
Manufacturing Segment		1.71			53.1%			1.59	48.8%
Net cash used in investing activities		(6.73	)		(7.66	)
Distribution Segment		0.20			6.2%			0.35	10.7%
Net cash provided by financing activities		181.77			56.34
Service Segment		0.01			0.3%			0.01	0.3%
Effect of exchange rate changes on cash		0.90			0.01
Corporate and others		0.42			13.1%			0.22	6.8%
Net cash inflow (outflow)	$	213.11		$	(12.19	)
Total	$	3.22			100.0%		$	3.26	100.0%

		Six months ended June 30,
Depreciation and amortization		2011			2010
Installation Segment	$	1.72	26.7%	$	2.18	33.6%
Manufacturing Segment		3.46	53.6%		3.18	49.0%
Distribution Segment		0.42	6.5%		0.70	10.8%
Service Segment		0.02	0.3%		0.01	0.2%
Corporate and others		0.83	12.9%		0.42	6.4%
Total	$	6.45	100.0%	$	6.49	100.0%

~~Operating~~Our ~~Activities:~~depreciation and amortization expense decreased $0.04 million, or 1.2%, to $3.22 million (including $0.25 million depreciation and amortization costs included under cost of goods sold) for the three months ended June 30, 2011 from $3.26 million for the same period in 2010. As a percentage of revenues, depreciation and amortization expenses increased to 2.1% for the three months ended June 30, 2011 from 1.9% for the same period in 2010. This percentage increase was primarily due to the decrease in revenues in the second quarter of 2011.

Net cash provided by operating activities was $37.17 million for the three months ended March 31, 2011, as compared to net cash used in operating activities of $60.88 million for the same period in 2010. The increase in net cash provided by operating activities in the first quarter of 2011 was primarily due to decreases in accounts receivable and inventories, compared to increases in the first quarter of 2010. We enhanced our credit control and collected more receivables in the first quarter of 2011.39

~~Investing~~In ~~Activities:~~the first six months of fiscal 2011, our depreciation and amortization decreased $0.04 million, or 0.6%, to $6.45 million (including $0.51 million depreciation and amortization costs included under cost of goods sold) from $6.49 million for the same period 2010. As a percentage of revenues, depreciation and amortization expenses increased to 2.5% for the six months ended June 30, 2011 from 2.2% for the same period in 2010. This percentage increase was primarily due to the decrease in revenues in the first half of 2011.

~~Our~~Income ~~main~~from ~~uses~~operations ~~of cash for investing activities during the three months ended March 31, 2011 and 2010 were acquisitions of plant and equipment and deposits for the acquisition of subsidiaries.~~

~~Net~~Our ~~cash~~income ~~used~~from inoperations ~~investing~~decreased ~~activities~~$9.91 ~~for~~million, ~~the~~or ~~three months~~40.4%, ~~ended~~to ~~March 31, 2011 was~~ $614.7365 million, ~~which~~for isthe athree ~~decrease~~months ofended ~~$0.93~~June ~~million from~~30, ~~net~~2011 ~~cash~~as ~~used~~compared into ~~investing activities of~~ $724.66 56 million infor the same period of in 2010. ~~This~~As ~~decrease~~a ~~was~~percentage ~~primarily~~of ~~due~~revenues, toincome ~~the~~from operations ~~decrease~~decreased into ~~net~~9.4% ~~cash used~~ for ~~additions~~ tothe ~~intangible~~three ~~assets,~~months ~~other~~ended ~~than~~June ~~through~~30, ~~business~~2011 ~~acquisitions~~from ~~as well~~14.6% ~~as a decrease in net cash used~~ for ~~deposits~~the ~~paid~~same ~~for~~period ~~business acquisitions, properties and intangible assets~~ in ~~the first quarter 2011~~2010.

~~Financing~~In ~~Activities:~~the first six months of fiscal 2011, our income from operations decreased $8.74 million, or 27.7%, to $22.78 million as compared to $31.52 million. As a percentage of revenues, income from operations decreased to 8.9% for the six months ended June 30, 2011 from 10.9% for the same period in 2010. The amount and percentage decrease in both the three and six month periods was mainly due to the significant increase in general and administrative expenses as discussed above.

~~Net~~The ~~cash~~following ~~provided~~table byshows ~~financing activities for~~ the ~~three~~different ~~months ended~~segments ~~March~~comprising ~~31, 2011 totaled $181.77 million, as compared to $56.34 million in~~our ~~the~~income ~~same~~(loss) ~~period of 2010. The increase in net cash provided by financing activities was mainly attributable to proceeds~~ from ~~additional~~operations ~~bank~~for ~~loans obtained in~~ the ~~first quarter~~three ofand ~~2011.~~six ~~For~~months ~~details~~ended ofJune ~~the loan facilities~~30, ~~please refer to the “Loan~~ ~~Facilities”~~2011and ~~section below~~2010.

~~Loan~~(All ~~Facilities:~~amounts in millions of U.S. dollars)

a) Notes payable

		Three months ended June 30,
Income (loss) from operations		2011				2010
Installation Segment	$	31.72		216.5%	$	32.80		133.6%
Manufacturing Segment		(1.60	)	-10.9%		0.19		0.8%
Distribution Segment		(0.81	)	-5.5%		(1.01	)	-4.1%
Service Segment		(0.63	)	-4.3%		0.21		0.8%
Corporate and others		(14.03	)	-95.8%		(7.63	)	-31.1%
Total	$	14.65		100.0%	$	24.56		100.0%

As of March 31, 2011, the amount, maturity date and original term of each of our bank loans were as follows:

		Six months ended June 30,
Income (loss) from operations		2011				2010
Installation Segment	$	56.25		246.9%	$	52.54		166.7%
Manufacturing Segment		(4.39	)	-19.3%		(0.86	)	-2.7%
Distribution Segment		(1.78	)	-7.8%		(1.67	)	-5.3%
Service Segment		(1.48	)	-6.5%		0.21		0.7%
Corporate and others		(25.82	)	-113.3%		(18.70	)	-59.4%
Total	$	22.78		100.0%	$	31.52		100.0%

(All amounts in millions of U.S. dollars)
Lender		Amount*	Maturity Date	Original Term
China Development Bank	$	200.00	February 2014	3 years
China Development Bank		50.00	October 2013	3 years
China Construction Bank		7.63	March 2012	1 year
China Merchants Bank		4.80	September 2011	6 months
Guangdong Development Bank		18.45	March 2012	1 year
China Merchants Bank		9.00	November 2012	2 years
Industrial and Commercial Bank of China		15.26	January 2012	1 year
China Zheshang Bank		3.05	August 2011	1 year
China Merchants Bank		1.53	November 2012	2 years
China Merchants Bank		31.10	January 2021	10 years
Bank of China		10.84	December 2011	1 year
Bank of China		10.84	December 2011	1 year
Shanghai Pudong Development Bank		8.05	June 2011	6 months
China Merchants Bank		10.68	November 2012	2 years
Industrial and Commercial Bank of China		6.10	December 2011	1 year
Industrial and Commercial Bank of China		4.58	December 2011	1 year
Industrial and Commercial Bank of China		4.58	December 2011	1 year
Bank of China		7.41	May 2011	6 months
Industrial and Commercial Bank of China		7.78	November 2011	1 year
China Merchants Bank		3.81	October 2011	1 year
Shenzhen Development Bank		6.10	August 2011	1 year
China Everbright Bank		6.10	July 2011	1 year
Industrial and Commercial Bank of China		8.33	July 2011	1 year
China Construction Bank		4.58	July 2011	1 year
Guangdong Development Bank		7.56	June 2011	1 year
Industrial and Commercial Bank of China (Asia)		10.00	July 2011	1 year
Shanghai Pudong Development Bank		12.20	April 2011	1 year
Shanghai Pudong Development Bank		12.20	April 2011	1 year
Total	$	482.56

Income from operations related to the Installation Segment decreased $1.08 million or 3.3%, to $31.72 million for the three months ended June 30, 2011, compared to $32.80 million for the same period in 2010. This decrease was mainly because the number of installation projects we finished in the second quarter of 2011 was fewer than in the same period of 2010, and the increase in general and administrative expenses incurred in connection with the proposed Merger. In the first six months of fiscal 2011, income from operations related to the Installation Segment increased $3.71 million, or 7.1%, to $56.25 million, compared to $52.54 million for the same period in 2010. This increase was mainly because the installation projects we finished in the first two quarters of 2011 generally had higher margins as compared to projects completed in the same periods in 2010.

*Loss ~~Calculated~~from onoperations related to the ~~basis~~Manufacturing ~~that~~Segment was $1.60 =million ~~RMB6~~for the three months ended June 30, 2011, as compared to income from operations related to the Manufacturing Segment of $0.5619 million for the same period in 2010. Loss from operations related to the Manufacturing Segment increased $3.53 million, to $4.39 million for the six months ended June 30, 2011, from $0.86 million for the same period in 2010. In the first two quarters of 2011, we hired additional staff to meet the anticipated growth of the Manufacturing Segment.

39Loss from operations related to the Distribution Segment decreased $0.20 million, or 19.8%, to $0.81 million for the three months ended June 30, 2011, as compared to $1.01 million for the same period in 2010. Loss from operations related to the Distribution Segment was $1.78 million for the six months ended June 30, 2011, increased from $1.67 million for the same period in 2010. Such increase in loss from operations for the six months ended June 30, 2011 was mainly due to the decrease of revenues for the Distribution Segment.

WeLoss ~~have~~from ~~entered~~operations related to the ~~following~~Service ~~bank~~Segment ~~loans~~was $0.63 million ~~The~~for ~~terms~~the ofthree ~~bank loans~~months ~~that~~ended weJune ~~typically~~30, ~~enter~~2011, ~~into~~as ~~require~~compared ~~collateral~~to ~~for~~income from operations of $0.21 million in the ~~loans~~second quarter of 2010. ~~Collateral~~Loss from operations isrelated ~~usually~~to ~~defined~~the Service Segment, which was established in the ~~agreements~~second asquarter ~~buildings~~of ~~and~~2010, ~~land~~was ~~use~~$1.48 million ~~rights~~for the six months ended June 30, 2011.

On March 1, 2011, we entered into a term loan facility agreement with China Development Bank Corporation Hong Kong Branch (“CDB”), pursuant to which CDB agreed to make available to us a term loan facility in an aggregate principal amount of up to $200.00 million, subject to terms and conditions of the agreement. We borrowed a total of $200.00 million on March 1, 2011 under the facility, with an annual interest rate of 3% per annum over the applicable six-month London Inter Bank Offered Rate (3.46% as of March 31, 2011). The loan under the facility will mature on the third anniversary of the first date when the facility is utilized by us with 50% of the principal due in August 2013 and the remaining 50% due in February 2014. Pursuant to the term loan facility agreement, if our chairman and CEO, Mr. Guoshen Tu, ceases to be the beneficial owner of at least 10% of our capital stock, the facility may be cancelled and all outstanding loans under the facility may become immediately due and payable with no less than 30 days notice. As of March 31, 2011, this condition was satisfied, and management believes the Company is in compliance with all terms and conditions of the term loan facility agreement.40

InWe ~~October~~also ~~2010,~~provide wegeneral ~~entered~~corporate ~~into~~services ato ~~term~~our ~~loan facility agreement~~segments. ~~with~~Costs ~~CDB,~~attributable ~~pursuant~~ to ~~which~~these ~~CDB~~services ~~agreed~~were toreported ~~make~~as ~~available~~corporate toand ~~us a term loan~~other ~~facility~~expenses. inThese ~~aggregate~~costs ~~principal~~included ~~amount~~amortization, ~~of up to $50.00 million~~depreciation, ~~subject~~and ~~to terms~~non-cash ~~and~~compensation ~~conditions~~for ~~of the agreement~~employees. WeLoss ~~borrowed~~from aoperations ~~total~~related ofto ~~$50.00 million on October 29, 2010 under~~ the ~~facility,~~Corporate ~~with an annual interest rate of 3% per~~and ~~annum~~others ~~over~~for the ~~applicable~~three ~~six-month~~months ~~London~~ended ~~Inter~~June ~~Bank Offered Rate (3.46% as of March 31~~30, 2011). ~~The~~and ~~loan~~2010 ~~under~~was ~~the facility is due in October 2013~~$14.03 ~~Pursuant~~million toand ~~the~~$7.63 ~~term loan facility agreement~~million, ifrespectively. ~~our~~Loss ~~chairman~~from ~~and~~operations ~~CEO,~~related ~~Mr. Tu, ceases~~ to be the ~~beneficial~~Corporate ~~owner~~and others offor atthe ~~least~~six ~~10%~~months ofended ~~our~~June ~~outstanding capital stock~~30, ~~the facility~~2011 ~~may be cancelled~~ and ~~all~~2010 ~~outstanding~~was ~~loans~~$25.82 ~~under~~million ~~this facility may become immediately due~~ and ~~payable with no less than 30 days notice~~ $18.70 ~~As of March 31~~million, ~~2011,~~respectively. ~~this~~The ~~condition~~increase was ~~satisfied~~mainly ~~and~~due ~~management~~to ~~believes~~the weincrease ~~are~~ in ~~compliance~~advertising ~~with~~expenses ~~all~~for ~~terms~~corporation, additional staff, and professional ~~conditions~~expenses ofrelated to the ~~term~~proposed ~~loan~~Merger ~~facility agreement~~transaction.

