UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

~~Form~~FORM 10-Q

(Mark ~~One~~one)

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

For the quarterly period ended ~~June~~March 3031, ~~2010~~2011

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

For the transition period from ~~__________________~~_______________to ~~to __________________~~________________

Commission ~~file~~File ~~number~~Number: ~~000~~333-~~53783~~148928

CHINA ENVIRONMENTAL PROTECTION, INC.

(Exact Name of ~~registrant~~Registrant as ~~specified~~Specified in Its ~~its charter~~Charter)

Nevada		75-3255056
NEVADA		75-3255056
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
(State or Other jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

C/O Jiangsu Zhenyu Environmental Protection Technology Co. Ltd.

C/O Jiangsu Zhenyu Environmental Protection Technology Co. Ltd.
West Garden, Gaocheng Town, Yixing City, Jiangsu Province, P.R. China		214214
(Address of Principal Executive Offices)		(Zip Code)

West Garden, Gaocheng Town

Yixing City, Jiangsu Province, P.R. China 214214

(Address of principal executive offices)(Zip Code)

86-510-87838598

(Registrant’s Telephone ~~telephone number~~Number, ~~including~~Including ~~area~~Area ~~code~~Code)

N/A

(Former ~~name~~Name, ~~former~~Former ~~address~~Address and ~~former~~Former Fiscal ~~fiscal year~~Year, if ~~changed~~Changed ~~since~~Since ~~last~~Last ~~report~~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 Securities Exchange Act of 1934 during the preceding 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 o¨

Yes o No o

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 definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)

Large accelerated filer o ¨ Accelerated filer o ¨ Non-accelerated filer o ¨ Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

~~Yes o No~~Indicated the xnumber of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date

~~As of August 23, 2010, the registrant had~~ 17,170,015 shares of common stock ~~issued~~are issued and outstanding as of May 15, 2011.

TABLE OF CONTENTS
	Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2010 (Unaudited) and September 30, 2009	1
Condensed Consolidated Statements of Income for the Three and Nine Months Ended June 30, 2010 and 2009 (unaudited)	2
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2010 and 2009 (unaudited)	3
Notes to Unaudited Consolidated Financial Statements	4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3. Quantitative and Qualitative Disclosures About Market Risk	30
Item 4. Controls and Procedures	30
PART II - OTHER INFORMATION
Item 1. Legal Proceedings	31
Item 1A. Risk Factors	31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3. Defaults Upon Senior Securities	31
Item 4. (Removed and Reserved)	31
Item 5. Other Information	31
Item 6. Exhibits	31
SIGNATURES	32

TABLE OF CONTENTS

INTRODUCTION

		Page
	PART I
Item 1.	Financial Statements.	F-1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation.	3
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	9
Item 4.	Controls and Procedures.	9
	PART II
Item 1.	Legal Proceedings.	10
Item 1A.	Risk Factors.	10
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	10
Item 3.	Defaults Upon Senior Securities.	10
Item 4.	Mine Safety Disclosures.	10
Item 5.	Other Information.	10
Item 6.	Exhibits.	10
SIGNATURES		12

Use of Certain Defined Terms

In this Quarterly Report on Form 10-Q, unless indicated otherwise, references to:

· “Securities Act” refers to the Securities Act of 1933, as amended, and “Exchange Act” refer to the Securities Exchange Act of 1934, as amended;

· “China” and “PRC” refer to the People's Republic of China, and “BVI” refers to the British Virgin Islands;

· “RMB” refers to Renminbi, the legal currency of China; and

“U.S. dollar,” “$” and “US$” refer to the legal currency of the United States. For all U.S. dollar amounts reported, the dollar amount has been calculated on the basis that $1 = RMB6.8263 for its September 30, 2009 audited balance sheet, and $1 = RMB6.7814 for its June 30, 2010 unaudited balance sheet, which were determined based on the currency conversion rate at the end of each respective period. The conversion rates of $1 = RMB6.8263 is used for the condensed consolidated statement of income and other comprehensive income and consolidated statement of cash flows for the nine months ended June 30, 2010, and $1= RMB6.8352 is used for the condensed consolidated statement of income and other comprehensive income and consolidated statement of cash flows for comparable period ended June 30, 2009; both of which were based on the average currency conversion rate for each respective quarter.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

CHINA ENVIRONMENTAL PROTECTION INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30, 2010		September 30, 2009
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash & cash equivalents	$	7,863,364	$	538,767
Restricted cash		387,020		80,863
Accounts receivable, net		5,856,729		614,158
Other receivables		502,890		1,120,818
Inventory		6,834,521		1,457,480
Prepaid expenses		-		47,379
Advance to suppliers		1,629,965		233,259
Total current assets		23,074,489		4,092,724
PROPERTY, PLANT AND EQUIPMENT, NET		1,656,440		1,665,574
OTHER ASSETS
Intangible asset, net		1,102,100		1,112,355
Retainage		2,771,087		2,485,432
Total other assets		3,873,187		3,597,787
TOTAL ASSETS		28,604,116		9,356,085
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term loans		1,032,229		292,983
Accounts payable		2,578,491		1,588,850
Salary and welfare payables		487,439		444,177
Taxes payable		3,884,246		1,341,918
Advance from customers		6,938,150		368,835
Other payables		388,904		437,447
Total current liabilities		15,309,459		4,474,210
TOTAL LIABILITIES		15,309,459		4,474,210
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value. 10,000,000 shares authorized;
Authorized 10,000,000 shares; none issued		-		-
Common stock, $0.001 par value; authorized 70,000,000 shares;
Issued and outstanding- 17,000,017 shares and 16,150,000
shares at June 30, 2010 and September 30, 2009, respectively		17,000		16,150
Additional paid-in capital		2,572,310		2,293,160
Accumulated other comprehensive income (loss)		544,475		(223,190	)
Retained earnings		10,160,871		2,389,688
Total stockholders' equity		13,294,657		4,475,808
Non-controlling interest		-		406,067
Total equity		13,294,657		4,881,875
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	28,604,116	$	9,356,085

The accompanying notes are an integral part of these condensed consolidated financial statements.

CHINA ENVIRONMENTAL PROTECTION INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(UNAUDITED)

	For The Three Months Ended June 30,						For The Nine Months Ended June 30,
	2010			2009			2010			2009
Net sales	$	15,835,201		$	8,247,023		$	41,538,374		$	16,686,484
Cost of goods sold		(10,169,603	)		(5,352,400	)		(27,600,991	)		(12,113,039	)
Gross profit		5,665,598			2,894,623			13,937,383			4,573,445
Selling, general and administrative expenses
Selling expenses		(604,642	)		(16,529	)		(2,051,065	)		(198,440	)
General and administrative expenses		(847,346	)		(113,934	)		(1,690,899	)		(1,099,730	)
Total SG&A expenses		(1,451,988	)		(130,463	)		(3,741,964	)		(1,298,170	)
Income from operations		4,213,610			2,764,160			10,195,419			3,275,275
Non-operating income (expenses):
Gain on Bargain purchase		3,525			-			129,625			-
Interest expenses		(11,024	)		(4,606	)		(31,133	)		(14,218	)
Other income (expenses)		6			(22	)		34,347			(28	)
Total non-operating income (expenses)		(7,493	)		(4,628	)		132,839			(14,246	)
Income before income taxes		4,206,117			2,759,532			10,328,258			3,261,029
Provision for income taxes
Current		1,081,709			694,053			2,557,075			694,053
Deferred		-			260,844			-			386,220
Total income tax provisions		1,081,709			954,897			2,557,075			1,080,273
Net income		3,124,408			1,804,635			7,771,183			2,180,756
Less: net income (loss) attributable to the noncontrolling interest		-			(4,215	)		-			7,826
Net Income attributable to China Environmental Protection Inc		3,124,408			1,808,849			7,771,183			2,172,929
Other comprehensive income
Foreign currency translation gain		766,343			124,912			767,665			135,489
Comprehensive Income	$	3,890,751		$	1,929,547		$	8,538,848		$	2,316,245
Basic and diluted earnings per share	$	0.18		$	0.112		$	0.47		$	0.14
Weighted average number of shares		17,000,000			16,150,000			16,581,250			16,150,000

The accompanying notes are an integral part of these condensed consolidated financial statements.

~~CHINA~~PART ~~ENVIRONMENTAL~~I ~~PROTECTION~~- ~~INC~~FINANCIAL ~~AND SUBSIDIARIES~~INFORMATION

~~CONDENSED~~Item ~~CONSOLIDATED~~1. ~~STATEMENTS~~Financial ~~OF CASH FLOWS~~Statements.

~~(UNAUDITED)~~CHINA ENVIRONMENTAL PROTECTION, INC. AND SUBSIDIARIES

	For The Nine Months Ended June 30,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	7,771,183		$	2,180,756
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization		147,240			119,831
Bad debt expense		995,631			125,044
Deferred tax expense		-			386,220
Gain on Bargain purchase		(129,625	)		-
Decrease (increase) in current assets:
Restricted cash		(303,613	)		-
Accounts receivable		(6,199,718	)		(5,061,033	)
Retainage		(267,434	)		1,310,270
Other receivable		621,239			147,293
Inventory		(5,332,128	)		(527,993	)
Prepaid expenses		47,379			(19,319	)
Advances to suppliers		(1,385,995	)		(44,869	)
Increase (decrease) in current liabilities:
Accounts payables and accrued expenses		972,690			2,969,311
Salaries and welfare payable		40,057			(117,298	)
Taxes payable		2,519,548			617,946
Advance from customers		6,520,977			1,227,119
Other payables		(51,100	)		470,815
Net cash provided by operating activities		5,966,331			3,784,093
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(109,710	)		(10,723	)
Purcahse of minority shares by Dragon Path		(280,000	)		-
Net cash used in investing activities		(389,710	)		(10,723	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term loans		732,462			-
Repayment of short-term bank loans					(292,487	)
Repayment of long term loans		-			(1,462,433	)
Shareholder capital contribution		280,000			-
Net cash provided by (used in) financing activities		1,012,462			(1,754,920	)
EFFECT OF EXCHANGE RATE CHANGE ON
CASH AND CASH EQUIVALENTS		735,514			18,119
NET INCREASE IN CASH AND CASH EQUIVALENTS		7,324,597			2,036,569
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		538,767			402,245
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	7,863,364		$	2,438,814
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid	$	-		$	145,314
Interest paid	$	31,133		$	14,218

(FORMERLY T.O.D TASTE ON DEMAND INC)

~~The~~FINANCIAL ~~accompanying notes are an integral part of these condensed consolidated financial statements.~~REPORT

