China Environmental (PINK:CNVP)

In a letter to the Company’s board of directors, dated January 14, 2011 (the “January Letter”), Friedman cited a lack of cooperation by the Company in the conduct of its field review in connection with its audit of the Company’s financial statements for the fiscal year ended September 30, 2010. In the January Letter, Friedman stated that it randomly selected several project sites where the Company had sold and installed waste water treatment equipment to conduct site inspections. On November 20, 2010, representatives of Friedman attempted to make an inspection of the Chongqing Yudong Waste Water Treatment Plant, located in the Banan District of Chonqing, accompanied by the Company’s local sales representative for that region Friedman and the Company Representative were denied access to the Plant.

In the January Letter, Friedman stated that comments made by a security guard at the Plant and by the Company Representative led Friedman to question the accuracy of the sales revenue the Company had recognized for the equipment sale and installation project at the Plant. Following the site tour, Friedman notified the Company’s management of its concerns and requested additional information with respect to the project installation at the Plant. In a letter dated December 23, 2010, Friedman informed the Company that due to unresolved questions concerning certain material contracts and the Company’s revenue recognition practices, it would be unable to complete the audit on schedule. Friedman subsequently issued the January Later, claiming that the totality of the circumstances, including the continued lack of cooperation by the Company, led Friedman to make the conclusions set forth in Section 10A(b)(2)(A) through (C) of the Securities Exchange Act of 1934, as amended. Friedman then resigned as the Company’s independent accounting firm on January 21, 2011.