OnOther ~~March~~income 24, 2011, we entered into a loan agreement with China Merchants Bank. We borrowed RMB31.50 million (approximately $4.80 million) with an annual interest rate equal to the 1 to 6 month’s benchmark lending rate of the People’s Bank of China (5.60% as of March 31, 2011) with interest payable on the 20th of each month. The loan is due in September 2011. The loan is guaranteed by one of our subsidiaries.

OnOur ~~March~~other 21income increased $0.50 million, ~~2011~~or 113.6%, weto ~~entered~~$0.94 million ~~into~~for athe ~~loan~~three ~~agreement~~months ~~with~~ended ~~China Construction~~June ~~Bank.~~30, We2011 ~~borrowed~~from ~~RMB50~~$0.0044 million ~~(approximately~~for ~~$7.63~~the ~~million)~~same ~~with~~period anin ~~annual~~2010. ~~interest~~As ~~rate~~a ~~equal~~percentage of revenues, other income increased to 70.206% for the three months ended June 30, ~~with~~2011 ~~interest~~from ~~payable~~0.3% onfor the ~~20th~~same period in 2010. Our ofother ~~each~~income ~~month~~increased $0.90 ~~The~~million, ~~loan~~or ~~was~~116.9%, ~~due~~to in$1.67 ~~March~~million ~~2012~~for the six months ended June 30, 2011 from $0.77 ~~The~~million ~~loan~~for isthe ~~guaranteed~~same byperiod ~~our~~in ~~CEO and~~2010. ~~two~~As a percentage of ~~our~~revenues, ~~subsidiaries~~other income for the six months ended June 30, 2010 was 0.7%, as compared to 0.3% for the same period in 2010. The dollar and ispercentage increase ~~collateralized~~was bymainly due to subsidies received from local governments in the first ~~property~~two quarters of ~~a subsidiary~~2011.

OnInterest ~~March~~expense 16, 2011, we entered into a loan agreement with Guangdong Development Bank. We borrowed RMB121.00 million (approximately $18.45 million) with an annual interest rate equal to 105% of the 1 to 6 month’s benchmark lending rate of the People’s Bank of China (5.88% as of March 31, 2011) with interest payable on the 20th of each month. The loan is due in March 2012. The loan is collateralized by a restricted cash amount of $20,000 of one of our subsidiaries.

OnDuring ~~February~~the 9,first half of 2011, we ~~entered~~had ~~into~~borrowings aunder ~~loan~~6 long-term ~~agreement~~loans ~~with~~and 39 short-term loans from banks and 4 product financing ~~Societe~~arrangements ~~Generale~~from financial institutions. We ~~borrowed~~incurred ~~RMB27~~total interest expense of $6.0044 million ~~(approximately~~and $43.1206 million) for the three months ended June 30, 2011 and ~~with~~2010, anrespectively. ~~annual~~We incurred total interest ~~rate~~expense ~~equal~~of to$11.55 9million and $5.~~10%~~36 million for the six months ended June 30, ~~with~~2011 and 2010, respectively. We also incurred $0.30 million and $0.82 million in interest ~~payable~~during onthe three and six months ended June 30, 2011, respectively, in connection with our outstanding Tranche B Zero Coupon Guaranteed Senior Unsecured Notes (the ~~due~~“Tranche B Notes”), ~~date~~as ofcompared to $0.73 million and $1.68 million during the ~~loan~~respective periods in 2010. The ~~loan~~dollar ~~was~~increase ~~due~~in ~~and~~interest ~~repaid~~expense in ~~March~~the ~~2011.~~first ~~The~~half ~~loan~~of 2011 was ~~guaranteed~~primarily bydue ~~one~~to the increase in the outstanding balance of our ~~subsidiaries~~bank loans.

OnIncome ~~February~~before 1,taxes 2011, we entered into a loan agreement with China Merchants Bank. We borrowed RMB59.00 million (approximately $9.00 million) with an annual interest rate equal to 105% of the 1 to 3 year’s benchmark lending rate of the People’s Bank of China (6.41% as of March 31, 2011) with interest payable on the 20th of each month. The loan is due in November 2012. The loan is guaranteed by our CEO, his wife and one of our subsidiaries, and is collateralized by the property and land use rights of a subsidiary.

OnOur ~~January~~income ~~31,~~before ~~2011,~~taxes wedecreased ~~entered~~$12.79 ~~into~~million, aor ~~loan~~58.3%, ~~agreement~~to $9.15 ~~with~~million for the ~~Industrial~~ ~~and~~three ~~Commercial~~months ~~Bank~~ended ofJune ~~China.~~30, We2011 ~~borrowed~~from ~~RMB100~~$21.0494 million for ~~(approximately~~the ~~$15~~same period in 2010.26 ~~million)~~As ~~with~~a anpercentage ~~annual~~of ~~interest~~revenues, ~~rate~~income ~~equal~~before taxes for the three months ended June 30, 2011 decreased to 955.9% offrom 13.1% for the same 12period ~~month’s~~in ~~benchmark~~2010. ~~lending~~Our ~~rate~~income ofbefore ~~the~~taxes ~~People’s~~decreased ~~Bank~~$14.03 ofmillion, ~~China~~or (552.761%, ~~as of~~to ~~March~~$12.90 31million for the six months ended June 30, 2011), ~~with~~from ~~interest~~$26.93 ~~payable~~million on for the ~~20th~~same period in 2010. As a percentage of ~~each~~revenues, ~~month~~income before taxes for the six months ended June 30, 2011 decreased to 5.1% ~~The~~from ~~loan~~9.3% isfor the same period in 2010. Such dollar and percentage decrease was primarily due to the decrease in ~~January~~revenue ~~2012.~~and ~~The~~the ~~loan~~increase isin ~~guaranteed~~general byand ~~four~~administrative ofexpense ~~our~~and interest ~~subsidiaries~~expense.

OnIncome ~~January~~Taxes 12, 2011, we entered into a loan agreement with China Zheshang Bank. We borrowed RMB20.00 million (approximately $3.05 million) with an annual interest rate equal to 120% of the 6 to 12 month’s benchmark lending rate of the People’s Bank of China (7.27% as of March 31, 2011) with interest payable on the 20th of each month. The loan is due in August 2011. The loan is guaranteed by our CEO and two of our subsidiaries.

40China Security & Surveillance Technology, Inc. is subject to the United States federal income tax at a tax rate of 34%. No provision for income taxes in the United States has been made as China Security & Surveillance Technology, Inc. had no United States taxable income during the three and six months ended June 30, 2011 or 2010.

OnOur ~~January~~wholly-owned ~~10,~~subsidiary ~~2011,~~Safetech wewas ~~entered~~incorporated ~~into~~in a loan agreement with China Merchants Bank. We borrowed RMB40.00 million (approximately $6.10 million) on January 10, 2011, and RMB169.34 million (approximately $25.83 million) on February 9, 2011, with an annual interest rate equal to 105% of the ~~5 to 10~~ ~~year’s~~British ~~benchmark~~Virgin ~~lending~~Island ~~rate of the People’s Bank of China (6.93% as of March 31, 2011) with principal~~ and ~~interest payable in each quarter. The loan matures in January 2021. In March 2011~~, weunder ~~repaid principal of~~ the ~~loan~~current inlaws ~~the amount~~ of ~~RMB5.44~~ ~~million (approximately $0.83 million) in accordance with~~ the ~~terms~~British ~~of the~~Virgin ~~loan. The loan is guaranteed by Shenzhen Zhonghe Industrial Limited~~Islands, an ~~independent third party, and~~ is ~~secured~~not bysubject ~~the~~to ~~rights~~income ~~of properties currently under construction which will be acquired by us upon their completion~~taxes.

OnOur ~~January 4~~subsidiaries, ~~2011,~~Golden weand ~~entered~~Hongtianzhi ~~into~~are alocated ~~loan~~in Shenzhen ~~agreement~~and ~~with~~Zhuhai ~~China Merchants~~DIT ~~Bank.~~Digital WeTechnology ~~borrowed~~Limited ~~RMB10.00~~is ~~million~~located ~~(approximately~~in $1Zhuhai.53 ~~million)~~They are ~~with~~each subject to an ~~annual~~ ~~interest~~EIT rate ~~equal~~of ~~to 105~~24% ofin ~~the~~2011. 1Chengfeng, toMinking, 3Stonesonic, Tsingvision ~~year’s~~and ~~benchmark~~Coson ~~lending~~are each subject to an EIT rate of ~~the~~15% ~~People’s~~in ~~Bank~~2011 ofdue ~~China~~to their ~~(6.41%~~high-technology ascompany ofstatus. ~~March~~Jin ~~31,~~Lin ~~2011)~~is ~~with~~subject ~~interest~~to ~~payable on~~an ~~the~~EIT ~~20th~~rate of ~~each month~~12.5% in ~~The~~2011 ~~loan~~due isto ~~due~~its inhigh-technology ~~November~~company ~~2012~~status. ~~The~~CSST ~~loan~~PRC isand Longhorn are ~~guaranteed~~located byin ~~our~~Shenzhen ~~CEO,~~and ~~his~~they ~~wife~~are ~~and~~subject ~~one~~to an EIT rate of ~~our~~12% ~~subsidiaries,~~in ~~and~~2011 isbecause ~~collateralized~~they byreceived the ~~property~~lower tax rate as high-technology companies. CSSI, CSSS, CSSD, HiEasy and ~~land~~Guanling ~~use~~are ~~rights~~each subject to an EIT rate of a25% ~~subsidiary~~in 2011.

OnOur ~~December~~income ~~29,~~taxes ~~2010,~~decreased we$0.95 ~~entered~~million ~~into~~to a$3.18 ~~loan~~million ~~agreement with~~for ~~Bank~~the ofthree ~~China.~~months Weended ~~borrowed~~June ~~RMB71.10~~30, ~~million~~2011 ~~(approximately~~from $104.8413 million) ~~with an~~for ~~annual~~the ~~interest~~same ~~rate~~period ~~equal to 5~~of 2010.~~15%,~~ ~~with~~Our ~~interest~~income ~~payable~~taxes ondecreased ~~the~~$0.60 ~~20th~~million ~~of each~~to ~~month~~$5.25 ~~The~~million ~~loan~~for isthe ~~due~~six months inended ~~December~~June ~~2011.~~30, ~~The~~2010 ~~loan~~from is$5.85 ~~guaranteed~~million byfor ~~our~~the ~~CEO and~~same ~~one~~period of ~~our~~2010. ~~subsidiaries,~~Such decrease ~~and~~was isprimarily ~~collateralized~~due byto the ~~property~~decrease ~~and~~in ~~land~~income ~~use rights~~before ~~of a subsidiary~~tax.

OnNet ~~December~~income ~~24,~~attributable ~~2010, we entered into a loan agreement with Bank of China. We borrowed RMB71.10 million (approximately $10.84 million) with an annual interest rate equal~~ to ~~5.15%, with interest payable on~~ the ~~20th~~Company ~~of each month. The loan is due in December 2011. The loan is guaranteed by our CEO and one of our subsidiaries, and collateralized by the property and land use rights of a subsidiary.~~

OnNet ~~December~~income ~~10,~~attributable ~~2010,~~to wethe ~~entered~~Company ~~into~~decreased a$11.84 million, ~~loan~~or ~~agreement~~66.5%, ~~with Shanghai~~to ~~Pudong~~$5.97 ~~Development~~million ~~Bank.~~for Wethe ~~borrowed~~three ~~RMB66.00~~months ~~million~~ended ~~(approximately~~June 30, 2011 from $1017.0781 million) ~~with~~for anthe ~~annual~~same ~~interest~~period ~~rate~~in ~~equal~~2010. toAs ~~the~~a 6percentage ~~month's~~of ~~benchmark~~revenues, ~~lending~~net ~~rate~~income ofattributable to the ~~People’s~~Company ~~Bank~~decreased ofto ~~China (5~~3.609% asfor ofthe ~~March~~three 31months ended June 30, 2011) ~~with interest~~from ~~payable~~10.6% onfor the ~~20th~~same ofperiod ~~each~~in ~~month~~2010. ~~The~~Net ~~loan~~income isdecreased $13.43 ~~due~~million, inor 63.7%, to $7.65 million for the six months ended June 30, 2011 from $21.08 ~~The loan~~million isfor ~~collateralized~~the bysame aperiod ~~cash~~in ~~deposit~~2010. ofAs ~~Whitehorse~~a ~~Technology~~percentage ~~Limited,~~of arevenues, ~~company~~net ~~wholly-owned~~income byattributable ~~our~~to ~~CEO.~~the WeCompany ~~repaid~~decreased ~~RMB6~~to 3.650% ~~million~~for ~~(approximately~~the ~~$1.01~~six months ~~million)~~ended ~~and~~June ~~RMB6~~30, 2011 from 7.603% ~~million~~for ~~(approximately~~the $1same period in 2010.01 ~~million)~~This dollar and percentage decrease was mainly due to the decrease in ~~January~~revenue and ~~March~~the increase ~~2011,~~in ~~respectively~~general and administrative expense and interest expenses in the first two quarters of 2011.