~~CHINA~~AT ~~ENVIRONMENTAL~~MARCH ~~PROTECTION~~31, ~~INC~~2011 AND ~~SUBSIDIARIES~~SEPTEMBER 30, 2010 , AND

~~(FORMERLY~~FOR ~~T.O.D.~~THE ~~TASTE~~THREE ONAND ~~DEMAND~~SIX ~~INC)~~MONTHS ENDED MARCH 31, 2011 AND 2010

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~F-1

~~NOTE~~CHINA 1ENVIRONMENTAL PROTECTION, INC. ~~BASIS~~ OFAND ~~PRESENTATION~~SUBSIDIARIES

~~The accompanying unaudited condensed consolidated financial statements of China Environmental Protection Inc~~ (~~the~~FORMERLY “Company”) reflect all material adjustments consisting of only normal recurring adjustments which, in the opinion of management, are necessary for a fair presentation of results for the interim periodsT. Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, although the Company believes that the disclosures are adequate to make the information presented not misleadingO. ~~These~~D ~~condensed~~TASTE ~~consolidated~~ON financial statements should be read in conjunction with the Management’s Discussion and Analysis and the consolidated financial statements and notes thereto included in Form 8-K as filed with the Securities and Exchange Commission on February 12, 2010.DEMAND INC)

~~The results of operations for the nine months ended June 30, 2010 are not necessarily indicative of the results to be expected for the entire year or for any other period.~~INDEX

NOTE 2. ORGANIZATION

		PAGE

CONSOLIDATED BALANCE SHEETS		3

CONSOLIDATED STATEMENTS OF OPERATIONS		4

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME		5

CONSOLIDATED STATEMENTS OF CASH FLOWS		5

NOTES TO CONSOLICATED FINANCIAL STATEMENTS		7-31

China Environmental Protection Inc. (the “Company”), formerly known as T.O.D. Taste On Demand Inc., was incorporated in the state of Nevada. On February 12, 2010, the Company entered into a share exchange agreement and acquired all of the outstanding capital stock of Dragon Path International Limited, a British Virgin Islands corporation (“Dragon Path”), through China Environmental Protection Inc, a Nevada corporation (the “Merger Sub”) wholly owned by the Company. Dragon Path is a holding company whose only asset, held through a subsidiary, is 100% of the registered capital of Yixing Dragon Path Environment Technology Limited (“Yixing Dragon Path”), a limited liability company organized under the laws of the People’s Republic of China (“China” or “PRC”). Substantially all of Dragon Path's operations are conducted in China through Yixing Dragon Path, and through contractual arrangements with Yixing Dragon Path’s consolidated affiliated entitity in China, Jiangsu Zhenyu Environmental Protection Technology Co. Ltd. (“Zhenyu”). Zhenyu is engaged in design, manufacture, and installation of waste water treatment equipment for environmental protection purposes, as well as providing highF-~~quality after-sales services.~~2

InCHINA ~~connection~~ENVIRONMENTAL ~~with the acquisition~~PROTECTION, the Merger Sub issued 100 shares of the common stock of the Merger Sub which constituted no more than 10% ownership interest in the Merger Sub in exchange for all the shares of the capital stock of Dragon Path (the “Share Exchange” or “Merger”)INC. AND The 100 shares of the common stock of the Merger Sub were converted into approximately 16,150,000 shares of the common stock of the Company so that upon completion of the Merger, the stockholders of Dragon Path own approximately 95% of the common stock of the Company.SUBSIDIARIES

~~Upon~~(FORMERLY ~~completion~~T.O.D ofTASTE ~~the~~ON ~~Merger,~~DEMAND ~~there were 17,000,000 shares of the Company’s common stock issued and outstanding.~~INC)

~~The~~CONDENSED ~~acquisition~~CONSOLIDATED ~~was~~BALANCE accounted for as a reverse merger under the purchase method of accounting since there was a change of control. Accordingly, Dragon Path and its subsidiary, Zhenyu, will be treated as the continuing entity for accounting purposes.SHEETS

On March 24, 2010, the Company’s name was changed from “T.O.D. Taste on Demand, Inc.” to the Merger Sub’s name “China Environmental Protection Inc.” to better reflect the Company’s business.

	March 31,			September 30,
	2011			2010
	(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	2,345,963		$	1,268,674
Restricted cash		-			5,844,020
Accounts receivable, net (Note 4)		4,734,036			815,566
Others receivables		33,658			93,310
Inventory (Note 5)		1,725,967			9,045,390
Advance to suppliers		10,035			1,606,018
Prepaid expenses		-			15,424
Deferred tax assets		-			98,514
Total current assets		8,849,659			18,786,916

Property, Plant and Equipment, net (Note 6)		1,503,429			1,536,358

Other Assets
Intangible assets, net (Note 7)		1,119,366			1,109,867
Refundable security deposit		3,142,366			2,501,031
Total other assets		4,261,732			3,610,898

Total Assets	$	14,614,820		$	23,934,172

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank loans (Note 8)	$	761,023		$	746,480
Accounts payable		6,316,368			4,223,235
Salary and welfare payables		281,647			671,797
Others payable		961			83,056
Taxes payable (Note 9)		1,992,375			1,768,495
Advance from customers		645,634			7,449,518
Due to the CEO		1,797,104			894,714
Total Current Liabilities		11,795,112			15,837,295

COMMITMENTS AND CONTINGENCIES (Note 14)		-			-

STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value. 10,000,000 shares authorized; Authorized 10,000,000 shares; none issued as of March 31, 2011 and September 30, 2010, respectively		-			-
Common stock, $0.01 par value; authorized 34,639,823 shares; Issued and outstanding- 17,170,015 shares as of March 31, 2011 and September 30, 2010, respectively		171,700			171,700
Additional paid-in capital		2,960,904			2,960,904
Retained earnings		(496,937	)		4,889,989
Accumulated other comprehensive income (loss)		184,041			74,284
Total Shareholders' Equity		2,819,708			8,096,877

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	14,614,820		$	23,934,172

~~Dragon~~The ~~Path~~accompanying ~~International~~notes ~~Limited~~are an ~~(“Dragon~~integral ~~Path”)~~part ~~was organized under the laws~~ of ~~the~~these ~~British~~consolidated ~~Virgin~~financial Island on November 5, 2009. Dragon Path International Limited owns 100% of the equity interest of Yixing Dragon Path Environmental Technology Limited (“Yixing Dragon Path”), a wholly foreign-owned entity incorporated under the laws of the People’s Republic of China on January 26, 2010.statements

4 F-3

CHINA ENVIRONMENTAL PROTECTION , INC. AND SUBSIDIARIES

(FORMERLY T.O.D. TASTE ON DEMAND INC)

~~NOTES TO~~ CONDENSED CONSOLIDATED ~~FINANCIAL~~ STATEMENTS OF ~~(UNAUDITED)~~OPERATIONS

NOTE 2. ORGANIZATION (Continued)

	For the Three Months Ended						For the Six Months Ended
	March 31,						March 31,
	2011			2010			2011			2010
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Revenues
Sales of Installation projects	$	24,850,263		$	10,837,672		$	24,850,263		$	17,145,371
Sales of equipment		256,422			733			714,492			1,049,179
Total revenues		25,106,685			10,838,405			25,564,755			18,194,550

Costs of Revenues
Cost of installation projects		17,229,686			7,461,235			17,229,686			11,743,602
Cost of equipment		238,671			506			523,035			718,994
Total costs of revenues		17,468,357			7,461,741			17,752,721			12,462,596

Gross profit		7,638,328			3,376,664			7,812,034			5,731,954

Operating Expense
Selling Expenses
Payroll and Commission		-			922,180			-			1,122,330
Fright out		54			3,578			1,946			3,705
Office expenses		-			187			-			73,588
Total selling expenses		54			925,945			1,946			1,199,623

General and administrative expenses
Payroll		65,336			43,830			113,296			125,626
Employee benefit and pension		5,465			4,750			9,644			7,903
Depreciation and amortization expenses		21,304			22,784			42,589			42,707
Professional fees and consultancy fees		25,297			13,362			25,297			13,362
Taxes		11,542			10,772			17,682			17,812
Office expenses		34,839			19,965			46,308			84,032
Bad debt expenses		7,699,122			-			8,028,106			68,163
Travel and entertainment		21,884			22,140			36,833			40,826
Total General and Administrative Expenses		7,884,789			137,603			8,319,755			400,431

Total operating expenses		7,884,843			1,063,548			8,321,701			1,600,054

Income from operations		(246,515	)		2,313,116			(509,667	)		4,131,900

Non-operating income (expenses):
Interest income		104			93			216			100
Interest expenses		(11,750	)		(10,694	)		(20,160	)		(16,208	)
Gain on bargain purchase		-			52,016			-			52,016
Governmental subsidy		0			-			4,526			-
Other income (expenses)		33			-			1,117			-
Total non-operating income (expenses)		(11,613	)		41,415			(14,301	)		35,908

Income before income taxes		(258,128	)		2,354,531			(523,968	)		4,167,808

Provision for income taxes
Current income tax expense		237,589			587,790			237,589			1,040,814
Deferred income tax expense		95,729			(12,038	)		99,547			(11,742	)
Total provision for income taxes		333,318			575,752			337,136			1,029,072

Net income before extraordinary item		(591,446	)		1,778,779			(861,104	)		3,138,736

Extraordinary item (Note 12)		(4,525,822	)		-			(4,525,822	)		-

Net income (loss)		(5,117,268	)		1,778,779			(5,386,926	)		3,138,736

Less: Net income attributable to noncontrolling interest		-			-			-			(222	)

Net Loss attributable to China Environmental Protection, Inc.	$	(5,117,268	)	$	1,778,779		$	(5,386,926	)	$	3,138,514

Basic and diluted earnings per share	$	(0.03	)	$	0.11		$	(0.05	)	$	0.19

Weighted average number of shares		17,170,015			16,374,180			17,170,015			16,374,180

~~Dragon~~The ~~Path~~accompanying ~~does~~notes not conduct any substantive operations of its own. Instead, through its subsidiary, Yixing Dragon Path, it had entered into certain exclusive contractual agreements with Jiangsu Zhenyu Environmental Protection Technology Co., Ltd. (“Zhenyu”), a company incorporated in Yixing City, Jiangsu Province, People’s Republic of China (“PRC”) on March 28, 1993. Pursuant to these agreements, Yixing Dragon is obligated to absorb a majority of the risk of loss from Zhenyu’s activities and entitled it to receive a majority of its expected residual returns. In addition, Zhenyu’s shareholders have pledged their equity interest in Zhenyu to Yixing Dragon, irrevocably granted Yixing Dragon are an ~~exclusive~~integral ~~option to purchase, to the extent permitted under PRC Law, all or~~ part of ~~the equity interests in Zhenyu and agreed to entrust all the rights to exercise their voting power to the persons appointed by Zhenyu. Through~~ these ~~contractual~~consolidated ~~arrangements,~~financial ~~the Company and Yixing Dragon Path hold all the variable interests of Zhenyu~~statements. ~~Therefore, the Company is the primary beneficiary of Zhenyu.~~

Based on these contractual arrangements, the Company believes that Zhenyu and its subsidiary, Jiangsu Jinyu Environmental Engineering Co,. Ltd. (“Jinyu”) and affiliates should be considered as Variable Interest Entity (“VIE”) under the provisions of Accounting Standards Codification (“ASC”) 510 “Consolidation of Variable Interest Entities. Accordingly, the Company consolidates Zhenyu and its subsidiary’s results, assets and liabilities.F-4

OnCHINA ~~January~~ENVIRONMENTAL 28PROTECTION, ~~2010, Dragon Path acquired the 25% equity interst of Jinyu from its minority shareholder for $280,000~~ INC. As aAND ~~result of this transfer of ownership, Dragon Path now owns 100% interest of the Jinyu, consisting of the newly acquired 25% direct ownership and 75% indirect ownership through Zhenyu.~~SUBSIDIARIES

~~NOTE~~(FORMERLY 3T. ~~SUMMARY~~O.D OFTASTE ~~SIGNIFICANT~~ON ~~ACCOUNTING POLICIES~~DEMAND INC)

~~Principles~~CONSOLIDATED ofSTATEMENT ~~consolidation~~OF COMPRESENTATIVE INCOME

The condensed consolidated financial statements include the financial statements of the Company, Dragon Path, Yixing Dragon Path, Zhenyu and Jinyu. All significant inter-company transactions have been eliminated upon consolidation.

	For the Three Months Ended						For the Six Months Ended
	March 31,						March 31,
	2011			2010			2011			2010
	(unaudited)			(unaudited)			(unaudited)			(unaudited)

Net income	$	(5,117,268	)	$	1,778,779		$	(5,386,926	)	$	3,138,736
Other comprehensive income, net of tax:
Effects of foreign currency conversion		6,326			(23,757	)		109,757			(20,388	)
Total other comprehensive, not of tax		6,326			(23,757	)		109,757			(20,388	)
Comprehensive income		(5,110,942	)		1,755,022			(5,277,169	)		3,118,348
Comprehensive income attributable to the noncontrolling interest		-			(174	)		-			222
Comprehensive income attributable to the Company	$	(5,110,942	)	$	1,755,196		$	(5,277,169	)	$	3,118,126

~~Use~~The accompanying notes are an integral part of ~~estimates~~these consolidated financial statements.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes, and disclosure of contingent liabilities at the date of the condensed consolidated financial statements. Estimates are used for, but not limited to, the selection of the useful lives of property and equipment, provision necessary for contingent liabilities, taxes and other similar charges. Management believes that the estimates utilized in preparing its condensed consolidated financial statements are reasonable and prudent. Actual results could differ from these estimates.F-5

~~Cash~~CHINA ~~and~~ENVIRONMENTAL ~~cash~~PROTECTION, ~~equivalents~~INC. AND SUBSIDIARIES

~~The~~(FORMERLY ~~Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents~~T. ~~The Company maintains bank accounts in the PRC~~O.D ~~Total~~TASTE ~~cash~~ON atDEMAND June 30, 2010 and September 30, 2009 amounted to $7,863,364 and $538,767 respectively, of which no deposits are covered by insurance. The Company has not experienced any losses in such accounts and management believes it is not exposed to any risks on its cash in bank accounts.INC)

~~Accounts~~CONDENSED ~~receivable~~CONSOLIDATED STATEMENTS OF CASH FLOWS

The Company carries accounts receivable at cost less an allowance for doubtful accounts. Allowances for doubtful accounts are recorded as a general and administrative expense. The Company evaluates the adequacy of the allowance for doubtful accounts at least quarterly and computes the allowance for doubtful accounts based on the history of actual write-offs. The Company also performs a subjective review of specific large accounts to determine if an additional reserve is necessary. The formula for calculating the allowance closely parallels the Company’s history of actual write-offs and account adjustments based upon contractual terms. The allowance for doubtful accounts totals $ 1,020,131and $17,797 as of June 30, 2010 and September 30, 2009, respectively.

	For the Six Months Ended
	March 31,
	2011			2010
	(unaudited)			(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income including noncontrolling interest	$	(5,386,926	)	$	3,138,736
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		78,605			77,403
Bad debt expense		8,028,106			68,163
Impairment of fixed assets		15,818			6,581
Gain on bargain purchase		-			(52,016	)
Deferred tax expense		99,547			(11,742	)
Decrease (increase) in assets:
Restricted cash		5,905,267			77,042
Accounts receivable		(11,896,228	)		(233,871	)
Other receivable		60,927			(22,972	)
Advances to suppliers		1,612,903			18,798
Inventory		7,429,461			(3,219,427	)
Prepaid expenses		15,586			28,841
Refundable security deposit		(587,377	)		(801,529	)
Increase (decrease) in liabilities:
Accounts payables		1,993,099			1,611,424
Salaries and welfare payable		(399,678	)		(135,216	)
Other payables		(82,974	)		-
Taxes payable		187,753			1,054,059
Advance from customers		(6,887,658	)		1,641,246
Net cash provided by operating activities		186,231			3,245,520

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(4,280	)		(95,366	)
Purcahse of minority shares by Dragon Path		-			(280,000	)
Net cash used in investing activities		(4,280	)		(375,366	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Shareholder capital contribution		-			295,000
Proceeds from bank loans		754,304			732,340
Repayments of bank loans		(754,304	)		(292,936	)
Proceeds from the CEO		877,145			1,387,931
Repayments to the CEO		-			(10,253	)
Net cash provided by financing activities		877,145			2,112,082

EFFECT OF EXCHANGE RATE CHANGE ON CASH AND CASH EQUIVALENTS		18,193			(5,425	)

NET INCREASE IN CASH AND CASH EQUIVALENTS		1,077,289			4,976,811

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		1,268,674			538,767

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	2,345,963		$	5,515,578

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid	$	1,579		$	6,855
Interest paid	$	20,160		$	16,208

5The accompanying notes are an integral part of these consolidated financial statements.

~~CHINA ENVIRONMENTAL PROTECTION INC AND SUBSIDIARIES~~F-6

~~(FORMERLY~~CHINA TENVIRONMENTAL PROTECTION, INC.~~O.D.~~ ~~TASTE~~AND ~~ON DEMAND INC)~~SUBSIDIARIES

~~NOTES~~(FORMERLY TOT.O.D. ~~CONDENSED~~TASTE ~~CONSOLIDATED~~ON ~~FINANCIAL STATEMENTS (UNAUDITED~~DEMAND INC)

~~NOTE~~NOTES ~~3. SUMMARY~~TO OFCONSOLIDATED ~~SIGNIFICANT ACCOUNTING POLICIES (Continued)~~FINANCIAL STATEMENTS

~~Retainage~~Note 1- BASIS OF PRESENTATION

~~Retainage~~The ~~represents~~accompanying ~~the~~unaudited ~~security~~consolidated ~~deposits~~financial ~~withheld~~statements byof China Environmental Protection, Inc. (the “Company’s” ~~customers~~or to"China ~~warrant~~Environmental") ~~against~~reflect ~~potential~~all ~~defects~~material ~~for~~adjustments ~~the~~consisting ~~sales~~ of ~~equipments~~only ornormal ~~installation~~recurring ofadjustments ~~water~~which, ~~treatment~~in ~~projects.~~the ~~Retainage~~opinion ~~normally~~of ~~accounts~~management, are necessary for 5%a tofair ~~10%~~presentation of results for the ~~total~~interim ~~contract~~periods. ~~price,~~Certain ~~depending~~information onand ~~various~~footnote ~~terms~~disclosures ~~included~~required under accounting principles generally accepted in ~~different~~the ~~equipment~~United ~~sales~~States ~~contracts~~of America have been condensed or ~~waste~~omitted ~~water~~pursuant ~~treatment~~to ~~equipment~~the ~~installation~~rules ~~contracts.~~and ~~The~~regulations ~~deposits~~of ~~are~~the toSecurities beand ~~refunded~~Exchange ~~within~~Commission, ~~two~~although ~~years~~the ~~after~~Company believes that the ~~completion~~disclosures ofare ~~sales~~adequate orto ~~installation~~make the information presented not misleading. ~~Total~~These ~~retainage~~condensed atconsolidated ~~June~~financial ~~30,~~statements ~~2010~~should ~~and~~be ~~September 30,~~read ~~2009~~in ~~amounted~~conjunction towith ~~$2,771,087~~the audited consolidated financial statements and $notes 2thereto for the fiscal year ended September 30,~~485,432,~~ ~~respectively~~2010.

The ~~Company's~~results ~~experience~~of operations for ~~costs~~the ~~and~~three ~~expenses in connection with product warranties covered by retainage has been minimal~~ and ~~during~~six ~~the nine~~ months ended ~~June~~March 3031, 2010 ~~and~~are ~~the~~not ~~year~~necessarily ~~ended~~indicative ~~September~~of ~~30, 2009, no such warranty accrual was considered necessary. The Company also considers~~ the ~~assets~~results to be ~~impaired~~expected ~~if the collectability of retainage becomes doubtful. The Company has not experienced any losses in such accounts, and accordingly no allowance was recorded~~ for the ~~nine~~entire ~~months~~year ~~ended~~or ~~June 30, 2010 and~~ for ~~the~~any ~~year~~other ~~ended September 30, 2009~~period.

~~Inventory~~Note 2- ORGANIZATION

~~Inventory~~China isEnvironmental ~~stated~~Protection, atInc. (the ~~lower~~“Company” ofor ~~cost~~"China Environmental" or ~~market~~"CNVP"), ~~using~~formerly aknown ~~weighted~~as ~~average~~T.O.D. ~~method~~Taste On Demand Inc., ~~Inventory~~was ~~consists~~incorporated ofon ~~raw~~August ~~materials~~31, ~~work~~2007 in ~~process~~the ~~and~~state ~~finished~~of ~~goods~~Nevada. ~~Raw~~On ~~materials~~February ~~consist~~12, 2010, the Company entered into a share exchange agreement and acquired all of ~~steel~~the outstanding capital stock of Dragon Path International Limited, ~~polyresen~~a British Virgin Islands corporation (“Dragon Path”), ~~silicone~~through ~~and~~China ~~filtering~~Environmental ~~components~~Protection ~~used~~Inc., ina ~~manufacturing~~Nevada ofcorporation ~~water~~(the ~~treatment~~“Merger ~~equipments~~Sub”) wholly owned by the Company. ~~Cost~~Dragon Path is a holding company which owns 100% of ~~finished~~the ~~goods~~registered ~~included~~capital ~~direct~~of ~~costs~~Yixing Dragon Path Environment Technology Limited (“Yixing Dragon Path”), a limited liability company organized under the laws of ~~raw~~the ~~materials~~People’s asRepublic ~~well~~of asChina ~~direct~~(“China” ~~labor~~or ~~used~~“PRC”). Dragon Path's operations are conducted in ~~production~~China through Yixing Dragon Path, and anthrough ~~allocated~~contractual ~~portion~~arrangements with Yixing Dragon Path’s consolidated affiliated entity, Jiangsu Zhenyu Environmental Protection Technology Co. Ltd. (“Zhenyu”). Zhenyu is engaged in design, manufacture, and installation of ~~manufacturing~~waste ~~overheads~~water treatment equipment for environmental protection purposes in China.