On December 2, 2010, we entered into a loan agreement with China Merchants Bank. We borrowed RMB70.00 million (approximately $10.68 million) with an annual interest rate equal to 105% of the 1 to 3 year’s benchmark lending rate of the People’s Bank of China (6.14% as of March 31, 2011) with interest payable on the 20th of each month. The loan is due in November 2012. The loan is guaranteed by our CEO, his wife and one of our subsidiaries, and is collateralized by the property and land use rights of a subsidiary.41

OnForeign ~~November~~Currency ~~19,~~Translation ~~2010,~~Gains we entered into a loan agreement with Industrial and Commercial Bank of China. We borrowed RMB30.00 million (approximately $4.58 million) on December 21, 2010, RMB30.00 million (approximately $4.58 million) on December 29, 2010 and RMB40.00 million (approximately $6.10 million) on January 31, 2011 with an annual interest equal to 95% of the 12 month's benchmark lending rate of the People’s Bank of China (5.76% as of March 31, 2011) with interest payable on the 20th of each month. The loan is due in December 2011. The loan is guaranteed by three of our subsidiaries and is collateralized by the property of a subsidiary.

OnOur ~~November~~operating ~~17,~~subsidiaries ~~2010,~~are welocated ~~entered~~in ~~into~~China. aOur ~~loan agreement with~~operating ~~Bank~~subsidiaries ofpurchase ~~China.~~substantially Weall ~~borrowed~~products ~~RMB48.60~~and ~~million~~render ~~(approximately~~all ~~$7.41~~services ~~million) with~~in anChina, ~~annual~~and ~~interest~~receive ~~rate~~payment ~~equal~~from tocustomers ~~5.15%,~~in ~~with~~China ~~interest~~using ~~payable~~RMB onas the ~~20th of~~functional ~~each month~~currency. ~~The~~We ~~loan~~do isnot ~~due~~engage in ~~May~~currency ~~2011~~hedging. ~~The loan is guaranteed by our CEO and one of our subsidiaries, and was collateralized by the property and land use rights of a subsidiary.~~

On ~~October~~July 2921, ~~2010~~2005, weChina ~~entered~~reformed ~~into~~its aforeign ~~loan~~currency ~~agreement~~exchange policy, ~~with~~revalued the ~~Industrial~~ ~~and~~RMB ~~Commercial~~by ~~Bank of China~~2.1 Wepercent ~~borrowed~~and ~~RMB51.00~~allowed ~~million (approximately~~the ~~$7.78~~RMB ~~million) with an annual interest rate equal~~ to ~~95%~~appreciate ~~of the~~as 12much ~~month’s~~as ~~benchmark~~0.3 ~~lending~~percent ~~rate~~per ofday against the ~~People’s~~U.S. ~~Bank of China (5~~dollar.~~76%~~ asAs ~~of March~~a 31result, ~~2011)~~we ~~with~~implemented different ~~interest~~exchange ~~payable~~rates onin ~~the~~translating ~~20th~~RMB ofinto ~~each month~~U.S. ~~The~~dollars ~~loan~~in isour ~~due~~financial instatements ~~November~~for ~~2011.~~the ~~The~~first ~~loan~~and issecond ~~guaranteed~~quarter ~~by three~~ of ~~our~~2011 ~~subsidiaries,~~ and ~~is collateralized by the property of a subsidiary~~2010.

OnFor ~~October~~the ~~18,~~three ~~2010,~~months weended ~~entered~~June ~~into~~30, a2011, ~~loan~~we ~~agreement~~utilized ~~with~~the ~~China~~exchange ~~Merchants~~rates ~~Bank~~of 6.47, We6.49, ~~borrowed~~and ~~RMB25~~8.0004 ~~million~~in ~~(approximately~~calculating ~~$3.81~~the ~~million)~~assets and ~~with~~liabilities, anrevenue ~~annual~~and ~~interest~~expenses, ~~equal~~and toequity, ~~110%~~respectively. ofFor the 12three months ~~month’s~~ended ~~benchmark~~June ~~lending~~31, ~~rate of~~2010, we implemented the ~~People’s~~exchange ~~Bank~~rates of ~~China~~6.79, (6.~~67%~~82, asand 8.04 ofin ~~March~~calculating 31the assets and liabilities, ~~2011)~~revenue ~~with~~and ~~interest~~expenses, ~~payable~~and onequity, ~~the~~respectively. ~~20th~~We ofincurred ~~each~~a ~~month.~~foreign ~~The~~currency ~~loan~~translation isgain ~~due~~of in$9.84 million ~~October~~and ~~2011~~$16.67 ~~The~~million ~~loan~~for ~~is guaranteed~~the bythree ~~our~~and ~~Chief~~six ~~Operating~~months ~~Officer~~ended June 30, ~~our~~2011, respectively, ~~CEO~~as compared to $3.20 million and ~~his~~$3.32 ~~wife~~million for the respective periods in 2010.

OnLiquidity August 18, 2010, we entered into a loan agreement with Shenzhen Development Bank. We borrowed RMB40.00 million (approximately $6.10 million) with an annual interest rate equal to 6.06%, with interest payable on the 20th of each month. The loan is due in August 2011. The loan is guaranteed by our CEO and ~~two~~Capital ofResources ~~our subsidiaries, and is collateralized by the property of a subsidiary.~~

41General

OnAs ~~August~~of 9,June ~~2010~~30, we2011 ~~entered~~and ~~into~~December a31, ~~loan~~2010, ~~agreement~~we ~~with Societe~~had ~~Generale.~~cash Weand ~~borrowed~~cash equivalents ~~RMB27~~of $144.0021 million ~~(approximately~~and $465.1263 million~~) with an annual interest rate equal to 5.35%~~, ~~with interest payable on the due date of the loan~~respectively. The ~~loan~~following table ~~was~~sets ~~due~~forth ~~and~~a ~~repaid~~summary inof ~~February~~our ~~2011.~~net ~~The~~cash ~~loan~~flows ~~was guaranteed~~for bythe ~~one~~periods ~~of our subsidiaries~~indicated.

OnCASH ~~July~~FLOW ~~26, 2010, we entered into a loan agreement with China Everbright Bank Co., Ltd. We borrowed RMB40.00 million~~ (~~approximately~~All ~~$6.10 million)~~amounts ~~with~~in anmillions ~~annual interest rate equal to 5.31%, with interest payable on the 20th~~ of ~~each month~~U. ~~The loan is due in July 2011~~S. ~~The loan is guaranteed by~~dollars) ~~our CEO, one of our subsidiaries and Chuang Guan.~~

On July 21, 2010, we entered into a loan agreement with the Industrial and Commercial Bank of China. We borrowed RMB54.60 million (approximately $8.33 million) with an annual interest rate equal to 6.06%, with interest payable on the 20th of each month. The loan is due in July 2011. The loan is guaranteed by three of our subsidiaries and is collateralized by the property of a subsidiary.

		Six Months Ended June 30,
		2011			2010
Net cash used in operating activities	$	(120.12	)	$	(56.46	)
Net cash provided by (used in) investing activities		13.23			(32.30	)
Net cash provided by financing activities		182.04			140.51
Effect of exchange rate changes on cash		3.44			1.84
Net cash inflow	$	78.59		$	53.59

OnOperating ~~July~~Activities 15, 2010, we entered into a loan agreement with China Construction Bank. We borrowed RMB30.00 million (approximately $4.58 million) with an annual interest rate equal to 6.67%, with interest payable on the 20th of each month. The loan is due in July 2011 and is collateralized by the property of one of our subsidiaries.

OnNet ~~July~~cash 1,used ~~2010,~~in weoperating ~~entered~~activities ~~into~~for athe ~~loan~~six ~~agreement~~months ~~with~~ended ~~Guangdong~~June ~~Development~~30, ~~Bank.~~2011 Wetotaled ~~borrowed RMB49~~$120.6012 million, ~~(approximately~~which increased from $7.56 .46 million) ~~with~~for the ansame ~~annual~~period ~~interest~~in ~~rate~~2010. ~~equal~~The toincrease ~~6.67%,~~in ~~with~~net ~~interest~~cash ~~payable~~used onin operating activities in the ~~20th~~first half of ~~each~~2011, ~~month.~~was ~~The~~primarily ~~loan~~due isto ~~due~~the increase in ~~June~~prepayments ~~2011.~~and deposits, ~~The~~as ~~loan~~well isas ~~guaranteed~~advances byto ~~our~~suppliers ~~CEO~~ and ~~one of our subsidiaries~~subcontractors.

OnInvesting ~~June~~Activities 18, 2010, we entered into a loan agreement with Industrial and Commercial Bank of China (Asia) Limited. We borrowed $8.00 million and $2.00 million on July 15, 2010 and August 12, 2010, respectively, with an effective interest rate at 3% per annum over the applicable one year London Inter Bank Offered Rate (3.78% at March 31, 2011), with interest payable on the due date of the loan. Interest payable is calculated on the basis of the actual number of days elapsed and a 360-day year. The loan is due in July 2011. The loan is guaranteed by our CEO and is collateralized by fixed assets of one of our subsidiaries and the shares of one of our subsidiaries.

OnOur ~~April~~main ~~16,~~uses ~~2010,~~of wecash ~~entered~~for ~~into~~investing aactivities ~~loan~~during ~~agreement~~the ~~with~~six ~~Shanghai~~months ~~Pudong~~ended ~~Development~~June ~~Bank.~~30, We2011 ~~borrowed~~and ~~RMB80.00 million (approximately $12.20 million) with an annual interest rate equal to 6.06%~~2010, ~~with~~were ~~interest payable~~for onacquisitions ~~the 20th~~ of ~~each~~plant ~~month. The loan was due~~ and ~~repaid in April 2011.~~ ~~The~~equipment ~~loan was guaranteed by our CEO~~ and ~~one~~deposits offor ~~our subsidiaries, and was collateralized by~~ the ~~properties~~acquisition ~~and land use rights~~ of ~~a subsidiary~~subsidiaries.

OnNet ~~April~~cash ~~15,~~provided ~~2010,~~by weinvesting ~~entered~~activities ~~into~~for athe ~~loan~~six ~~agreement with~~months ~~Shanghai~~ended ~~Pudong~~June ~~Development~~30, ~~Bank.~~2011 Wewas ~~borrowed RMB80~~$13.0023 million, ~~(approximately $12.20~~as ~~million)~~compared ~~with~~to annet ~~annual~~cash ~~interest~~used ~~rate~~in investing ~~equal~~activities toof 6$32.~~06%,~~30 ~~with~~million ~~interest payable~~in on the ~~20th~~same period of ~~each month~~2010. ~~The~~This ~~loan~~increase in ~~was~~net ~~due~~cash ~~and~~provided ~~repaid~~by ininvesting ~~April~~activities ~~2011. The~~was ~~loan~~primarily ~~was~~due ~~guaranteed~~to bythe ~~our~~net ~~CEO,~~cash provided ~~and~~by ~~was~~deposits ~~collateralized~~refunded byfor ~~the~~business acquisitions, properties and ~~land~~intangible ~~use~~assets ~~rights~~in ofthe ~~one~~first half of ~~our subsidiaries~~2011.

OnFinancing ~~March~~Activities 31, 2010, we entered into a loan agreement with China Merchants Bank. We borrowed RMB50.00 million (approximately $7.63 million) with an annual interest rate equal to 5.81%, with interest payable on the 20th of each month. The loan was due and repaid in March 2011. The loan was guaranteed by our CEO, his wife and one of our subsidiaries, and was collateralized by the property and land use rights of a subsidiary.

OnNet ~~March~~cash ~~25,~~provided ~~2010,~~by wefinancing ~~entered~~activities ~~into~~in athe ~~loan~~six ~~agreement with China~~months ~~Citic~~ended ~~Bank.~~June We30, ~~borrowed~~2011 ~~RMB90.00~~totaled ~~million (approximately~~ $13182.7304 million) ~~with~~as ~~an annual~~compared ~~interest rate equal~~ to 5$140.~~81%,~~51 ~~with~~million ~~interest payable on~~ in the ~~20th~~same period of ~~each month~~2010. The ~~loan~~increase ~~was~~in ~~due~~net ~~and~~cash ~~repaid~~provided inby ~~March~~financing activities ~~2011.~~was ~~The~~mainly ~~loan~~attributable ~~was~~to ~~guaranteed~~proceeds byfrom ~~our~~additional bank loans ~~CEO,~~obtained ~~his~~in ~~wife~~the ~~and~~first ~~one~~two quarters of ~~our~~2011. ~~subsidiaries,~~For ~~and~~details ~~was~~of ~~collateralized~~the byloan ~~the~~facilities, ~~properties~~please ofrefer ~~two~~to ~~subsidiaries~~the of“Loan ~~the~~Facilities” ~~Company~~section below.

On March 24, 2010, we entered into a loan agreement with China Citic Bank. We borrowed RMB60.00 million (approximately $9.15 million) with an annual interest rate equal to 5.81%, with interest payable on the 20th of each month. The loan was due and repaid in March 2011. The loan was guaranteed by our CEO, his wife and one of our subsidiaries, and was collateralized by the properties of two subsidiaries of the Company.42

OnLoan ~~March~~Facilities 4, 2010, we entered into a loan agreement with the Industrial and Commercial Bank of China. We borrowed RMB31.00 million (approximately $4.73 million) with an annual interest rate equal to 5.23%, with interest payable on the 20th of each month. The loan was due in March 2011, but repaid in February 2011. The loan was guaranteed by three of our subsidiaries, and was collateralized by the property of a subsidiary.