~~Management~~In ~~compares~~connection ~~cost~~with the acquisition, the Merger Sub issued 100 shares of ~~inventory~~the ~~with~~common ~~its~~stock ~~market~~of ~~value~~the ~~and~~Merger anSub ~~allowance~~which isconstituted ~~made~~no more than 10% ownership interest in the Merger Sub in exchange for ~~estimated~~all ~~obsolescence~~the shares of the capital stock of Dragon Path (the “Share Exchange” or ~~for~~“Merger”). ~~writing~~The ~~down~~100 shares of the ~~inventory~~common tostock ~~its~~of ~~market~~the ~~value~~Merger Sub were converted into approximately 16,150,000 ifshares ~~lower~~of ~~than~~the ~~cost~~common stock of the Company so that upon completion of the Merger, the stockholder of Dragon Path and his assignees own approximately 95% of the common stock of the Company. Upon completion of the Merger, there were 17,000,017 shares of the Company’s common stock issued and outstanding.

~~Advance to suppliers~~F-7

~~Advance~~CHINA toENVIRONMENTAL ~~suppliers represent the payments made and recorded in advance for goods and services received~~PROTECTION, INC. ~~The~~AND Company makes advances to suppliers for the purchase of certain materials and equipment components. Advances to suppliers are short-term in nature and are reviewed periodically to determine whether their carrying value has become impaired. The Company considers the assets to be impaired if the collectability of the services and materials become doubtful.SUBSIDIARIES

~~Revenue~~(FORMERLY ~~recognition~~T.O.D. TASTE ON DEMAND INC)

~~The~~NOTES ~~Company~~TO ~~sells~~CONSOLIDATED waste water treatment equipment or facilities to various industrial or municipal clients through sales orders or equipment-bundled installation contracts. All of the Company’s sales and installation contracts are generally short-term in nature, range from three to six months. The Company recognizes sales based on the completed contract method. The Company recognizes revenue when the following fundamental criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the price to the customer is fixed or determinable and (iv) collection of the resulting receivable is reasonably assured. Revenue is not recognized until title and risk of loss is transferred to the customer, which occurs upon delivery of goods, and objective evidence exists that customer acceptance provisions have been met. Deposits or advance payments from customers prior to delivery of goods and passage of title of goods are recorded as advance from customers.FINANCIAL STATEMENTS

~~Advance~~Note ~~from~~2- ~~Customers~~ORGANIZATION (continued)

~~Advances~~For ~~from~~the ~~customers~~accounting ~~consist~~purposes, this acquisition was accounted for as a reverse merger since the shareholder of ~~prepayments~~Dragon toPath and his assignees own a majority of the outstanding shares of the Company’s ~~for~~common ~~products~~stock orimmediately ~~equipments~~following ~~that~~the ~~have~~share ~~not~~exchange ~~yet~~and ~~been~~there ~~shipped~~was a change of control. Dragon Path was deemed to be the ~~customers~~acquirer in the reverse merger. ~~Any~~Consequently, ~~amounts~~the ~~received~~assets and liabilities and the historical operations that were reflected in the consolidated financial statements for periods prior to ~~satisfying~~ the ~~Company’s~~Merger ~~revenue~~were ~~recognition~~those ~~criteria~~of ~~are~~Dragon Path and its subsidiaries and were recorded asat ~~advances~~the ~~from~~historical ~~customers~~cost basis. ~~The~~After completion of the share exchange, the Company‘s ~~will~~consolidated ~~recognize~~financial statements included the ~~prepayments~~assets ~~from~~and liabilities of both China Environmental and Dragon Path, the ~~customers~~historical asoperations ~~revenue~~of atDragon Path and the ~~time~~operations of ~~delivery~~the Company and its subsidiaries from the closing date of the share exchange.

6On March 24, 2010, the Company’s name was changed from “T.O.D. Taste on Demand, Inc.” to the Merger Sub’s name “China Environmental Protection, Inc.” to better reflect the Company’s business.

~~CHINA~~Dragon ~~ENVIRONMENTAL~~Path ~~PROTECTION~~was ~~INC~~organized ~~AND~~under ~~SUBSIDIARIES~~the laws of the British Virgin Island on November 5, 2009. The Articles of Incorporation authorized Dragon Path to issue 50,000 shares of common stock with a par value of $1.00 per share. Upon formation of Dragon Path, 10,000 shares of common stock was issued for $10,000 on November 18, 2009. Dragon Path established and owns 100% of the equity interest of Yixing Dragon Path, a wholly foreign-owned entity ("WFOE") incorporated under the laws of China on January 26, 2010 in Yixing City, Jiangsu Province, China, as a limited liability company with a registered capital of $100,000, of which, $20,000 was contributed on August 24, 2010, and the balance of $80,000 was contributed in January 2012.

~~(FORMERLY~~Dragon TPath does not conduct any substantive operations of its own.O Instead, through its wholly-owned subsidiary, Yixing Dragon Path, it had entered into certain exclusive contractual agreements with Zhenyu on January 27, 2010.D Pursuant to these agreements, Yixing Dragon is obligated to absorb a majority of the risk of loss from Zhenyu’s activities and entitled it to receive a majority of its expected residual returns. ~~TASTE~~In ONaddition, ~~DEMAND~~Zhenyu’s ~~INC)~~shareholders have pledged their equity interest in Zhenyu to Yixing Dragon, irrevocably granted Yixing Dragon an exclusive option to purchase, to the extent permitted under PRC Law, all or part of the equity interests in Zhenyu and agreed to entrust all the rights to exercise their voting power to the persons appointed by Zhenyu. Through these contractual arrangements, Dragon Path and Yixing Dragon Path hold all the variable interests of Zhenyu. Therefore, Dragon Path is the primary beneficiary of Zhenyu.

~~NOTES~~Based TOon ~~CONDENSED~~these ~~CONSOLIDATED~~contractual ~~FINANCIAL~~arrangements, ~~STATEMENTS~~the management believes that Zhenyu and its 75% owned subsidiary, Jiangsu Jinyu Environmental Engineering Co,. Ltd. (~~UNAUDITED~~“Jinyu”) should be considered as a Variable Interest Entity (“VIE”) under the provisions of Accounting Standards Codification (“ASC”) 510 “Consolidation of Variable Interest Entities. Accordingly, Yixing Dragon Path consolidates Zhenyu and its subsidiary’s results, assets and liabilities.

~~NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)~~F-8

~~Property,~~CHINA ~~plant~~ENVIRONMENTAL ~~and~~PROTECTION, INC. ~~equipment~~AND SUBSIDIARIES

~~Property~~(FORMERLY ~~and equipment are recorded at cost less accumulated depreciation and any impairment losses~~T. ~~The cost of an asset is comprised of its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use~~O. ~~Expenditure~~D. ~~incurred~~TASTE ~~after~~ON ~~the assets have been put into operation, such as repairs and maintenance and overhaul costs, is normally charged to expense in the year in which it is incurred.~~DEMAND INC)

InNOTES ~~situations~~TO ~~where~~CONSOLIDATED it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset beyond its originally assessed standard of performances, the expenditure is capitalized as an additional cost of the asset.FINANCIAL STATEMENTS

~~Depreciation~~Note ~~is computed using the straight~~2-~~line~~ ~~method~~ORGANIZATION ~~over the estimated useful lives of the assets, less any estimated residual value. Estimated useful lives of the assets are as follows:~~(continued)

Plants and Buildings	20 years
Machinery and office equipment	10 years
Vehicles	5 years

Zhenyu was incorporated under the laws of China on March 28, 1993 in Yixing City, Jiangsu Province, China, as a limited liability company with a registered capital of RMB 1,880,000 (equivalent to approximately $227,135 on the contribution date) which was increased to RMB 16,880,000 (equivalent to approximately $2,140,116 on the contribution date) on May 17, 2000. The registered capital has been fully contributed by the owners.

~~Any~~Jinyu ~~gain~~was orincorporated ~~loss~~under onthe ~~disposal~~laws ~~or retirement~~ of aChina ~~property~~on orMarch ~~equipment~~22, is2002, ~~recognized~~as ina ~~the~~limited ~~profit~~liability ~~and~~company ~~loss~~with ~~account~~a ~~and~~registered iscapital ~~the~~of ~~difference~~$1,200,000 ~~between~~which ~~the~~has ~~net~~been ~~sales~~fully ~~proceeds~~contributed ~~and~~by the ~~carrying~~owners, ~~amount~~in of the ~~relevant~~Yixing ~~asset.~~City, ~~When~~Jiangsu ~~property~~Province, ~~and~~China. ~~equipment~~Jinyu ~~are~~is ~~retired~~engaged orin ~~otherwise~~design, ~~disposed of~~manufacture, ~~the asset~~ and ~~accumulated~~installation ~~depreciation~~of ~~are~~waste ~~removed~~water ~~from~~treatment ~~the~~equipment ~~accounts~~for ~~and~~environmental ~~the~~protection ~~resulting~~purposes ~~profit or loss is reflected~~ in ~~operations~~China.

~~Impairment~~On January 28, 2010, Dragon Path acquired the 25% equity interest of ~~long-lived~~Jinyu ~~assets~~from its minority shareholder for $280,000. As a result of this transfer of ownership, Dragon Path now owns 100% interest of the Jinyu, consisting of the newly acquired 25% direct ownership and 75% indirect ownership through Zhenyu.

~~Long-lived~~Zhenyu ~~assets,~~and ~~which~~Jinyu ~~include~~are ~~property,~~the ~~plant~~two ~~and~~of ~~equipment~~these affiliated companies that are engaged in business operations. China Environmental, -Dragon Path, and ~~finite-lived~~Yixing ~~intangible~~Dragon ~~assets,~~Path are ~~reviewed~~holding ~~for~~companies, ~~impairment~~whose ~~whenever~~business ~~events~~is to hold an equity ownership interest or ~~changes~~a beneficial interest in ~~circumstances~~Zhenyu ~~indicate~~and ~~that~~Jinyu. All these affiliated companies are hereafter referred to as the ~~carrying~~"Company". ~~amount~~Currently, the Company is engaged in the business of andesign, ~~asset~~manufacture, ~~may~~and ~~not~~installation beof ~~recoverable~~waste water treatment equipment for environmental protection purposes in China. The Company's structure is summarized in the following chart.

~~Recoverability of long~~F-lived assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the assets. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. No impairment loss is recorded for the nine months ended June 30, 2010 and for the year ended September 30, 2009.9

~~Fair~~CHINA ~~value~~ENVIRONMENTAL ofPROTECTION, INC. ~~financial~~AND ~~instruments~~SUBSIDIARIES

~~The Company follows the provisions of Accounting Standards Codification~~ (~~“ASC”)~~FORMERLY ~~820, Fair Value Measurements and Disclosures~~T.O.D. ItTASTE ~~clarifies~~ON DEMAND ~~the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:~~INC)

~~Level~~NOTES ~~1-Inputs~~TO ~~are~~CONSOLIDATED ~~unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.~~FINANCIAL STATEMENTS

~~Level~~Note 2-~~Inputs~~ ~~are~~ORGANIZATION unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other then quoted prices that are observable, and inputs derived from or corroborated by observable market data.(continued)

~~Level~~Company ~~3-Inputs~~Structure ~~are~~Flow unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.Chart

7 F-10

CHINA ENVIRONMENTAL PROTECTION , INC. AND SUBSIDIARIES

(FORMERLY T.O.D. TASTE ON DEMAND INC)

NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS ~~(UNAUDITED)~~

~~NOTE~~Note 3. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ~~(Continued)~~

~~The~~Principles ~~carrying values~~ of the Company’s financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, other current assets, short-term loans, accounts payable, taxes payable, advance from customers, other payables, accrued expenses, and, approximate their fair value due to the short term maturities of these instruments.consolidation

~~Foreign~~The ~~currency~~accompanying ~~translation~~consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP"). This basis of accounting differs from that used in the statutory accounts of the Company, which are prepared in accordance with the "Accounting Principles of China " ("PRC GAAP"). Certain accounting principles, which are stipulated by US GAAP, are not applicable in the PRC GAAP. The difference between PRC GAAP accounts of the Company and its US GAAP consolidated financial statements is immaterial.

The ~~Company~~consolidated ~~and~~financial ~~Dragon~~statements ~~Path~~include ~~maintain its accounting records in~~ the ~~United~~accounts ~~States Dollars (US$), whereas Zhenyu and Jinyu maintain their accounting records in the currency~~ of ~~Renminbi (“RMB”),~~ the ~~currency the PRC. For financial reporting purpose~~Company, ~~RMB~~Dragon ~~has been translated into US$ as the reporting currency in accordance with Statement of Financial Accounting Standard - No. 52~~Path, ~~“Foreign~~Yixing ~~Currency~~Dragon ~~Translation”~~Path, ~~which was subsequently codified within ASC 830~~Zhenyu, ~~“Foreign~~and ~~Currency Matters”-~~Jinyu. ~~The~~All ~~financial information is translated into U.S. dollars at period~~inter-~~end~~company ~~exchange rates as to assets and liabilities and average exchange rates as to revenue and expenses. Capital accounts are translated at their historical exchange rates when the capital~~ transactions ~~occurred.~~have ~~The~~been ~~effects~~eliminated ofupon ~~foreign currency translation adjustments are included as a component of accumulated other comprehensive income in stockholders’ equity~~consolidation.

	2010		2009
Period end RMB: USD exchange rate		6.7814		6.8307
Nine month average RMB: USD exchange rate		6.8263		6.8352

Use of estimates

The ~~RMB~~preparation isof ~~not~~financial ~~freely~~statements ~~convertible~~in ~~into~~conformity ~~foreign~~with ~~currency~~U.S. GAAP requires management to make estimates and ~~all~~assumptions ~~foreign~~that ~~exchange~~affect ~~transactions~~the ~~must~~amounts ~~take~~reported ~~place~~in ~~through~~the ~~authorized~~financial ~~institutions~~statements and accompanying notes, and disclosure of contingent liabilities at the date of the condensed consolidated financial statements. NoEstimates ~~representation~~are isused ~~made~~for, ~~that~~but not limited to, the ~~RMB~~selection ~~amounts~~of ~~could~~the ~~have~~useful ~~been~~lives of property and equipment, orprovision ~~could~~necessary befor contingent liabilities, ~~converted~~taxes ~~into~~and USother ~~dollars~~similar atcharges. Management believes that the ~~rates~~estimates ~~used~~utilized in ~~translation~~preparing its condensed consolidated financial statements are reasonable and prudent. Actual results could differ from these estimates.

~~Product~~Subsequent ~~warranty~~Events

~~The~~As ~~Company~~required ~~provides~~by ~~product~~FASB ~~warranty~~ASC to855 ~~its~~“Subsequent ~~customers~~Events”, ~~that all equipment manufactured by~~ the Company ~~will~~evaluated besubsequent ~~free~~events ~~from~~through ~~defects~~the indate ~~materials~~of ~~and~~issuance ~~workmanship~~of ~~under~~these ~~normal~~financial ~~use~~statements. ~~for~~We aare ~~period~~not aware of ~~one~~any ~~year~~significant ~~from~~events ~~the~~that ~~date~~occurred ofsubsequent ~~shipment~~to ~~and~~the ~~installation.~~balance ~~The~~sheet ~~Company's~~date ~~experience~~but ~~for~~prior ~~costs~~to ~~and~~the ~~expenses~~filing inof ~~connection~~this ~~with~~report ~~such~~that ~~warranties~~would ~~has~~have ~~been~~a ~~minimal~~material ~~and~~impact ~~during~~on ~~the~~our ~~nine~~consolidated ~~months~~financial ~~ended June 30~~statements, ~~2010~~except ~~and~~ the ~~year~~matters ~~ended~~disclosed ~~September~~in ~~30,~~Note ~~2009,~~16 no"Subsequent ~~product warranty reserve was considered necessary~~Event".

~~Income~~Cash ~~taxes~~and cash equivalents

The Company ~~accounts~~considers ~~for~~all ~~income~~highly ~~taxes~~liquid ininvestments ~~accordance~~ with ~~ASC~~original ~~740~~maturities ~~“Income~~of ~~Taxes”.~~three ~~Deferred~~months ~~tax~~or ~~assets~~less ~~and~~when ~~liabilities~~purchased ~~are~~to ~~recognized~~be ~~for~~cash ~~the~~equivalents. ~~expected~~The ~~future~~Company ~~tax~~maintains ~~consequences~~its ofcash ~~events~~and ~~that~~cash ~~have~~equivalents ~~been~~with ~~included~~various ~~in the~~ financial ~~statements~~institutions orin ~~income~~the ~~tax~~PRC ~~returns.~~which ~~Deferred~~do ~~tax~~not ~~assets~~provide ~~and~~insurance ~~liabilities~~for ~~are~~the ~~determined~~amounts ~~based~~ on ~~the~~deposit. ~~difference~~The ~~between~~Company ~~the~~has ~~financial~~not ~~statement~~experienced ~~and~~any ~~tax~~losses ~~basis~~in ofsuch ~~assets~~accounts and ~~liabilities using enacted rates expected to apply to taxable income in~~ the ~~years~~management inbelieves ~~which~~it ~~those~~is ~~differences~~not ~~are~~exposed ~~expected~~ to besignificant ~~recovered~~risks ~~or settled. The effect~~ on ~~deferred~~its ~~tax~~cash ~~assets~~ and ~~liabilities~~cash ofequivalents ~~a change~~ in ~~tax rates is recognized in income in~~ the ~~period~~bank ~~that includes the enactment date~~accounts.

~~Value~~F-~~added tax~~11

~~Sales~~CHINA ~~revenue~~ENVIRONMENTAL ~~represents the invoiced value of goods~~PROTECTION, ~~net of a value-added tax (“VAT”)~~ INC. ~~All~~AND of the Company’s products that are produced and sold in the PRC are subject to a Chinese value-added tax at a rate of 17% of the gross sales price. This VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing their finished product. The Company recorded VAT Payable and VAT receivable net of payments in the financial statements. The VAT tax return is filed offsetting the payables against the receivables.SUBSIDIARIES

8(FORMERLY T.O.D. TASTE ON DEMAND INC)

~~CHINA~~NOTES ~~ENVIRONMENTAL~~TO ~~PROTECTION~~CONSOLIDATED ~~INC AND SUBSIDIARIES~~FINANCIAL STATEMENTS

~~(FORMERLY~~Note ~~T.O.D.~~3- ~~TASTE~~SUMMARY ONOF ~~DEMAND~~SIGNIFICANT ~~INC~~ACCOUNTING POLICIES (continued)

~~NOTES~~Restricted ~~TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~Cash

~~NOTE~~Restricted 3cash is cash set aside to provide a guarantee for execution of contracts and is subject to withdrawal restrictions. ~~SUMMARY~~ OFPrior ~~SIGNIFICANT~~to ~~ACCOUNTING~~the ~~POLICIES~~start ~~(Continued)~~of the sales of equipment or installation of waste water treatment facility projects, the Company is required to maintain certain deposits, as restricted cash, with the PRC financial institutions to provide a guarantee to the Company’s industrial or municipal clients in relation to the execution of the sales of equipment contracts or the installation contracts of waste water treatment facility projects. These deposits are non-interest bearing and normally equivalent to 5% to 10% of the contract price or the amount specifically descripted in the contracts, and are subject to withdrawal restrictions up to the completion of the sales of equipment contracts, or one year after completion of the installation projects, or for a period specifically descripted in the contacts. We record the restricted cash as current assets or non-current assets based on the term when the cash was set aside. The Company has not experienced any losses in withdrawal of the restricted cash and the management believes that no allowance is considered necessary.

~~Comprehensive~~Accounts ~~income~~receivable

~~Comprehensive~~Accounts ~~income~~receivables isconsist ~~defined~~of totrade ~~include~~receivables ~~all~~resulting ~~changes~~from insales ~~equity~~of ~~except~~products ~~those~~during ~~resulting~~the ~~from~~normal ~~investments~~course byof ~~owners~~business. The Company carries accounts receivable at the invoiced amount without bearing interest, less an allowance for doubtful accounts. Allowances for doubtful accounts are recorded as a general and ~~distributions~~administrative toexpense. ~~owners~~The Company evaluates the adequacy of the allowance for doubtful accounts at least quarterly and computes the allowance for doubtful accounts based on the history of actual write-offs. The Company’s ~~only~~also ~~components~~performs a subjective review of ~~comprehensive~~specific ~~income~~large ~~during~~accounts to determine if an additional reserve is necessary. The formula for calculating the ~~nine~~allowance ~~months~~closely ~~ended~~parallels ~~June~~the ~~30,~~Company’s ~~2010~~history of actual write-offs and ~~2009~~account ~~were~~adjustments ~~net~~based ~~income~~upon ~~and~~contractual terms. In circumstances in which we receive payment for accounts receivable which have previously been written off, we reverse the ~~foreign~~allowance ~~currency~~and ~~translation~~bad ~~adjustment~~debt expenses.

~~Earnings~~Others ~~per share~~Receivable

~~The~~Others ~~Company~~receivable ~~computes~~principally ~~earnings~~includes ~~per~~advance ~~share~~to ~~(“EPS”)~~employees inwho ~~accordance~~are ~~with~~working ~~the~~on ~~ASC~~projects ~~260,~~on ~~“Earnings~~behalf ~~per~~of ~~share”~~the ~~which requires companies with complex capital structures to present basic and diluted EPS~~Company. ~~Basic~~ ~~EPS~~After ~~is measured as net income divided by~~ the ~~weighted~~work ~~average~~is ~~common~~finished, ~~shares~~they ~~outstanding~~will ~~for~~submit ~~the~~expense ~~period. Diluted~~reports ~~EPS~~with issupporting ~~similar~~documents to ~~basic EPS but presents~~ the ~~dilutive~~accounting ~~effect~~department. onUpon abeing ~~per~~properly ~~share~~approved, ~~basis~~the ofexpenses ~~potential~~are ~~common~~debited ~~shares~~into ~~(e.g.,~~the ~~convertible~~relevant ~~securities,~~accounts ~~options~~ and ~~warrants) as if they had been converted at~~ the ~~beginning~~advances ofare ~~the~~credited ~~periods presented, or issuance date, if later~~out. ~~Potential~~ ~~common~~Cash ~~shares~~flows ~~that~~from ~~have~~these anactivities ~~anti-dilutive~~are ~~effect~~classified ~~(i.e.,~~as ~~those~~cash ~~that~~flows ~~increase income per share or decrease loss per share) are excluded~~ from ~~the~~operating ~~calculation of diluted EPS~~activities.