~~On March 4, 2010, we entered into~~ a ~~loan agreement with the Industrial and Commercial Bank of China. We borrowed RMB39.00 million (approximately $5.95 million~~) ~~with~~Notes ~~an annual interest rate equal to 5.23%, with interest~~ payable ~~on the 20th of each month. The loan was due in March 2011, but repaid in January 2011. The loan was guaranteed by three of our subsidiaries, and was collateralized by the property of a subsidiary.~~

42As of June 30, 2011, the amount, maturity date and original term of each of our bank loans were as follows:

~~On March 3, 2010, we entered into a loan agreement with China Construction Bank. We borrowed RMB50.00 million~~ (~~approximately~~All ~~$7.63~~amounts ~~million) with~~in anmillions ~~annual interest rate equal to 6.10%, with interest payable on the 20th~~ of ~~each month~~U. ~~The loan was due and repaid in March 2011~~S. ~~The~~dollars) ~~loan was guaranteed by our CEO and one of our subsidiaries, and was collateralized by the property of a subsidiary.~~

On March 2, 2010, we entered into a loan agreement with China Merchants Bank. We borrowed RMB41.00 million (approximately $6.25 million) with an annual interest rate equal to 5.81%, with interest payable on the 20th of each month. The loan was due and repaid in March 2011. The loan was guaranteed by our CEO, his wife and one of our subsidiaries, and was collateralized by the property and land use rights of a subsidiary.

Lender		Amount*	Maturity Date	Original Term

China Development Bank	$	200.00	February 2014	3 years
China Development Bank		50.00	October 2013	3 years
Bank of Jiangsu		0.77	June 2012	1 year
Guangdong Development Bank		7.66	June 2012	1 year
China Everbright Bank		2.47	December 2011	6 months
Bank of Jiangsu		2.32	May 2012	1 year
Shanghai Pudong Development Bank		12.36	May 2012	1 year
Shanghai Pudong Development Bank		12.36	April 2012	1 year
Bank of Jiangsu		7.73	April 2012	1 year
Industrial and Commercial Bank of China		6.18	March 2012	1 year
Sociate Generale		4.17	September 2011	6 months
China Merchants Bank		4.87	September 2011	6 months
China Construction Bank		7.73	March 2012	1 year
Guangdong Development Bank		18.70	March 2012	1 year
China Merchants Bank		9.12	November 2012	2 years
Industrial and Commercial Bank of China		15.46	January 2012	1 year
China Zheshang Bank		3.09	August 2011	1 year
China Merchants Bank		30.93	January 2021	10 years
China Merchants Bank		1.55	November 2012	2 years
Bank of China		10.98	December 2011	1 year
Bank of China		10.98	December 2011	1 year
China Merchants Bank		10.82	November 2012	1 year
Industrial and Commercial Bank of China		15.46	December 2011	1 year
Industrial and Commercial Bank of China		7.88	November 2011	1 year
China Merchants Bank		1.93	October 2011	1 year
Shenzhen Development Bank		6.18	August 2011	1 year
China Everbright Bank		6.18	July 2011	1 year
Industrial and Commercial Bank of China		8.44	July 2011	1 year
China Construction Bank		4.64	July 2011	1 year
Industrial and Commercial Bank of China (Asia)		10.00	July 2011	1 year
Total	$	490.96

On* ~~February~~Calculated ~~3, 2010, we entered into a loan agreement with China Merchants Bank. We borrowed RMB59.00 million (approximately $9.00 million) with an annual interest rate equal to 5.81%, with interest payable~~ on the ~~20th of~~basis ~~each~~that ~~month.~~$1 ~~The~~= ~~loan was due and repaid in February 2011~~RMB6. ~~The loan was guaranteed by our CEO, his wife and one of our subsidiaries, and was collateralized by the property and land use rights of a subsidiary~~47.

OnWe ~~January~~have ~~26, 2010, we~~ entered ~~into a loan agreement with~~ the ~~Industrial~~ ~~and~~following ~~Commercial~~bank ~~Bank of China~~loans. WeThe ~~borrowed~~terms ~~RMB100.00~~of ~~million~~bank ~~(approximately~~loans ~~$15.25~~that ~~million)~~we ~~with~~typically anenter ~~annual~~into ~~interest~~require ~~rate~~collateral ~~equal~~for tothe 4loans.~~78%,~~ ~~with~~Collateral ~~interest~~is ~~payable~~usually ondefined ~~the 20th of each month. The loan was due~~ in ~~January~~the ~~2011. The~~agreements ~~Company~~as ~~repaid~~buildings ~~RMB80.00 million (approximately $12.20 million)~~ and ~~RMB~~land ~~20.00 million~~use ~~(approximately $3~~rights.05 ~~million) in June 2010 and January 2011, respectively. The loan was guaranteed by our CEO~~

bOn March 1, 2011, we entered into a term loan facility agreement with the China Development Bank Corporation Hong Kong Branch (“CDB”), pursuant ~~Product~~to ~~financing~~which ~~arrangements~~CDB agreed to make available to the Company a term loan facility in an aggregate principal amount of up to $200.00 million, subject to terms and conditions of the agreement. We borrowed a total of $200.00 million on March 1, 2011 under the facility, with an annual interest rate of 3% per annum over the applicable six-month London Inter Bank Offered Rate (3.40% as of June 30, 2011). The loan under the facility will mature on the third anniversary of the first date when the facility is utilized by us with 50% of the principal due in August 2013 and the remaining 50% due in February 2014. Pursuant to the term loan facility agreement, if our chairman and CEO, Mr. Guoshen Tu, ceases to be the beneficial owner of at least 10% of our outstanding capital stock, the facility may be cancelled and all outstanding loans under the facility may become immediately due and payable with no less than 30 days notice. As of June 30, 2011, this condition was satisfied, and management believes that we are in compliance with all terms and conditions of the term loan facility agreement.

AsIn October 2010, we entered into a term loan facility agreement with CDB, pursuant to which CDB agreed to make available to us a term loan facility in an aggregate principal amount of ~~March~~up 31to $50.00 million, ~~2011~~subject to terms and conditions of the agreement. We borrowed a total of $50.00 million on October 29, 2010 under the ~~amount~~facility, ~~maturity~~with ~~date~~an ~~and~~annual interest ~~original~~rate of 3% per annum over the applicable six-month London Inter Bank Offered Rate (3.40% as of June 30, 2011). The loan under the facility is due in October 2013. Pursuant to the term loan facility agreement, if Mr. Guoshen Tu ceases to be the beneficial owner of ~~each~~at least 10% of our ~~obligations~~outstanding capital stock, the facility may be cancelled and all outstanding amounts due under ~~product~~this facility ~~financing~~may ~~arrangements~~become ~~were~~immediately asdue and payable with no less than 30 days ~~follows:~~notice. As of June 30, 2011, this condition was satisfied, and management believes we are in compliance with all terms and conditions of the term loan facility agreement.

(All amounts in millions of U.S. dollars)
Lender		Amount *	Maturity Date	Original Term
A Financial Institution	$	5.90	June 2013	3 years
A Financial Institution		0.54	September 2013	4 years
A Financial Institution		4.05	September 2012	3 years
A Financial Institution		0.78	July 2011	3 years
Total	$	11.27

*On ~~Calculated~~June on17, ~~the~~2011, ~~basis~~we ~~that~~entered into a loan agreement with Bank of Jiangsu. We borrowed RMB5.00 million (approximately $0.77 1million) =with ~~RMB6~~an interest rate equal to the 115% of the 12 month’s benchmark lending rate of the People’s Bank of China (7.5626% as of June 30, 2011). The loan is due in June 2012. The loan is guaranteed by our CEO and one of our subsidiaries and collateralized by the properties and land use rights of two subsidiaries.

InOn June ~~2010~~14, we2011, the Company entered into ~~product~~a ~~financing~~loan ~~agreements with~~agreement awith ~~financial~~Guangdong ~~institution~~Development Bank. ~~Under~~The ~~the~~Company ~~terms~~borrowed ofRMB49.60 ~~the~~million (approximately ~~agreements,~~$7.66 wemillion) ~~agreed~~with an annual interest rate equal to ~~pay~~110% anof the ~~annual~~12 ~~interest~~months’ benchmark lending rate of ~~8.23%~~the onPeople’s ~~inventory~~Bank ~~financings.~~of WeChina ~~borrowed~~(6.94% ~~RMB50~~as ~~million~~of ~~(approximately~~June ~~$7.63~~30, ~~million~~2011), with interest payable on the 20th of each month. The ~~loans~~loan ~~expire~~is due in June ~~2013,~~2012 and ~~payments~~guaranteed ~~of principal~~by ~~and~~the ~~interest~~CEO ~~are~~and ~~due~~a atsubsidiary ~~the end~~ of ~~each~~the ~~quarter~~Company.

InOn ~~September~~June ~~2009~~13, 2011, we entered into ~~product~~a ~~financing~~loan ~~agreements~~ agreement with aChina Everbright ~~financial~~Bank ~~institution~~Co., ~~Under~~Ltd. ~~the~~We ~~terms~~borrowed ofRMB16.00 ~~the~~million ~~agreements,~~(approximately ~~we agreed to~~$2.47 ~~pay~~million) with an ~~annual~~ interest rate ofequal 8to 5.4627% onas ~~inventory~~of ~~financings.~~June We30, ~~borrowed~~2011, ~~RMB50~~with interest ~~million~~payable ~~(approximately~~on ~~$7.63~~the ~~million)~~20th of each month. The ~~loans~~loan ~~expire~~is due in ~~September~~December ~~2012,~~2011. ~~and~~The loan is ~~payments~~guaranteed by one of ~~principal~~our subsidiaries and ~~interest~~collateralized ~~are~~by ~~due~~a atrestricted ~~the~~cash amount ~~end~~of RMB16.00 million (approximately $2.47 million) of ~~each~~one ~~quarter~~of our subsidiaries.

InOn ~~February~~May ~~2009~~27, 2011, we entered into ~~product~~a ~~financing~~loan ~~agreements~~ agreement with aBank ~~financial institution~~of Jiangsu. ~~Under~~We ~~the~~borrowed ~~terms~~RMB15.00 ofmillion ~~the~~(approximately ~~agreements,~~$2.32 wemillion) ~~agreed~~with toan ~~pay~~interest anrate ~~annual~~equal ~~interest~~to ~~rate~~the 110% of ~~10.5%~~the on12 ~~inventory~~month’s ~~financings.~~benchmark Welending ~~borrowed~~rate of the ~~RMB7.11~~People’s ~~million~~Bank ~~(approximately~~of $1China (6.0994% ~~million~~as of June 30, 2011). The ~~loans~~loan ~~expire~~is due in ~~September~~May 2012. ~~2013,~~The loan is guaranteed by our CEO and ~~payments~~one of ~~principal~~our subsidiaries and ~~interest~~collateralized by ~~are~~the ~~due~~properties atand ~~the~~land ~~end~~use rights of ~~each quarter~~two subsidiaries.

InOn ~~July~~May ~~2008~~3, 2011 we entered into ~~product~~a ~~financing~~loan ~~agreements~~agreement with Shanghai aPudong ~~financial~~Development ~~institution~~Bank. ~~Under~~We ~~the~~borrowed ~~terms~~RMB80.00 ofmillion ~~the~~(approximately ~~agreements,~~$12.36 million) wewith ~~agreed~~an interest rate equal to ~~pay~~108% ~~an annual~~of ~~interest~~the 12 month’s benchmark lending rate of ~~10%~~the onPeople’s ~~inventory~~Bank ~~financings~~of China (6.81% Weas ~~borrowed~~of ~~RMB53.49~~June 30, 2011), with interest ~~million~~payable ~~(approximately~~on ~~$8.16~~the ~~million)~~20th of each month. The ~~loans~~loan ~~expire~~is due in ~~July~~May ~~2011,~~2012. ~~and~~The loan is ~~payments~~guaranteed ofby ~~principal~~our CEO and ~~interest~~one ~~are~~of ~~due~~our atsubsidiaries and collateralized by the properties ~~end~~and land use rights of ~~each~~one ~~quarter~~of our subsidiaries.

cOn April 29, 2011, we entered into a loan agreement with Shanghai Pudong Development Bank. We borrowed RMB80.00 million (approximately $12.36 million) ~~Guaranteed~~with ~~senior~~an ~~unsecured~~interest ~~notes~~rate equal to 108% of the 12 month’s benchmark lending rate of the People’s Bank of China (6.81% as of June 30, 2011), with interest payable on the 20th of each month. The loan is due in April 2012. The loan is guaranteed by our CEO and collateralized by the properties and land use rights of one of our subsidiaries.