~~Statement of Cash Flows~~F-12

InCHINA ~~accordance~~ENVIRONMENTAL ~~with ASC 230 "Statement of Cash Flows"~~PROTECTION, ~~cash flows from the Company's operations are calculated based upon the local currencies~~ INC. AsAND ~~a result, amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.~~SUBSIDIARIES

~~Concentration~~(FORMERLY ofT.O.D. ~~credit~~TASTE ~~risk~~ON DEMAND INC)

~~Financial~~NOTES ~~instruments~~TO ~~that~~CONSOLIDATED potentially subject the Company to concentration of credit risk consist primarily of accounts receivables and other receivables. The Company does not require collateral or other security to support these receivables. The Company conducts periodic reviews of its clients' financial condition and customer payment practices to minimize collection risk on accounts receivables.FINANCIAL STATEMENTS

~~Risks~~Note ~~and~~3- ~~uncertainties~~SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The operations of the Company are located in the PRC. Accordingly, the Company’s operations are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.Inventory

~~Recent~~Inventory ~~accounting~~is ~~pronouncements~~stated at the lower of cost or market using a weighted average method. Inventory consists of raw materials, work in process and finished goods. Raw materials consist of steel, polyresen, silicone and filtering components used in manufacturing of water treatment equipment. Cost of finished goods included direct costs of raw materials as well as direct labor used in production and an allocated portion of manufacturing overheads.

InThe ~~January~~management ~~2010,~~compares the ~~Financial~~cost ~~Accounting~~of ~~Standards~~inventory ~~Board~~with ~~(“FASB”)~~its ~~issued~~market ~~Accounting~~value ~~Standards Update (“ASU”) No. 2010-06, Improving Disclosures About Fair Value Measurements. ASU 2010-06 amends Subtopic 820-10 to clarify existing disclosures, require new disclosures,~~ and ~~include~~an ~~conforming~~allowance ~~amendments to guidance on employers’ disclosures about postretirement benefit plan assets. ASU 2010-06~~ is ~~effective~~made for ~~interim~~estimated ~~and~~obsolescence ~~annual~~or ~~periods beginning after December 15, 2009, except~~ for ~~disclosures~~writing ~~about~~down ~~purchases, sales, issuances, and settlements in~~ the ~~roll~~inventory ~~forward~~to ofits ~~activity~~market ~~in Level 3 fair~~ value ~~measurements. Those disclosures are effective for fiscal years beginning after December 15~~, ~~2010,~~if ~~and~~lower ~~for~~than ~~interim periods within those fiscal years~~cost. ~~The Company has determined the adoption of ASU 2010-06 will not have a material impact on its condensed consolidated financial statements.~~

9 Advance to suppliers

~~CHINA~~Advance ~~ENVIRONMENTAL~~to ~~PROTECTION~~suppliers ~~INC~~represent ~~AND~~the ~~SUBSIDIARIES~~payments made and recorded in advance for goods and services received. The Company makes advances to suppliers for the purchase of certain materials and equipment components. Advances to suppliers are short-term in nature and are reviewed regularly to determine whether their carrying value has become impaired. The Company considers the assets to be impaired if the collectability of the services or the goods become doubtful, or the fair value of the services or the goods ordered become lower than the purchase price.

~~(FORMERLY~~Revenue ~~T.O.D. TASTE ON DEMAND INC)~~recognition

~~NOTES~~The TOCompany ~~CONDENSED~~recognizes ~~CONSOLIDATED~~revenues ~~FINANCIAL~~in ~~STATEMENTS~~accordance with FASB ASC 605-10 “Revenue Recognition”. The Company sells waste water treatment equipment or facilities to various industrial or municipal clients through sales orders or equipment-bundled installation contracts. All of the Company’s sales and installation contracts are generally short-term in nature, range from three to six months. The Company recognizes sales based on the completed contract method. The Company recognizes revenue when the following fundamental criteria are met: (~~UNAUDITED~~i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered and accepted, (iii) the price to the customer is fixed or determinable and (iv) collection of the resulting receivable is reasonably assured. Revenue is not recognized until title and risk of loss is transferred to the customer, which generally occurs upon delivery of goods, and objective evidence exists that customer acceptance provisions have been met. Deposits or advance payments from customers prior to satisfying the Company’s revenue recognition criteria are recorded as advance from customers.

~~NOTE~~Product ~~4. RESTRICTED CASH~~warranty

~~Restricted~~The ~~cash~~Company isprovides ~~cash~~product ~~set~~warranty ~~aside for a particular use or event and is subject~~ to ~~withdrawal~~its ~~restrictions.~~customers ~~Prior~~that toall ~~the~~equipment ~~start~~manufactured ofby the ~~construction and installation of waste water treatment projects, the~~ Company iswill ~~required~~be tofree ~~maintain~~from ~~certain~~defects ~~deposits,~~in asmaterials ~~restricted~~and ~~cash,~~workmanship ~~with~~under ~~PRC~~normal ~~banks~~use ~~that~~for ~~provide~~a ~~quality~~period ~~guarantee~~of one to ~~the~~two ~~Company’s~~years ~~industrial~~from ~~or municipal clients in relation to~~ the ~~execution~~date of ~~the~~shipment ~~construction~~ and installation ~~contracts of waste water treatment projects~~. ~~These~~ ~~deposits~~The ~~are~~Company's ~~normally~~costs ~~equivalent to 5% to 10% of the contract price~~ and ~~are~~expenses ~~subject~~in toconnection ~~withdrawal~~with ~~restrictions~~such upwarranties tohas ~~one~~been ~~year.~~immaterial ~~Restricted cash amounted to $387,020~~ and ~~$80,863~~the asmanagement ofbelieves ~~June~~that ~~30,~~no ~~2010~~product ~~and~~warranty ~~September~~reserve ~~30,~~is ~~2009,~~considered ~~respectively~~necessary.

~~NOTE 5. ACCOUNTS RECEIVABLE~~F-13

~~Accounts~~CHINA ~~receivable~~ENVIRONMENTAL ~~consist of trade receivables resulting from sales of products during the normal course of business~~PROTECTION, INC. AsAND ~~of June 30, 2010 and September 30, 2009, accounts receivable, net of allowance for doubtful accounts, amounted to $5,856,729 and $614,158, respectively.~~SUBSIDIARIES

~~NOTE~~(FORMERLY 6T.O.D. ~~INVENTORY~~TASTE ON DEMAND INC)

~~The~~NOTES ~~inventory~~TO ~~consists~~CONSOLIDATED ~~of the following:~~FINANCIAL STATEMENTS

	As of
	June 30, 2010		September 30, 2009
	(Unaudited)
Raw materials	$	2,782,307	$	763,203
Work-in-process		85,328		188,489
Finished goods		3,966,888		505,788
Total	$	6,834,521	$	1,457,480

Note 3-

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

~~No allowance for obsolete inventories was charged to operations for the three and nine months ended June 30~~Property, ~~2010~~plant and ~~2009. Because all inventory items are durable in nature, the Company does not believe it is necessary to make any allowance for obsolete inventories.~~equipment

10 Property and equipment are recorded at cost less accumulated depreciation and any impairment losses. The cost of an asset is comprised of its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after the assets have been put into operation, such as repairs and maintenance and overhaul costs, is normally charged to expense in the year in which it is incurred.

~~CHINA~~In ~~ENVIRONMENTAL~~situations ~~PROTECTION~~where ~~INC~~it ~~AND~~can ~~SUBSIDIARIES~~be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the asset beyond its originally assessed standard of performances, the expenditure is capitalized as an additional cost of the asset.

~~(FORMERLY~~Depreciation Tis computed using the straight-line method over the estimated useful lives of the assets, less any estimated residual value.~~O.D.~~ ~~TASTE~~Estimated ONuseful ~~DEMAND~~lives ~~INC)~~of the assets are as follows:

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Plants and Buildings		20 years
Machinery and office equipment		10 years
Vehicles		5 years

~~NOTE~~Any 7gain or loss on disposal or retirement of a property or equipment is recognized in the profit and loss account and is the difference between the net sales proceeds and the carrying amount of the relevant asset. ~~PROPERTY~~When property and equipment are retired or otherwise disposed of, ~~PLANT~~the asset and ~~EQUIPMENT~~accumulated depreciation are removed from the accounts and the resulting profit or loss is reflected in operations.

~~The~~Intangible ~~detail of property, plant and equipment is as follows:~~asset

	As of
	June 30, 2010			September 30, 2009
	(Unaudited)
Machinery & equipment	$	570,300		$	547,373
Vehicles		153,395			61,853
Plant and buildings		1,659,339			1,648,427
Subtotal		2,383,034			2,257,653
Less: accumulated depreciation		(726,594	)		(592,079	)
Property, plant and equipment, net	$	1,656,440		$	1,665,574

Intangible asset includes a land use right only. All land in the People’s Republic of China is government owned and cannot be sold to any individual or company. However, the government grants the user a “land use right” (the right to use the land). The land use right for a piece of land, approximately 2.62 acre (10,622 square meters), located in Gaocheng County, Yixing City, Jiangsu Province, was originally acquired by Zhenyu for RMB 7,965,000 (then equivalent to $1,063,020) from the relevant PRC land authority in April 2007. Zhenyu has the right to use the land for 50 years on which the office premises, production facilities, and warehouse of Zhenyu are located, and the land use right is amortized on a straight-line basis over a period of 50 years.

Depreciation expense for the nine months ended June 30, 2010 and 2009 was $129,738 and $102,398, respectively. Depreciation expenses for the three months ended June 30, 2010 and 2009 was $23,578 and $43,695, respectively.F-14

~~NOTE~~CHINA 8ENVIRONMENTAL PROTECTION, INC. ~~INTANGIBLE~~ ~~ASSET~~AND SUBSIDIARIES

~~Intangible~~(FORMERLY ~~asset includes land use right only~~T. ~~All land in the People’s Republic of China is government owned and cannot be sold to any individual or company~~O. ~~However, the government grants the user a “land use right” (the right to use the land)~~D. ~~The~~TASTE ~~land~~ON DEMAND use right of 10,622 square meters was originally acquired by the Company for RMB 7,965,000 from the relevant PRC land authority in April 2007. The Company has the right to use the land for 50 years on which the office premises, production facilities and warehouse of the Company are situated, and amortized the right on a straight-line basis over the period of 50 years.INC)

~~The~~NOTES ~~following~~TO ~~table~~CONSOLIDATED ~~summarizes the Company’s land use right:~~FINANCIAL STATEMENTS

	As of
	June 30, 2010			September 30, 2009
	(Unaudited)
Land use right	$	1,174,536		$	1,166,806
Less: accumulated amortization		(72,436	)		(54,451	)
Land use right, net	$	1,102,100		$	1,112,355

Note 3-

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

~~The~~Impairment ~~amortization~~of ~~expense~~long-lived ~~from the nine months ended June 30, 2010 and 2009 was $17,502 and $17,479 respectively. Amortization expense from the three months ended June 30, 2010 and 2009 was $5,836 and $5,831, respectively.~~assets

11 Long-lived assets, which include property, plant and equipment, - and finite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

~~CHINA~~Recoverability ~~ENVIRONMENTAL~~of ~~PROTECTION~~long-lived ~~INC~~assets ~~AND~~to ~~SUBSIDIARIES~~be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the assets. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable.