AsOn ofApril ~~March 31~~20, 2011, we ~~had~~entered ~~outstanding~~into ~~the Tranche B Notes. The Tranche B Notes have~~ a ~~principal~~loan ~~amount~~agreement with Bank of ~~$84~~Jiangsu.00 ~~million,~~We ~~zero~~borrowed ~~coupon interest and a fair value of $78~~RMB50.4400 million, ~~resulting~~(approximately ~~in a debt discount of~~ $57.5673 million) ~~and~~with an ~~effective~~ interest rate ofequal ~~approximately 5%. The Tranche B Notes mature on September 2, 2012. We are~~ to ~~repay the principal amount in six consecutive semi-annual installments, that began on March 2, 2010, with 46~~110%~~, 46%,~~ ~~and 8%~~ of the ~~principal~~12 ~~amount~~month’s tobenchmark belending ~~repaid~~rate inof the ~~first, second and third~~ ~~year,~~People’s ~~respectively.~~Bank ~~The~~of ~~Tranche~~China ~~B Notes are not convertible~~(6. ~~We will be entitled to redeem the Tranche B Notes at any time with no premium or penalty at a redemption price equal to 100~~94% ofas ~~the principal amount~~ of ~~the~~June ~~Tranche~~30, B2011). ~~Notes~~The ~~to be~~loan ~~redeemed,~~is ~~plus~~due ~~default~~in ~~interest, if any~~April 2012. The ~~Tranche~~loan Bis ~~Notes are~~ guaranteed by our ~~significant~~CEO ~~subsidiaries~~and toone ~~the~~of ~~extent~~our ~~permitted~~subsidiaries ~~under applicable laws.~~and Wecollateralized ~~repaid~~by ~~$19.32 million of~~ the ~~principal~~properties onand ~~the~~land ~~Tranche~~use Brights ~~Notes~~of intwo ~~March 2011~~subsidiaries.

43On April 1, 2011, we entered into a loan agreement with the Industrial and Commercial Bank of China. We borrowed RMB27.27 million (approximately $4.21 million) on April 1, 2011 and RMB12.77 million (approximately $1.97 million) on May 17, 2011 with interest rate equal to 12 month’s benchmark lending rate of the People’s Bank of China (6.31% as of June 30, 2011), with interest payable on the 20th of each month. The loan is due in March 2012 and guaranteed by three of our subsidiaries and is collateralized by the property and land use right of a subsidiary.

dOn April 1, 2011, we entered into a loan agreement with Societe Generale with loan facility up to RMB27.00 million (approximately $4.17 million), ~~Others~~and in the same month, we withdrew RMB27.00 million (approximately $4.17 million) from the loan facility with annual interest rates ranging from 6.56% to 6.84% and are all due in October 2011. The loans are guaranteed by one of our subsidiary.

~~The~~On ~~Kunming~~March ~~Safe~~24, ~~City~~2011, ~~project~~we ~~consisted~~entered ofinto ~~two~~a ~~stages~~loan -agreement ~~Stage~~with IChina ~~and~~Merchants ~~Stage II~~Bank. ~~Stage~~We Iborrowed ~~was completed in December 2008, and Stage II was completed in March 2009~~RMB31.50 ~~All receivables totaling RMB123~~ million (approximately $18 4.87 million) ~~related~~with an toannual ~~Stage~~interest Irate ~~were~~equal ~~sold~~ to ~~Industrial~~the ~~and~~1 ~~Commercial~~to ~~Bank~~6 ofmonth’s ~~China (“ICBC”)~~benchmark inlending ~~March~~rate ~~2009~~of the ~~for~~People’s ~~RMB113~~Bank ~~million~~of ~~(approximately~~China ~~$16.~~(5 ~~million)~~.85% ~~This amount~~as ~~was~~of ~~fully~~June ~~collected~~30, ~~from ICBC in March 2009. Stage II receivables were RMB86 million ($12.6 million~~2011), ofwith ~~which~~interest ~~RMB11.33~~payable ~~million (approximately $1.73~~on ~~million)~~the ~~was~~20th ~~outstanding as~~ of ~~December~~each ~~31, 2010~~month. The ~~remaining~~loan ~~receivables~~is ~~from the~~due ~~Kunming~~in ~~Municipal~~September ~~Government~~2011and ~~were~~guaranteed ~~fully~~by ~~collected~~one of inour ~~February 2011~~subsidiaries.

On ~~October~~March 321, ~~2006~~2011, we ~~signed~~entered into a ~~banking~~loan ~~facility~~ agreement with ~~China~~ China Construction Bank. ~~under~~We ~~which~~borrowed ~~the bank 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~~RMB50.”00 ~~This facility~~million ~~will provide three possible financing options:~~ (1)approximately ~~the~~$7.73 ~~government takes a loan from the bank to finance the project; (2~~million) ~~we sell the accounts receivable~~ towith ~~the~~an ~~bank,~~annual ~~85%~~interest ofrate ~~the~~equal ~~total account receivables value will be paid by the bank~~ to ~~us and the remaining 15~~7.20%, ~~will~~with beinterest ~~collected~~payable byon the ~~bank from the government;~~20th ~~from~~of ~~the~~each ~~15%~~month. ~~collected~~The ~~from the government, the bank will retain certain finance charges and pay the remainder over to us; or (3) we take a~~ loan ~~from~~is ~~the~~due ~~bank~~in ~~to finance~~March ~~the project~~2012. AsThe ~~part~~loan ofis ~~this~~guaranteed ~~agreement,~~by weour ~~will~~CEO ~~make~~and ~~periodic~~two ~~deposits with the bank, which, depending upon the specific project, will provide a maximum factoring capacity~~ of ~~five to ten times the amount deposited. None of~~ ~~the~~our ~~facility~~subsidiaries ~~has~~and ~~been~~collateralized ~~drawn~~by ~~down as of~~ the ~~date~~property of ~~this~~a ~~report~~subsidiary.

~~Loan facility liquidity requirements~~44

InOn ~~the~~March ~~remaining~~16, ~~nine months of~~ 2011, we ~~have~~entered ~~approximately $140.70~~into ~~million~~a inloan ~~bank~~agreement ~~loans~~with Guangdong ~~that~~Development ~~will mature~~Bank. We ~~believe~~borrowed ~~we will be able to pay all obligations as they become due~~RMB121.00 Asmillion ~~some~~(approximately ~~of our loans become due, we may elect to renew or refinance, rather than repay, the indebtedness~~$18. ~~However, there~~70 ismillion) nowith ~~assurance~~an ~~that~~annual ~~additional~~interest ~~financing~~rate ~~will~~equal ~~become available on terms acceptable~~ to ~~us.~~105% Weof ~~believe that we will have~~ the ~~ability~~1 to ~~refinance~~6 ~~our~~month’s ~~indebtedness~~benchmark ~~when~~lending ~~and~~rate ifof wethe ~~elect~~People’s toBank doof soChina (6.14% ~~While~~as ~~we currently are not in a position to know the terms~~ of ~~such~~June ~~refinancing~~30, ~~we expect to refinance our~~ ~~indebtedness~~2011), atwith ~~prevailing~~interest ~~market~~payable ~~rates and~~ on ~~prevailing~~the ~~market~~20th ~~terms. We are exposed to a variety~~ of ~~risks~~each ~~associated~~month. ~~with~~The ~~short-term~~loan ~~borrowings~~is ~~including adverse~~due ~~fluctuations~~ in ~~fixed~~March 2012 ~~interest rates for short-term borrowings~~ and ~~unfavorable~~ ~~increases~~collateralized inby ~~variable~~a ~~interest~~restricted ~~rates, potential inability to service our short term indebtedness through~~ cash ~~flow~~amount ~~from~~of ~~operations~~$20.00 ~~and~~million ~~the~~of ~~overall reduction~~one of our ~~credit in the current economic environment~~subsidiaries.

WeOn ~~believe~~February ~~that~~9, ~~our~~2011, ~~currently~~we ~~available~~entered ~~working~~into ~~capital,~~a ~~after receiving~~loan ~~the~~agreement ~~aggregate~~with Societe ~~proceeds~~Generale. ofWe ~~our~~borrowed ~~capital~~RMB27.00 ~~raising~~million ~~activities,~~(approximately ~~the~~$4.17 ~~credit~~million) ~~facilities~~with ~~referred~~an toannual ~~above~~interest ~~and~~rate ~~the~~equal ~~anticipated~~to ~~bank loans~~9.10%, ~~should~~with beinterest ~~adequate~~payable on the due todate ~~sustain~~of ~~our~~the ~~operations~~loan. atThe ~~our~~loan ~~current~~was ~~levels~~due ~~through~~and atrepaid ~~least~~in ~~the~~March ~~next~~2011, ~~twelve~~and guaranteed by ~~months~~one of our subsidiaries.

~~Our~~On ~~liquidity~~February ~~and~~1, ~~working~~2011, ~~capital~~we ~~may~~entered beinto ~~affected~~a byloan ~~the substantial~~agreement ~~amount of our outstanding short-term loans, which represent our~~with ~~primary~~China ~~source~~Merchants ofBank. ~~financing~~We inborrowed ~~China~~RMB59.00 ~~Depending~~million ~~on the level of cash used in our operating activities and the level of our indebtedness,~~ (i)approximately it$9.12 ~~may become more~~million) ~~difficult~~with ~~for us to satisfy our existing or future liabilities or obligations, which could in turn result in~~ an ~~event~~annual ofinterest ~~default~~rate onequal ~~such obligations, (ii) we may have~~ to ~~dedicate~~105% ~~a substantial portion~~ of ~~our~~the ~~cash~~1 ~~flows~~to ~~from~~3 ~~borrowings~~year’s tobenchmark ~~our~~lending ~~operating~~rate ~~activities~~of ~~and~~the toPeople’s ~~debt~~Bank ~~service payments, thereby reducing the availability~~ of ~~cash~~China ~~for working capital and capital expenditures, acquisitions, general corporate purposes or other purposes,~~ (~~iii)~~6.72% ~~our~~as ~~ability~~of toJune ~~obtain additional financing in the future for working capital~~30, ~~capital expenditures, acquisitions, general corporate purposes or other purposes may become impaired, (iv~~2011) ~~our ability to withstand a downturn in our business~~, ~~the industry in which~~with weinterest ~~operate~~payable oron the ~~economy~~20th ~~generally~~of ~~may~~each bemonth. ~~diminished,~~The ~~(v)~~loan weis ~~may~~due ~~experience limited flexibility~~ in ~~planning~~November for, or reacting to, changes in our business and the industry in which we operate and (vi) we may find ourselves at a competitive disadvantage compared to competitors that have proportionately less debt2012. ~~If we~~ ~~are~~The ~~unable~~loan tois ~~meet~~guaranteed ~~our~~by ~~debt service obligations, we could be forced to restructure or refinance~~ our ~~indebtedness~~CEO, ~~seek~~his ~~additional~~wife ~~equity~~and ~~capital~~one ~~or sell~~of ~~assets. We may be unable to obtain financing or sell assets on satisfactory terms, or at all, which could cause us to default on~~ our ~~debt~~subsidiaries ~~service obligations~~ and ~~be subject to foreclosure on such loans. Additionally, we could~~ ~~incur~~collateralized ~~additional~~by ~~indebtedness in~~ the ~~future~~property and, ifland ~~new~~use ~~debt~~rights isof ~~added~~a ~~to our current debt levels, the risks above could intensify~~subsidiary.

~~Obligations~~On ~~Under~~January ~~Material~~31, ~~Contracts~~2011, we entered into a loan agreement with the Industrial and Commercial Bank of China. We borrowed RMB100.04 million (approximately $15.46 million) with an annual interest rate equal to 95% of the 12 month’s benchmark lending rate of the People’s Bank of China (5.99% as of June 30, 2011), with interest payable on the 20th of each month. The loan is due in January 2012 and guaranteed by four of our subsidiaries.

~~Below~~On isJanuary 12, 2011, we entered into a ~~table~~loan ~~setting~~agreement ~~forth~~with China ~~our~~Zheshang ~~material~~Bank. ~~contractual~~We borrowed RMB20.00 million (approximately $3.09 million) ~~obligations~~with an annual interest rate equal to 120% of the 6 to 12 month’s benchmark lending rate of the People’s Bank of China (7.57% as of ~~March~~June 3130, 2011:), with interest payable on the 20th of each month. The loan is due in August 2011and guaranteed by our CEO and two of our subsidiaries.

(All amounts in millions of U.S. dollars)
	Payments due by period
				Less than 1						More than 5
		Total		year		1-3 years		3-5 years		years
Debt Obligations	$	520.87	$	212.00	$	285.46	$	6.02	$	17.39
Operating Lease Obligations		2.56		1.76		0.80		--		--
Total	$	523.43	$	213.76	$	286.26	$	6.02	$	17.39

On January 10, 2011, we entered into a loan agreement with China Merchants Bank. We borrowed RMB40.00 million (approximately $6.18 million) on January 10, 2011, and RMB169.34 million (approximately $26.16 million) on February 9, 2011 with an annual interest rate equal to 105% of the 5 to 10 year’s benchmark lending rate of the People’s Bank of China (7.14% as of June 30, 2011), with principal and interest payable in each quarter. In March and June 2011, we repaid principal of the loan in the amount of RMB5.44 million (approximately $0.84 million) and RMB3.70 million (approximately $0.57 million) in accordance with the terms of the loan, respectively. The final maturity of the loan is January 2021. The loan is guaranteed by Shenzhen Zhonghe Industrial Limited, an independent third party, and is secured by the rights of properties currently under construction which will be acquired by us upon their completion.

44On January 4, 2011, we entered into a loan agreement with China Merchants Bank. We borrowed RMB10.00 million (approximately $1.55 million) with an annual interest rate equal to 105% of the 1 to 3 year’s benchmark lending rate of the People’s Bank of China (6.72% as of June 30, 2011), with interest payable on the 20th of each month. The loan is due in November 2012. The loan is guaranteed by our CEO, his wife and one of our subsidiaries and collateralized by the property and land use rights of a subsidiary.