~~(FORMERLY~~Refundable ~~T.O.D.~~security ~~TASTE ON DEMAND INC)~~deposit

~~NOTES~~Refundable TOsecurity ~~CONDENSED~~deposit ~~CONSOLIDATED~~represents ~~FINANCIAL~~the ~~STATEMENTS~~security ~~(UNAUDITED)~~deposits withheld by the Company’s customers to warrant against potential defects for the sales of equipment or installation of water treatment projects. Refundable security deposit normally accounts for 5% to 10% of the total contract price and generally to be refunded within one to two years after the completion of the sales or the installation, depending on the various terms included in different equipment sales contracts or waste water treatment installation project contracts.

~~NOTE~~The 8Company's costs and expenses in connection with the product warranties covered by refundable security deposit have been immaterial and the management believes that no warranty accrual is considered necessary. ~~INTANGIBLE~~ ~~ASSET~~If ~~(Continued)~~a refundable security deposits or portion of the refundable security deposit has not been received upon its maturity, we reclassify the balance to the accounts receivable, and an allowance will be recorded if the collectability becomes doubtful based on the management's review, just as we do for trade accounts receivable.

~~Based upon the current assumptions, the Company expects that its land use right will be amortized according to the following schedule:~~F-15

Twelve months ended June 30,
2011	$	23,426
2012		23,426
2013		23,426
2014		23,426
2015		23,426
Thereafter		984,970
Total	$	1,102,100

CHINA ENVIRONMENTAL PROTECTION, INC. AND SUBSIDIARIES

~~NOTE~~(FORMERLY 9T. ~~SHORT-TERM LOANS~~O.D. TASTE ON DEMAND INC)

~~Short-term loans~~NOTES ~~represent~~TO ~~amounts~~CONSOLIDATED ~~due to a local bank and are due on the dates indicated below. These loans generally can be renewed with the bank. Short-term loans consisted of the following:~~FINANCIAL STATEMENTS

	As of
	June 30, 2010		September 30, 2009
	(Unaudited)
a) Loan payable to China Construction Bank	$	737,308	$	-
b) Loan payable to China Construction Bank Yixing Branch		294,921		292,983
Total	$	1,032,229	$	292,983

Note 3-

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

~~The~~Fair ~~loan~~value ~~(a) payable to China Construction Bank has an one year term from December 3, 2009, to December 2, 2010 with a fixed interest rate~~ of 0.4867% per month. The Company pledged a land use right in an amount of approximately $0.28 million as well as a building in an amount of approximately $0.52 million as collateral for the loans (a) shown above.measurements

The ~~loan~~Company ~~(b)~~follows ~~payable~~the toprovisions ~~China~~of ~~Construction~~Accounting ~~Bank~~Standards ~~Yixing~~Codification ~~Branch originally~~(“ASC”) ~~had an one year term from June 7~~820, ~~2007~~Fair toValue ~~June~~Measurements 6,and ~~2008~~Disclosures. ~~with~~It aclarifies ~~fixed~~the ~~interest~~definition ~~rate~~ of ~~0.5703%~~fair ~~per~~value, ~~month.~~prescribes ~~The~~methods ~~loan was first renewed in 2008~~ for ~~another~~measuring ~~year~~fair ~~upon maturity for a higher fixed rate of 0.556% per month~~value, and ~~then~~establishes ~~renewed once again in 2009 for one more year with~~ a ~~lower~~fair ~~fixed~~value ~~rate~~hierarchy ofto ~~0.487%~~classify ~~per month.. The Company pledged a land use right in~~ the ~~amount~~inputs ofused ~~approximately $0.25 million as well as a building~~ in ~~the~~measuring ~~amount~~fair ofvalue ~~approximately $0.07 million~~ as ~~collateral for the loans (b) shown above. The Loan was paid off on July 10, 2010.~~follows:

12Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

~~CHINA~~Level ~~ENVIRONMENTAL~~2-Inputs ~~PROTECTION~~are ~~INC~~unadjusted ~~AND~~quoted ~~SUBSIDIARIES~~prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other then quoted prices that are observable, and inputs derived from or corroborated by observable market data.

~~(FORMERLY~~Level ~~T.O.D.~~3-Inputs ~~TASTE~~are ONunobservable ~~DEMAND~~inputs ~~INC)~~which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

~~NOTES~~An TOasset ~~CONDENSED~~or ~~CONSOLIDATED~~liability’s ~~FINANCIAL~~level ~~STATEMENTS~~within ~~(UNAUDITED)~~the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Availability of observable inputs can vary and is affected by a variety of factors. The Company uses judgment in determining fair value of assets and liabilities and Level 3 assets and liabilities involve greater judgment than Level 1 and Level 2 assets or liabilities.

~~NOTE~~The ~~9. SHORT~~carrying amounts reported in the balance sheets for cash and cash equivalents, restricted cash, accounts receivable, other current assets, short-~~TERM LOANS~~term ~~(Continued)~~loans, accounts payable, taxes payable, advance from customers, other payables, and accrued expenses, approximate their fair market value based on the short-term maturity of these instruments. The Company did not identify any assets or liabilities that are required to be measured at fair value on a recurring basis on the consolidated balance sheets in accordance with ASC 820.

~~Interest~~Advertising expense for the above short term loans totaled $31,133 and $14,218 for the nine months ended June 30, 2010 and 2009, respectively. Interest expense amounted to $11,024 and $4,606 for the three months ended June 30, 2010 and 2009, respectively.Costs

~~NOTE~~The 10Company expenses advertising costs as incurred or the first time the advertising takes place, whichever is earlier, in accordance with the FASB ASC 720-35, “Advertising Costs". ~~INCOME~~ ~~TAXES~~The advertising costs were immaterial for the six months ended March 31, 2011 and 2010, respectively.

~~The~~Research ~~Company~~and isDevelopment governed by the Income Tax Law of the People’s Republic of China concerning private-run enterprises, which are generally subject to income tax at statutory rate on income reported in the statutory financial statements after appropriate tax adjustments.Costs

OnResearch ~~March~~and ~~16,~~development ~~2007,~~costs ~~the~~relating ~~National~~to ~~People’s Congress of China approved~~ the ~~Corporate~~development ~~Income Tax Law~~ of ~~the People’s Republic of China (the New CIT Law), which is effective from January 1, 2008. Under the~~ new ~~law,~~products ~~the~~and ~~corporate income tax rate applicable to all Companies~~processes, including ~~both~~significant ~~domestic~~improvements and ~~foreign-invested~~refinements ~~companies,~~to ~~will~~existing ~~be 25%~~products, ~~replacing~~are ~~the~~expensed ~~old~~when ~~tax~~incurred ~~rate~~in ofaccordance ~~33%. However,~~with ~~pending~~ the ~~detailed~~FASB ~~implementation~~ASC ~~rulings from the tax authorities~~730, we"Research ~~believe~~and ~~that~~Development". ~~some~~Research ofand ~~the~~development ~~tax~~costs ~~concession~~were ~~granted~~immaterial tofor ~~eligible~~the ~~companies~~six ~~prior~~months toended ~~the~~March ~~new~~31, ~~CIT~~2011 ~~laws~~and ~~will~~2010, ~~be grand fathered~~respectively.

~~The following table reconciles the U.S. statutory rates to The Company’s effective tax rate for the nine months ended June 30, 2010 and 2009:~~F-16

	For the nine months ended June 30,
	2010			2009
U.S. statutory income tax rate		35.0	%		35.0	%
Foreign income not recognized in the U.S.		(35.0	%)		(35.0	%)
China Staturoty income tax rate		25.0	%		25.0	%
Net operating loss carry-forward (1)		-			(25.0	%)
China income tax exemption (2)		(0.3	%)
Effective consolidated income tax rate		24.70	%		0.00	%

CHINA ENVIRONMENTAL PROTECTION, INC. AND SUBSIDIARIES

(1)FORMERLY ~~Net~~T.O.D. ~~operating~~TASTE ~~loss~~ON DEMAND ~~carry-forward was used to offset taxable income in PRC.~~INC)

~~(2)~~NOTES ~~China~~TO ~~income~~CONSOLIDATED tax exemption represents the income tax that could be reduced by favorable tax treatment authorized by relevant tax authority on the net income of Jinyu only, which is subject to reduced tax rate of 12.5%, as it is registered as State-recognized high-tech company.FINANCIAL STATEMENTS

~~The~~Note ~~majority~~3- ofSUMMARY ~~the~~OF ~~Company’s~~SIGNIFICANT ~~net~~ACCOUNTING ~~income~~POLICIES was from Zhenyu, which is subject to 25% of corporate income tax rate in PRC. Zhenyu suffered operating losses in 2006 and 2007. For Chinese income tax purpose, these operating losses can be carried forward and be available to reduce future years' taxable income. For the three and nine months ended June 30, 2009, the Company has utilized deferred income tax assets of $260,844 and $386,220. For the three and nine months ended June 30, 2010, the Company has reported income tax of $1,081,709 and $2,557,075, respectively.(continued)

13China Contribution Plan

~~CHINA~~Full ~~ENVIRONMENTAL~~time ~~PROTECTION~~employees ~~INC~~of ~~AND~~the ~~SUBSIDIARIES~~PRC entities participate in a government mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require the Company to pay to the local labor bureau a monthly contribution at a stated contribution rate based on the monthly basic compensation of qualified employees. The relevant local labor bureau is responsible for meeting all retirement benefit obligations; the Company has no further commitments beyond its monthly contribution. The total provisions for such contribution was $7,778 and $6,281 for the six months ended March 31, 2011 and 2010, respectively.

~~(FORMERLY~~The TCompany made the provisions based on the number of qualified employees and the rate and base regulated by the government.O However, the Company did not make full monthly contribution to these funds.D In the event that any current or former employee files a complaint with the PRC government, the Company may be subject to administrative fines. ~~TASTE~~The ONCompany ~~DEMAND~~has ~~INC)~~not experienced any such fines. The Management believes that these fines would be immaterial and no accrual for such fines has been made in this regard.

~~NOTES~~Due TOto ~~CONDENSED~~the ~~CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~CEO

~~NOTE~~Due 10to the CEO is the temporally short-term loans from our chief executive office, director, and majority shareholder, Mr. ~~INCOME~~Li ~~TAXES~~Boping ~~(continued)~~to finance the Company’s operation due to lack of cash resources. These loans are unsecured, non-interest bearing and have no fixed terms of repayment, therefore, deemed payable on demand. Cash flows from these activities are classified as cash flows from financing activates.