~~Critical~~On ~~Accounting~~December ~~Policies~~29, 2010, we entered into a loan agreement with Bank of China. We borrowed RMB71.10 million (approximately $10.98 million) with an annual interest rate equal to 5.15%, with interest payable on the 20th of each month. The loan is due in December 2011. The loan is guaranteed by our CEO and one of our subsidiaries and collateralized by the property and land use rights of a subsidiary.

~~The~~On ~~preparation~~December of24, ~~consolidated financial statements~~2010, ~~in conformity~~we ~~with~~entered ~~accounting~~into ~~principles~~a ~~generally~~loan ~~accepted~~agreement ~~in the United States,~~with ~~requires~~Bank ~~our~~of ~~management~~China. toWe ~~make~~borrowed ~~assumptions,~~RMB71.10 ~~estimates~~million ~~and~~(approximately ~~judgments~~$10.98 ~~that~~million) ~~affect~~with ~~the~~an ~~amounts~~annual ~~reported~~interest inrate ~~the~~equal ~~financial~~to ~~statements~~5.15%, ~~including~~with ~~the~~interest ~~notes~~payable ~~thereto, and~~on ~~related~~the ~~disclosures~~20th of each ~~commitments~~month. ~~and~~The ~~contingencies,~~loan ifis ~~any.~~due Wein ~~consider our~~December ~~critical~~2011. ~~accounting~~The ~~policies~~loan tois beguaranteed ~~those~~by ~~that~~our ~~require~~CEO and ~~the~~one ~~most~~of ~~significant judgments~~our subsidiaries and ~~estimates~~collateralized inby the ~~preparation~~property ofand ~~financial~~land ~~statements, including~~use ~~the~~rights ~~following:~~of a subsidiary.

~~Use~~On ofDecember ~~Estimates~~10, -2010, ~~The~~we ~~preparation~~entered ofinto ~~the~~a ~~financial~~loan agreement with ~~statements~~Shanghai inPudong ~~conformity~~Development Bank. We borrowed RMB66.00 million (approximately $10.20 million) with USan ~~GAAP~~annual ~~requires~~interest ~~management~~rate equal to ~~make~~the ~~estimates and~~6 ~~assumptions~~month’s ~~that~~benchmark lending ~~affect~~rate of the ~~reported~~People’s ~~amounts~~Bank of ~~assets~~China ~~and~~(5.85% ~~liabilities~~as ~~and disclosure~~ of ~~contingent~~June ~~assets~~30, ~~and~~2011), ~~liabilities~~with interest atpayable on the ~~date~~20th of ~~the~~each ~~financial~~month. The loan was due in June 2011and ~~statements~~collateralized ~~and~~by ~~the~~a ~~reported~~cash ~~amounts~~deposit of ~~revenues~~Whitehorse ~~and~~Technology ~~expenses~~Limited, ~~during~~a ~~the~~company ~~reporting~~wholly-owned ~~periods.~~by ~~Management~~our ~~makes~~CEO. ~~these~~We ~~estimates~~repaid ~~using~~RMB6.65 ~~the~~million ~~best~~(approximately ~~information~~$1.03 ~~available~~million), atRMB6.60 ~~the~~million ~~time~~(approximately ~~the~~$1.02 ~~estimates~~million), ~~are~~RMB20.25 ~~made;~~million (approximately ~~however,~~$3.13 ~~actual~~million) ~~results~~and ~~could~~RMB33.25 million (approximately $5.02 million) ~~differ~~in ~~materially~~January, ~~from~~March, ~~those~~April ~~estimates~~and June 2011, respectively.

~~Fair~~On ~~Value~~December ~~Measurement~~2, -2010, Wewe ~~utilize~~entered into a ~~fair~~loan ~~value~~agreement ~~hierarchy~~with ~~that~~China ~~prioritizes~~Merchants ~~the~~Bank. ~~inputs~~We toborrowed ~~valuation~~RMB70.00 ~~techniques~~million ~~used~~(approximately ~~to measure fair value~~$10.82 million) ~~The~~with ~~hierarchy~~an ~~gives~~annual ~~the~~interest ~~highest~~rate ~~priority~~equal to ~~unadjusted~~105% ~~quoted~~of ~~prices~~the ~~in active markets for identical assets or liabilities (Level~~ 1 ~~measurements) and the lowest priority~~ to ~~unobservable inputs (Level~~ 3 ~~measurements).~~year’s benchmark ~~The~~lending ~~three levels~~rate of the ~~fair~~People's ~~value~~Bank ~~hierarchy~~of ~~are~~China ~~described~~(6.72% ~~below: Level~~as 1:of ~~Unadjusted quoted~~June ~~prices in active markets that are accessible at the measurement date for identical~~30, ~~unrestricted assets or liabilities;~~ ~~Level 2: Quoted prices in markets that are not active~~2011), orwith ~~inputs~~interest ~~that~~payable ~~are~~on ~~observable, either directly or indirectly, for substantially~~ the ~~full~~20th ~~term~~ of ~~the~~each ~~asset~~month. orThe ~~liability; and Level~~loan 3:is ~~Prices~~due ~~or valuation techniques that require inputs that are~~in ~~both~~November ~~significant~~2012. toThe ~~the~~loan ~~fair~~is ~~value~~guaranteed ~~measurement and unobservable (supported~~ by ~~little~~ orour ~~no market activity). At March 31~~CEO, ~~2011,~~his wewife ~~had~~and noone ~~financial assets~~of ~~or liabilities subject to recurring fair value measurements.~~our ~~Our financial instruments include cash~~subsidiaries, ~~accounts receivable, other receivables, accounts~~ and ~~bills~~collateralized ~~payable,~~by ~~notes~~the ~~payable,~~property ~~obligations under product financing arrangements~~ and ~~guaranteed~~land ~~senior~~use ~~unsecured~~rights ~~notes payable. Management estimates that the carrying amounts~~ of ~~the non-related party financial~~a ~~instruments approximate their fair values due to their short-term nature and/or market rates of interest currently available to the company~~subsidiary.

Accounts Receivable – Financial instruments that potentially subject us to concentration of credit risk consist primarily of trade accounts receivable. We extend credit to our customers in the normal course of business when considered appropriate. Our credit terms in general are from 30 to 330 days, dependent upon the segment. We perform ongoing credit evaluations and generally do not require collateral. We maintain an allowance for potential credit losses based upon our loss history and its aging analysis. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable. We review the allowance for doubtful accounts each reporting period based on a detailed analysis of our accounts receivable. In the analysis, we primarily consider the age of the customer’s receivable and also consider the creditworthiness of the customer, the economic conditions of the customer’s industry, and general economic conditions, among other factors. If any of these factors change, we may also change our original estimates, which could impact the level of our future allowance for doubtful accounts. If payment is not made timely, we contact the customer to try to obtain payment. Once all collection efforts are exhausted, the receivable is written off against the allowance for doubtful accounts. From time to time, we enter into receivable factoring agreements. We account for such arrangements under ASC 860 “ Transfer and Servicing.” These arrangements are without recourse, the receivables are isolated from us, the transferee has the right to pledge or exchange the receivables, and we do not maintain effective control over the receivables. Therefore, these arrangements satisfy the conditions to be accounted for as a sale and we recognize any gain or loss in earnings. 45

~~Inventories~~On -November ~~Inventories~~19, ~~are~~2010, ~~stated~~we atentered ~~the~~into ~~lower~~a loan agreement with Industrial and Commercial Bank of ~~cost,~~China. We borrowed RMB30.00 million ~~determined~~(approximately $4.64 million) on aDecember ~~weighted~~21, ~~average~~2010, ~~basis~~RMB30.00 million (approximately $4.64 million) on December 29, 2010 and ~~net~~RMB40.00 ~~realizable~~million (approximately ~~value~~$6.18 ~~Net~~million) on January 31, 2011 with an annual interest equal ~~realizable~~to ~~value~~95% isof the ~~estimated~~12 ~~selling~~month's ~~price~~benchmark inlending rate of the ~~ordinary~~People’s ~~course~~Bank of China ~~business~~(5.99% ~~less~~as ~~the~~of ~~estimated~~June ~~cost~~30, of2011), ~~completion~~with ~~and~~interest ~~the~~payable ~~estimated~~on ~~costs necessary~~the to20th ~~make~~of ~~the~~each ~~sale~~month.~~When~~ The ~~inventories~~loan ~~are~~is ~~sold,~~due ~~their~~in ~~carrying amount~~December 2011. The loan is ~~charged~~guaranteed toby ~~expense~~three inof ~~the~~our subsidiaries ~~period~~and incollateralized ~~which~~by the ~~revenue~~property isof ~~recognized~~a subsidiary.

45On November 17, 2010, we entered into a loan agreement with Bank of China. We borrowed RMB48.60 million (approximately $7.51 million) with an annual interest rate equal to 5.15%, with interest payable on the 20th of each month. The loan was due and repaid in May 2011. The loan was guaranteed by our CEO and one of our subsidiaries and collateralized by the property and land use rights of a subsidiary.

~~Write-downs~~On ~~for~~October ~~declines~~29, in2010, ~~net~~we ~~realizable~~entered ~~value~~into ora ~~for~~loan ~~losses~~agreement ofwith ~~inventories are recognized as an expense in~~ the Industrial ~~period the impairment or loss occurs. Goodwill - Goodwill represents the excess of the purchase price over the net of the fair value of the identifiable tangible~~ and ~~intangible~~Commercial ~~assets~~Bank ~~acquired and the fair value~~ of ~~liabilities assumed in acquisitions~~China. ~~ASC 350-30-50, “ Goodwill and Other Intangible Assets ” requires the testing of goodwill and indefinite-lived intangible assets for impairment at least annually.~~ We ~~test~~borrowed ~~goodwill for impairment in the fourth quarter each year~~RMB51.00 ~~Under~~million (approximately ~~applicable accounting guidance, the goodwill impairment analysis is a two-step test~~$7.88 ~~The~~million) ~~first step of the goodwill impairment test involves comparing the fair value of each reporting unit~~ with its carrying amount including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired; however, if the carrying amount of the reporting unit exceeds its fair value, the second step must be performed to measure potential impairment. The second step involves calculating an ~~implied~~annual ~~fair~~interest ~~value~~rate ofequal goodwill for each reporting unit for which the first step indicated possible impairment. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination, which is the excess of the fair value of the reporting unit, as determined in the first step, over the aggregate fair values of the assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. The adjustments to ~~measure~~95% ~~the assets, liabilities and intangibles at fair value are for the purpose~~ of ~~measuring~~ the 12 ~~implied~~month’s ~~fair~~benchmark ~~value~~lending ofrate ~~goodwill, and such adjustments are not reflected in the consolidated balance sheet. If the implied fair value~~ of ~~goodwill exceeds~~ the ~~goodwill~~People’s ~~assigned~~Bank ~~to the reporting unit, there is no impairment. If the goodwill assigned to a reporting unit exceeds the implied fair value~~ of ~~goodwill,~~China ~~an impairment charge is recorded for the excess. Revenue Recognition - Revenue from sales of surveillance and safety products and systems are recognized in accordance with Staff Accounting Bulletin~~ (~~“SAB”) No~~5.99% ~~104:~~as ~~“ Revenue Recognition ” and related interpretations. Revenues are recognized when the following criteria are met: (i) Persuasive evidence~~ of June an30, arrangement exists – We require evidence of an agreement with a customer specifying the terms and conditions of the products to be delivered typically in the form of a signed contract or purchase order; (ii2011) ~~Delivery has occurred – For product sales~~, delivery generally takes place when titles to the products are shipped to or accepted by the customer; (iii) The fee is fixed or determinable – Fees are fixed or determinable based on the contract or purchase order terms; and (iv) Collection is probable – We perform a credit review of all customers with ~~significant~~interest ~~transactions~~payable to determine whether a customer is creditworthy and collection is probable. All revenues are recognized net of any taxes collected from customers and subsequently remitted to governmental authorities. Product sales contracts generally provide a one to three-year product warranty to customers from the date of purchase. We estimate the costs of satisfying warranty claims based on ~~an analysis of past experience and provide for~~ the ~~future~~20th ~~claims in the period the revenue is recognized. We derive a significant portion~~ of ~~our~~each ~~revenue from the supply and installation of surveillance and safety equipment and the two deliverables do not meet the separation criteria under ASC 605-25 “ Multiple-Element Arrangements~~month.” ~~Installation segment contracts vary in terms of contract amount and period of performance.~~ The ~~performance~~loan ~~period for short-term contracts~~ is ~~usually~~due in ~~between~~November ~~three and six months~~2011. The ~~period~~loan ~~of performance for long-term contracts~~ is ~~typically~~guaranteed ~~between a year and 36 months. Long-term contracts generally are entered into with municipalities, cities, provinces, or their affiliates located in China. These long-term contracts are further defined~~ by agreed-upon detail specifications that outline defined stages. Completion of a defined stage represents basic service and products delivered, such as the installation of specified surveillance and safety systems in defined locations within the project area. Stages are typically planned to be completed over defined three ~~to six-month periods. Each stage represents a discreet, defined phase~~ of ~~the~~our ~~total~~subsidiaries ~~contract, for which completion can be readily determined. At the completion of a stage,~~ and collateralized ~~upon~~by ~~customer inspection, verification and acceptance of~~ the ~~work~~property ~~performed, we recognize the fixed price per stage as revenue. At the time~~ of ~~stage completion, we consider the title to work performed passing to the customer. Other than~~ a ~~warranty reserve, discussed below, we have no further obligations to the customer for a completed stage~~subsidiary.

46On October 18, 2010, we entered into a loan agreement with China Merchants Bank. We borrowed RMB25.00 million (approximately $3.86 million) with an annual interest equal to 110% of the 12 month's benchmark lending rate of the People’s Bank of China (6.94% as of June 30, 2011), with interest payable on the 20th of each month. The loan is due in October 2011. We repaid RMB12.50 million (approximately $1.93 million) in April 2011. The loan is guaranteed by our Chief Operating Officer, our CEO and his wife.

~~The~~On ~~use~~August of18, ~~contract~~2010, ~~accounting~~we ~~requires significant~~entered ~~judgment~~into ina ~~estimating~~loan ~~total~~agreement ~~contract pricing and costs, including~~with ~~assumptions~~Shenzhen ~~relative~~Development toBank. ~~the~~We ~~length~~borrowed ofRMB40.00 ~~time~~million to(approximately ~~complete~~$6.18 million) ~~the~~with ~~contract,~~an ~~the~~annual ~~nature and~~interest ~~complexity~~rate ofequal ~~the work~~ to bethe ~~performed,~~12 ~~anticipated~~month’s ~~increases~~benchmark ~~in wages and~~lending ~~prices~~rate ~~for~~of ~~subcontractor services and materials, and~~ the ~~availability~~People’s Bank of ~~subcontractor~~ ~~services~~China ~~and materials~~(6.31% ~~Our~~as ~~estimates are based upon the professional knowledge and experience~~ of ~~its~~June ~~engineers~~30, ~~program~~2011), ~~managers~~with ~~and~~interest ~~other~~payable ~~personnel,~~on ~~who review each long-term contract continually to assess~~ the ~~contract’s~~ ~~schedule,~~20th ~~performance,~~of ~~technical~~each ~~matters and estimated cost at completion~~month. ~~Our~~The ~~risk~~loan onis ~~fixed-price~~due ~~contracts~~in isAugust ~~that~~2011. ifThe ~~estimates~~loan ~~to complete~~is ~~the~~guaranteed ~~contract~~by ~~change~~our ~~from~~CEO ~~one~~and ~~period~~two toof ~~the~~our ~~next,~~subsidiaries ~~profit~~and ~~levels~~collateralized ~~will~~by ~~vary from~~the ~~period~~property toof ~~period~~a subsidiary.

~~Approximately~~On 1%August of9, ~~contract installation~~2010, ~~revenue~~we isentered ~~deferred~~into ~~for~~a ~~the~~loan ~~repair~~agreement ~~work during the one-year~~with ~~warranty~~Societe ~~period~~Generale. We ~~carefully~~borrowed ~~monitor~~RMB27.00 ~~the~~million ~~warranty~~(approximately ~~work~~$4.17 ~~requested~~million) with byan ~~our customers,~~annual ~~and~~interest ~~has~~rate ~~determined~~equal ~~that~~to ~~minimal~~5.35%, ~~warranty~~with ~~work~~interest ~~has~~payable ~~historically~~on ~~been~~the due ~~requested~~date toof bethe ~~performed~~loan. WeThe ~~believe~~loan ~~that~~was ~~this~~due 1%and ~~warranty~~repaid ~~reserve~~in isFebruary 2011. The loan was ~~adequate~~guaranteed by one of our subsidiaries.

~~Repairs~~On ~~and~~July ~~maintenance~~26, ~~service~~2010, ~~revenue~~we entered into a loan agreement with China isEverbright ~~recognized~~Bank ~~when~~Co., Ltd. We borrowed RMB40.00 million (approximately $6.18 million) with an annual interest rate equal to 5.31%, with interest payable on the ~~service~~20th isof ~~performed~~each month. The loan was due and repaid in July 2011 and guaranteed by our CEO, one of our subsidiaries and Chuang Guan.

WeOn ~~derive~~July a21, ~~portion~~2010, ofwe ~~our~~entered ~~revenue~~into ~~from~~a loan agreement with the ~~one-year~~Industrial ~~software~~and ~~upgrades.~~Commercial ~~These~~Bank ~~services~~of ~~are~~China. ~~typical~~We ~~post-contract~~borrowed ~~service~~RMB54.60 million (~~“PCS”~~approximately $8.44 million) ~~arrangements~~with ~~according~~an toannual ~~ASC~~interest ~~985-605-25~~rate “equal ~~Revenue~~to ~~Recognition~~12 ”.month’s ~~Under~~benchmark ~~this~~lending ~~guidance,~~rate ~~PCS~~of ~~revenue~~the ~~may~~People’s beBank ~~recognized~~of ~~together~~China ~~with~~(6.31% ~~the~~as ~~initial~~of June 30, ~~licensing~~2011), ~~fee~~with interest payable on ~~delivery~~the 20th of ~~the~~each ~~software~~month. ifThe ~~all~~loan was due and repaid in July 2011. The loan is guaranteed by three of our subsidiaries and collateralized by the ~~following~~property ~~conditions~~of ~~are met:~~a subsidiary.

~~(i)~~On ~~The~~July ~~PCS~~15, ~~fee~~2010, iswe ~~included~~entered into a loan agreement with ~~the~~China Construction ~~initial~~Bank. ~~licensing~~We ~~fee;~~borrowed ~~(ii)~~RMB30.00 ~~The~~million ~~PCS~~(approximately ~~included~~$4.64 million) with ~~the~~an ~~initial~~annual ~~license~~interest israte ~~for~~equal ~~one~~to ~~year~~110% orof ~~less;~~the ~~(iii)~~12 ~~The~~month’s ~~estimated~~benchmark ~~cost~~lending rate of ~~providing~~the ~~PCS~~People’s ~~during~~Bank ~~the~~of ~~arrangement~~China is(6.94% ~~insignificant;~~as ~~and~~of ~~(iv~~June 30, 2011), ~~Unspecified~~with ~~upgrades/enhancements~~interest payable ~~offered~~on ~~during~~the ~~PCS~~20th ~~arrangements~~of ~~historically~~each ~~have~~month. ~~been~~The ~~and~~loan ~~are~~was ~~expected~~due toand ~~continue~~repaid toin beJuly ~~minimal~~2011 and collateralized ~~infrequent~~by the property of one of our subsidiaries.

~~Income~~On ~~taxes~~July -1, We2010, ~~account~~we ~~for~~entered ~~income~~into ~~taxes~~a ~~using~~loan ~~the~~agreement ~~asset~~with ~~and~~Guangdong ~~liability~~Development ~~method~~Bank. ~~prescribed~~We byborrowed ~~ASC~~RMB49.60 ~~740~~million “(approximately ~~Income Taxes ”~~$7. ~~Under this~~66 ~~method,~~million) ~~deferred~~with ~~tax~~an ~~assets~~annual ~~and~~interest ~~liabilities~~rate ~~are~~equal ~~determined~~to ~~based~~110% onof the ~~difference~~ ~~between~~12 ~~the~~month’s ~~financial~~benchmark lending ~~reporting~~rate ~~and tax bases~~ of ~~assets and liabilities using enacted tax rates that will be in effect in~~ the ~~year~~People’s ~~in which~~Bank ~~the~~of ~~differences~~China ~~are expected to reverse~~(6.94% Weas ~~record a valuation allowance to offset deferred tax assets if based on the weight~~ of ~~available~~June ~~evidence~~30, ~~it is more-likely-than-not that some portion~~2011), ~~or all, of the deferred tax assets~~with ~~will~~interest ~~not~~payable ~~be realized. The effect~~ on ~~deferred~~the ~~taxes~~20th of aeach ~~change in tax rates is recognized as income or loss in the period that includes the enactment date~~month. We doThe ~~not~~loan ~~have~~was ~~any~~guaranteed ~~material~~by ~~unrecognized~~our ~~tax benefits.~~CEO ~~We file income tax returns with the relevant government authorities in the U.S.~~ and ~~the~~ ~~PRC.~~one We were not subject to U.S. federal tax examinations for years before 2007. We do not believe there will be any material changes in its 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~~our ~~expense~~subsidiaries. WeThe doloan ~~not have any accrued interest or penalties associated with any unrecognized tax benefits, nor~~ was ~~any interest expense recognized. Our effective tax rate differs from the federal statutory rate primarily~~ due ~~to non-deductible expenses,~~ and ~~preferential~~repaid ~~tax~~in ~~treatment~~June 2011.

~~Earnings~~On ~~Per~~June ~~Share~~18, -2010, ~~ASC~~we ~~260~~entered ~~“Earnings~~into ~~Per~~a ~~Share”, requires~~loan ~~dual~~agreement ~~presentation~~with Industrial ~~of basic~~ and ~~diluted~~Commercial ~~earnings~~Bank ~~per~~of ~~share~~China (~~“EPS”~~Asia) ~~with~~ aLimited. ~~reconciliation~~We ofborrowed ~~the~~$8.00 million ~~numerator~~ and ~~denominator~~$2.00 ofmillion ~~the~~on ~~basic~~July ~~EPS computation~~15, to2010 ~~the numerator~~ and ~~denominator~~August of12, ~~the~~2010, ~~diluted EPS computation.~~respectively, ~~Basic~~with ~~EPS~~an ~~excludes~~effective ~~dilution.~~interest ~~Diluted~~rate ~~EPS~~at ~~reflects~~3% ~~the~~per ~~potential~~annum ~~dilution~~over ~~that could~~the ~~occur~~applicable ifone ~~securities or other contracts to issue common stock were~~year ~~exercised~~London orInter ~~converted~~Bank ~~into~~Offered ~~common~~Rate ~~stock~~(3.73% orat ~~resulted~~June in30, ~~the~~2011), ~~issuance~~with ofinterest ~~common~~payable ~~stock~~on ~~that then shared in~~ the ~~earnings~~due date of the ~~entity~~loan. ~~Earnings~~ ~~per~~Interest ~~basic share~~payable ~~of common stock~~ is ~~based~~calculated on the ~~weighted~~basis ~~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~~ actual number of ~~shares~~days ~~issuable~~elapsed ~~under contingent issuances, stock options~~ and ~~warrants~~ ~~outstanding~~a ~~during each respective period, using the if~~360-~~converted~~day ~~or treasury-stock methods~~year. ~~For~~ ~~purposes~~The ofloan ~~the~~was ~~computation~~due ~~of net income per share, shares issued~~ in ~~connection~~July ~~with acquisitions that are returnable are~~2011 ~~considered~~and ~~contingently~~extended ~~returnable~~to ~~shares.~~July ~~These~~2012 ~~contingently~~under ~~returnable shares,~~a ~~although~~supplementary ~~classified~~agreement assigned ~~issued~~on ~~and~~June ~~outstanding~~23, ~~are not included in~~ ~~basic weighted average number of shares until all necessary conditions are met that no longer cause the shares to be contingently returnable~~2011. ~~These contingently~~The ~~returnable~~loan ~~shares~~is ~~are~~guaranteed ~~included~~by inour ~~diluted~~CEO ~~weighted~~and ~~average~~collateralized ~~number of~~by ~~shares~~fixed asassets of one ~~the beginning~~ of ~~the~~our ~~period~~subsidiaries inand ~~which~~ the ~~conditions~~shares ~~were satisfied (or as~~ of ~~the~~one ~~date~~ of ~~the~~our ~~agreement, if later)~~subsidiaries.

47On April 16, 2010, we entered into a loan agreement with Shanghai Pudong Development Bank. We borrowed RMB80.00 million (approximately $12.36 million) with an annual interest rate equal to 6.06%, with interest payable on the 20th of each month. The loan was due and repaid in April 2011. The loan was guaranteed by our CEO and one of our subsidiaries and collateralized by the properties and land use rights of a subsidiary.

Unvested restricted shares issued (share-based compensation) under the Equity Incentive Plan are not included in basic weighted average number of shares but are considered to be outstanding as of the grant date for purposes of computing diluted earnings per share even though the shares are subject to vesting requirements.46

~~For~~On ~~additional~~April ~~Critical~~15, ~~Accounting Policies~~2010, ~~please~~we ~~see~~entered ~~Item~~into 7,a loan agreement with ~~Management’s~~Shanghai ~~Discussion~~Pudong ~~and~~Development ~~Analysis~~Bank. ofWe ~~Results~~borrowed ofRMB80.00 ~~Operations~~million ~~and~~(approximately $12.36 ~~Financial~~million) with an annual interest rate equal to 6.06%, with interest ~~Condition~~payable inon the ~~Company’s~~20th ~~Annual~~of ~~Report~~each onmonth. ~~Form~~The ~~10-K~~loan ~~for~~was ~~the~~due ~~fiscal~~and ~~year~~repaid ~~ended~~in April 2011. ~~December~~The ~~31,~~loan ~~2010,~~was ~~for~~guaranteed aby ~~discussion~~our ofCEO and collateralized by the ~~Company’s~~properties ~~critical~~and ~~accounting~~land ~~policies~~use rights of one of our subsidiaries.

~~Recently~~On ~~Issued~~March 31, 2010, we entered into a loan agreement with China Merchants Bank. We borrowed RMB50.00 million (approximately $7.73 million) with an annual interest rate equal to 5.81%, with interest payable on the 20th of each month. The loan was due and ~~Adopted~~repaid ~~Accounting~~in March 2011. The loan was guaranteed ~~Pronouncements~~by our CEO, his wife and one of our subsidiaries and collateralized by the property and land use rights of a subsidiary.

~~Business~~On ~~Combinations~~March 25, 2010, we entered into a loan agreement with China Citic Bank. We borrowed RMB90.00 million (approximately $13.91 million) with an annual interest rate equal to 5.81%, with interest payable on the 20th of each month. The loan was due and repaid in March 2011. The loan was guaranteed by our CEO, his wife and one of our subsidiaries and collateralized by the properties of two of our subsidiaries.

On March 24, 2010, we entered into a loan agreement with China Citic Bank. We borrowed RMB60.00 million (~~Included~~approximately $9.27 million) with an annual interest rate equal to 5.81%, with interest payable on the 20th of each month. The loan was due and repaid in ~~ASC~~March ~~805~~2011. ~~“Business~~The ~~Combination~~loan was guaranteed by our CEO,” ~~previously~~his ~~SFAS~~wife and one of our subsidiaries, and collateralized by the properties Noof two of our subsidiaries. ~~141(R))~~

InOn ~~December~~March 4, 2010, ~~the~~we ~~Financial~~entered ~~Accounting~~into ~~Standards~~a ~~Board (FASB”)~~loan ~~issued~~agreement ~~Accounting~~with ~~Standards Update (ASU”) No. 2010-29, “Business~~the ~~Combinations”~~Industrial ~~(Topic~~and ~~805):~~Commercial ~~“Disclosure~~Bank of ~~Supplementary~~China. ~~Pro~~We ~~Forma~~borrowed ~~Information for Business Combinations~~RMB31.”00 ~~This ASU specifies that when financial~~million ~~statements~~(approximately ~~are~~$4.79 ~~presented,~~million) ~~the~~with ~~revenue~~an ~~and~~annual ~~earnings~~interest ofrate ~~the~~equal ~~combined~~to ~~entity~~5.23%, ~~should~~with beinterest ~~disclosed~~payable ason ~~though~~ the ~~business~~20th ~~combination that occurred during the current year had occurred as~~ of ~~the~~each ~~beginning of the comparable prior annual reporting period only~~month. ~~ASU~~The ~~2010-29~~loan iswas ~~effective~~due ~~for~~in ~~business~~March ~~combinations~~2011, ~~with acquisition~~but ~~dates~~repaid onin orFebruary ~~after January 1,~~ 2011. The ~~adoption~~loan ofwas ~~this~~guaranteed ~~update~~by ~~did~~three ~~not~~of ~~have~~our ansubsidiaries ~~impact~~and oncollateralized ~~our~~by ~~consolidated~~the ~~financial~~property ~~statements~~of a subsidiary.

~~Goodwill~~On March 4, 2010, we entered into a loan agreement with the Industrial and Commercial Bank of China. We borrowed RMB39.00 million (approximately $6.03 million) with an annual interest rate equal to 5.23%, with interest payable on the 20th of each month. The loan was due in March 2011, but repaid in January 2011. The loan was guaranteed by three of our subsidiaries and collateralized by the property of a subsidiary.

On March 3, 2010, we entered into a loan agreement with China Construction Bank. We borrowed RMB50.00 million (~~Included~~approximately $7.73 million) with an annual interest rate equal to 6.10%, with interest payable on the 20th of each month. The loan was due and repaid in ~~ASC~~March ~~350~~2011. ~~“Intangibles-Goodwill~~The loan was guaranteed by our CEO and one of our subsidiaries and collateralized by the ~~Other”)~~property of a subsidiary.

InOn ~~December~~March ~~2010~~2, ~~the FASB issued ASU No.~~2010~~-28~~, ~~“Intangibles-Goodwill~~ ~~and~~we ~~Other”~~entered ~~(Topic~~into ~~350):~~a ~~When~~loan toagreement ~~Perform~~with China ~~Step~~Merchants 2Bank. ofWe ~~the~~borrowed ~~Goodwill~~RMB41.00 ~~Impairment~~million ~~Test~~(approximately ~~for~~$6.34 ~~Reporting~~million) ~~Units~~ with ~~Zero or Negative~~ ~~Carrying~~an ~~Amounts.~~annual ~~This~~interest ~~ASU~~rate ~~requires~~equal ~~that~~to ~~reporting~~5.81%, ~~units~~ with ~~zero~~interest ~~or negative~~payable ~~carrying~~on ~~amount~~the ~~perform~~20th ~~Step 2~~ of each ~~the~~month. ~~goodwill~~The ~~impairment~~loan ~~test~~was ifdue itand ~~is more~~repaid ~~likely~~in ~~than~~March ~~not that a goodwill impairment exists~~2011. ~~ASU~~The ~~2010-28~~loan iswas guaranteed ~~effective~~by ~~for~~our usCEO, ~~beginning~~his ~~with~~wife ~~this~~and ~~interim~~one ~~period.~~of ~~The~~our ~~adoption~~subsidiaries ofand ~~this~~collateralized ~~update~~by ~~did not~~the ~~have~~property ~~an impact~~and onland ~~our~~use ~~financial~~rights ~~condition or results~~ of ~~operations~~a subsidiary.

~~Multiple~~On ~~Deliverable~~February ~~Revenue~~3, ~~Arrangements~~2010, we entered into a loan agreement with China Merchants Bank. We borrowed RMB59.00 million (approximately $9.12 million) with an annual interest rate equal to 5.81%, with interest payable on the 20th of each month. The loan was due and repaid in February 2011. The loan was guaranteed by our CEO, his wife and one of our subsidiaries and collateralized by the property and land use rights of a subsidiary.

On January 26, 2010, we entered into a loan agreement with the Industrial and Commercial Bank of China. We borrowed RMB100.00 million (~~Accounting~~approximately ~~Standards~~$15.45 ~~Updates~~million) ~~2009-13~~with an annual interest rate equal to 4.78%, with interest payable on the 20th of each month. The loan was due in January 2011. We repaid RMB80.00 million (approximately $12.36 million) and ~~2009-14~~RMB 20.00 million (approximately $3.09 million) in June 2010 and January 2011, respectively. The loan was guaranteed by our CEO.

Inb) ~~October~~Product ~~2009,~~financing ~~the FASB issued a new accounting standard which provides guidance for~~ arrangements with multiple deliverables. Specifically, the new standard requires an entity to allocate consideration at the inception of an arrangement to all of its deliverables based on their relative selling prices. In the absence of the vendor-specific objective evidence or third-party evidence of the selling prices, consideration must be allocated to the deliverables based on management’s best estimate of the selling prices. In addition, the new standard eliminates the use of the residual method of allocation. In October 2009, the FASB also issued a new accounting standard which changes revenue recognition for tangible products containing software and hardware elements. Specifically, tangible products containing software and hardware that function together to deliver the tangible products’ essential functionality are scoped out of the existing software revenue recognition guidance and will be accounted for under the multiple-element arrangements revenue recognition guidance discussed above. Both standards were effective for us beginning on January 1, 2011. The adoption of this standard did not have a material impact on our consolidated financial statements.

~~Seasonality~~As of June 30, 2011, the amount, maturity date and original term of each of our obligations under product financing arrangements were as follows:

~~Our~~(All ~~operating~~amounts ~~results and operating cash flows historically have been subject to seasonal variations. Our revenues are usually higher~~ in ~~the second~~millions ~~half~~ of ~~the~~U.S. ~~year~~dollars) ~~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.~~

Inflation

Lender		Amount *	Maturity Date	Original Term
A Financial Institution	$	5.36	June 2013	3 years
A Financial Institution		0.50	September 2013	4 years
A Financial Institution		3.46	September 2012	3 years
Total	$	9.32

We* ~~believe~~Calculated ~~our~~on ~~operations~~the ~~have~~basis ~~not~~that ~~been~~$ ~~materially~~1 ~~adversely~~= ~~affected by inflation or changing prices~~RMB6.47

~~Off-Balance Sheet Arrangements~~47

In June 2010, we entered into product financing agreements with a financial institution. Under the terms of the agreements, we agreed to pay an annual interest rate of 8.23% on inventory financings. We doborrowed ~~not~~RMB50 ~~have~~million (approximately ~~any~~$7.73 ~~off-balance~~million). ~~sheet~~The ~~arrangements~~loans expire in June 2013, and payments of principal and interest are due at the end of each quarter.

48In September 2009, we entered into product financing agreements with a financial institution. Under the terms of the agreements, we agreed to pay an annual interest rate of 8.46% on inventory financings. We borrowed RMB50 million (approximately $7.73 million). The loans expire in September 2012, and payments of principal and interest are due at the end of each quarter.

In February 2009, we entered into product financing agreements with a financial institution. Under the terms of the agreements, we agreed to pay an annual interest rate of 10.5% on inventory financings. We borrowed RMB7.11 million (approximately $1.10 million). The loans expire in September 2013, and payments of principal and interest are due at the end of each quarter.

c) Guaranteed senior unsecured notes payable

As of June 30, 2011, we had outstanding the Tranche B Notes. The Tranche B Notes have a principal amount of $84.00 million, zero coupon interest and a fair value of $78.44 million, resulting in a debt discount of $5.56 million and an effective interest rate of approximately 5%. The Tranche B Notes mature on September 2, 2012. We are to repay the principal amount in six consecutive semi-annual installments, that began on March 2, 2010, with 46%, 46%, and 8% of the principal amount to be repaid in the first, second and third year, respectively. The Tranche B Notes are not convertible. We will be entitled to redeem the Tranche B Notes at any time with no premium or penalty at a redemption price equal to 100% of the principal amount of the Tranche B Notes to be redeemed, plus default interest, if any. The Tranche B Notes are guaranteed by our significant subsidiaries to the extent permitted under applicable laws. We repaid $19.32 million of the principal on the Tranche B Notes in March 2011.

d) Others

The Kunming Safe City project consisted of two stages - Stage I and Stage II. Stage I was completed in December 2008, and Stage II was completed in March 2009. All receivables totaling RMB123 million (approximately $18 million) related to Stage I were sold to Industrial and Commercial Bank of China (“ICBC”) in March 2009 for RMB113 million (approximately $16.5 million). This amount was fully collected from ICBC in March 2009. Stage II receivables were RMB86 million ($12.6 million), of which RMB11.33 million (approximately $1.73 million) was outstanding as of December 31, 2010. The remaining receivables from the Kunming Municipal Government were fully collected in February 2011.

On October 3, 2006, we signed a banking facility agreement with China Construction Bank under which the bank 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 the bank to finance the project; (2) we sell the accounts receivable to the bank, 85% of the total account receivables value will be paid by the bank to us and the remaining 15% will be collected by the bank from the government; from the 15% collected from the government, the bank will retain certain finance charges and pay the remainder over to us; or (3) we take a loan from the bank to finance the project. As part of this agreement, we will make periodic deposits with the bank, 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.

Loan facility liquidity requirements

In the remaining six months of 2011, we have approximately $98.49 million in bank loans that will mature. We believe we will be able to pay all obligations as they become due. As some of our loans become due, we may elect to renew or refinance, rather than repay, the indebtedness. However, there is no assurance that additional financing will become available on terms acceptable to us. We believe that we will have the ability to refinance our indebtedness when and if we elect to do so. While we currently are not in a position to know the terms of such refinancing, we expect to refinance our indebtedness at prevailing market rates and on prevailing market terms. We are exposed to a variety of risks associated with short-term borrowings including adverse fluctuations in fixed interest rates for short-term borrowings and unfavorable increases in variable interest rates, potential inability to service our short term indebtedness through cash flow from operations and the overall reduction of credit in the current economic environment.

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

Our liquidity and working capital may be affected by the substantial amount of our outstanding short-term loans, which represent our primary source of financing in China. Depending on the level of cash used in our operating activities and the level of our indebtedness, (i) it may become more difficult for us to satisfy our existing or future liabilities or obligations, which could in turn result in an event of default on such obligations, (ii) we may have to dedicate a substantial portion of our cash flows from borrowings to our operating activities and to debt service payments, thereby reducing the availability of cash for working capital and capital expenditures, acquisitions, general corporate purposes or other purposes, (iii) our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes may become impaired, (iv) our ability to withstand a downturn in our business, the industry in which we operate or the economy generally may be diminished, (v) we may experience limited flexibility in planning for, or reacting to, changes in our business and the industry in which we operate and (vi) we may find ourselves at a competitive disadvantage compared to competitors that have proportionately less debt. If we are unable to meet our debt service obligations, we could be forced to restructure or refinance our indebtedness, seek additional equity capital or sell assets. We may be unable to obtain financing or sell assets on satisfactory terms, or at all, which could cause us to default on our debt service obligations and be subject to foreclosure on such loans. Additionally, we could incur additional indebtedness in the future and, if new debt is added to our current debt levels, the risks above could intensify.

If the Merger is consummated, subsequent to the Merger we expect to be substantially leveraged. Our liquidity requirements will be significantly changed, primarily due to the addition of debt service requirements to our existing cash needs discussed above.

Obligations under Material Contracts

Below is a table setting forth our material contractual obligations as of June 30, 2011:

(All amounts in millions of U.S. dollars)

Payments due by period

Less than

than 5

Total

year

Filing Compare · CHINA SECURITY & SURVEILLANCE TECHNOLOGY, INC.