~~The following table set forth the detailed information about taxes payable as of June 30, 2010 and September 30, 2009, respectively:~~F-17

	As of
	June 30, 2010		Septemeber 30, 2009
	(Unaudited)
VAT tax payable	$	7,505	$	17,544
Business tax payable		9,892		14,819
Income tax payable		3,865,136		1,308,061
Other tax and fees		1,713		1,493
Total taxes payable	$	3,884,246	$	1,341,918

CHINA ENVIRONMENTAL PROTECTION, INC. AND SUBSIDIARIES

~~NOTE~~(FORMERLY 11T.O.D. ~~OTHER~~TASTE ~~PAYABLES~~ON DEMAND INC)

~~Other~~NOTES ~~payables~~TO ~~consist~~CONSOLIDATED of balances for non-construction costs with unrelated companies and individuals with which the Company has business relationships. These amounts are unsecured, non-interest bearing and generally are short-term in nature. As of June 30, 2010 and September 30, 2009, other payables totaled $388,904 and $437,447, respectively.FINANCIAL STATEMENTS

~~NOTE~~Note ~~12. CONCENTRATION~~3- SUMMARY OF ~~RISKS~~SIGNIFICANT ACCOUNTING POLICIES (continued)

~~Two~~Foreign ~~major~~currency vendors provided approximately 21.434% of the Company’s purchases of raw materials for the nine months ended June 30, 2010, with each vendor individually accounting for 10.78% and 10.65%, respectively. Two vendors provided 44.26% of the Company’s purchase of raw materials for the nine months ended June 30, 2009, with each vendor individually accounting for 24.19% and 20.08%, respectively.translation

~~For~~The Company and Dragon Path maintain its accounting records in the ~~nine~~United ~~months~~States ~~ended~~Dollars ~~June~~(US$), 30whereas Yixing Dragon Path, ~~2010~~Zhenyu, ~~88.81%~~and ofJinyu maintain their accounting records in the ~~Company’s~~currency ~~sales~~of ~~revenue~~Renminbi ~~was~~(“RMB”), ~~generated~~the ~~from~~currency ~~equipment-bundled~~of ~~installation~~the ~~projects~~PRC. For financial reporting purpose, RMB has been translated into USD$ as the reporting currency in accordance with ~~four~~FASB ~~client~~ASC ~~accounted~~830, ~~for~~“Foreign ~~more~~Currency ~~than~~Matters”. 50The financial information is translated into U.~~32%~~S. ofdollars ~~the~~at ~~Company’s~~period-end ~~total~~exchange ~~sales~~rates as to assets and liabilities and average exchange rates as to revenue and expenses. ~~For~~ Capital accounts are translated at their historical exchange rates when the ~~same~~capital ~~period~~transactions occurred. The effects of ~~2009,~~foreign ~~two~~currency ~~clients~~translation ~~accounted~~adjustments ~~for~~are ~~more~~included ~~than~~as ~~45%~~a component of ~~the~~accumulated ~~Company’s~~other ~~total~~comprehensive ~~sales~~income in stockholders’ equity.

~~NOTE~~The ~~13.~~exchange ~~NON-CONTROLLING~~rates ~~INTEREST~~used for foreign currency translation were as follows (USD$1 = RMB):

As of September 30, 2009, non-controlling interest represents the minority stockholders’ proportionate share of 25% of the equity of Jiangsu Jinyu Environmental Engineering Co., Ltd.

Period Covered	Balance Sheet Date Rates		Average Rates

Three Months ended March 31, 2011		6.57010		6.62863
Three Months ended March 31, 2010		6.82590		6.82740
Year ended September 30, 2010		6.69810		6.82135
Year ended September 30, 2009		6.82630		6.83400

OnThe ~~January~~RMB ~~28,~~is ~~2010,~~not ~~Dragon~~freely ~~Path~~convertible ~~acquired~~into ~~the~~foreign ~~25%~~currency ~~equity~~and ~~interst~~all offoreign ~~Jinyu~~exchange ~~from~~transactions ~~its~~must ~~minority~~take ~~shareholder~~place ~~for~~through ~~$280,000~~authorized institutions. As aNo ~~result~~representation ofis ~~this~~made ~~transfer~~that ofthe ~~ownership,~~RMB ~~Dragon~~amounts ~~Path~~could ~~now~~have ~~owns~~been, ~~100%~~or ~~interest~~could ~~of the Jinyu~~be, ~~consisting~~converted ofinto ~~the~~US ~~newly~~dollars ~~acquired~~at ~~25%~~the ~~direct~~rates ~~ownership~~used ~~and~~in ~~75% indirect ownership through Zhenyu~~translation.

~~The~~Statement acquisition was accounted for under the purchase accounting method and the purchase price was allocated to assets and liabilities based on their estimated fair value at the acquisition date. Due to the nature of ~~the~~Cash business and the short operating history of Jinyu, the management has determined that the fair value of the net assets acquired approximates their book value. The excess of the value of the 25% net assets acquired in Jinyu over the purchase price was recorded as gain on bargain purchase and is shown as a separate component of other income in the Company’s condensed consolidated statements of income for the three months and nine months ended June 30, 2010. No bargain purchase gain was reported for the prior comparative period.Flows

14In accordance with ASC 230 "Statement of Cash Flows", cash flows from the Company's operations are calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.

~~CHINA~~Value-added ~~ENVIRONMENTAL PROTECTION INC AND SUBSIDIARIES~~tax

Sales revenue represents the invoiced value of goods, net of a value-added tax (~~FORMERLY~~“VAT”). TAll of the Company’s products that are produced and sold in the PRC are subject to a Chinese value-added tax at a rate of 17% of the gross sales price.O This VAT may be offset by VAT paid by the Company on purchase of raw materials and other materials included in the cost of producing their finished product.D The Company recorded VAT payable and VAT receivable net of payments in the financial statements. ~~TASTE~~The ONVAT ~~DEMAND~~tax ~~INC)~~return is filed offsetting the payables against the receivables.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~F-18

~~NOTE~~CHINA 14ENVIRONMENTAL PROTECTION, INC. ~~COMMITMENTS~~ AND ~~CONTINGENCIES~~SUBSIDIARIES

~~The~~(FORMERLY Labor Contract Law of the People’s Republic of China, effective as of January 1, 2008, requires employers to assure the liability of the severance payments if employees are terminated and have been working for the employers for at least two years prior to January 1, 2008T. ~~It is management’s responsibility to estimate and accrue such possible severance payments~~O.D. AsTASTE ofON DEMAND ~~June 30, 2010, the Company’s condensed consolidated financial statement has not reflected such estimate.~~INC)

~~NOTE~~NOTES ~~15.~~TO ~~SUBSEQUENT~~CONSOLIDATED ~~EVENT~~FINANCIAL STATEMENTS

OnNote ~~August~~3- ~~12,~~SUMMARY ~~2010,~~OF ~~pursuant~~SIGNIFICANT toACCOUNTING ~~the~~POLICIES Board Resolution on the same date, the Company issued total of 169,998 shares of common stock, with par value of $0.001 and fair market value of $2.99 per share, to several employees or consultants for services rendered to the Company during the fiscal year ended September 30, 2010. These shares are subject to standard restrictive legend and constitutes less than one percent of the Company’s issued and outstanding shares of common stock.(continued)

15Sales Tax

~~Item~~The 2Company derives revenue from waste water treatment facility installation projects, which is subject to the sales tax in the PRC. ~~Management’s~~ ~~Discussion~~The ~~and~~sales ~~Analysis~~tax is generally approximately 5% of ~~Financial~~the ~~Condition~~gross sales price and ~~Results~~is included into the costs of ~~Operations~~revenue.

~~You~~Sales ~~should~~Tax read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this document. The following discussion contains forward-looking statements. China Environmental Protection Inc. is referred to herein as “we”, “us”, “our”, or the “Company.” The words or phrases “would be,” “will allow,” “expect to”, “intends to,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” or similar expressions are intended to identify forward-looking statements. Such statements include, among others, those statements concerning our expected financial performance, our corporate strategy and operational plans. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of risks and uncertainties, including, among others: (a) those risks and uncertainties related to general economic conditions in China, including regulatory factors that may affect such economic conditions; (b) whether we are able to manage our planned growth efficiently and operate profitable operations, including whether our management will be able to identify, hire, train, retain, motivate and manage required personnel or that management will be able to successfully manage and exploit existing and potential market opportunities; (c) whether we are able to generate sufficient revenues or obtain financing to sustain and grow our operations; and (d) whether we are able to successfully fulfill our primary requirements for cash which are explained below under “Liquidity and Capital Resources”. Unless otherwise required by applicable law, we do not undertake, and we specifically disclaim any obligation, to update any forward-looking statements to reflect occurrences, developments, unanticipated events or any other circumstances after the date of such statement unless required by law. For additional information regarding these risks and uncertainties, see “Risk Factors”. Our consolidated financial statements have been prepared in accordance with U.S. GAAP. In addition, our consolidated financial statements and the financial data included in this document reflect the Merger and have been prepared as if our current corporate structure had been in place throughout the relevant periods.Affixation

~~Organizational~~Sales ~~History~~tax affixation is in connection with the sales tax and the VAT payment. Sales tax affixation is approximately 9% of the sales tax, or approximately 9% of the VAT payment. Sales tax affixation was paid whenever the sales tax or the VAT was paid. The Company presents the sales tax affixation in the costs of revenue.

~~China~~Income ~~Environmental Protection Inc. (the “Company”), formerly known as T.O.D. Taste On Demand Inc., is a corporation organized under the laws of the State of Nevada.~~taxes

OnThe ~~February 9, 2010, the~~ Company ~~entered~~accounts ~~into~~for anincome ~~Agreement~~taxes ~~and~~in ~~Plan~~accordance ~~of Merger~~ with ~~China~~ASC ~~Environmental~~740 ~~Protection~~“Income ~~Inc~~Taxes”., aDeferred ~~Nevada~~tax ~~corporation~~assets ~~wholly~~and ~~owned~~liabilities byare ~~the~~recognized ~~Company~~for (the ~~“Merger~~expected ~~Sub”),~~future ~~Dragon~~tax ~~Path~~consequences ~~International~~of ~~Limited,~~events athat ~~British~~have ~~Virgin~~been ~~Island~~included ~~corporation~~in ~~(“Dragon Path”), and~~ the ~~sole~~financial ~~shareholder~~statements ofor ~~Dragon~~income ~~Path,~~tax ~~Weihua~~returns. ~~Zhao,~~Deferred ~~pursuant~~tax toassets ~~which~~and ~~the~~liabilities ~~Merger~~are ~~Sub~~determined ~~issued~~based ~~100~~on ~~shares~~the indifference ~~exchange~~between ~~for~~the ~~all~~financial ofstatement ~~the~~and ~~outstanding~~tax ~~capital~~basis ~~stock~~ of ~~Dragon~~assets ~~Path,~~ and ~~the~~liabilities ~~100~~using ~~shares~~enacted ofrates ~~the~~expected ~~common~~to ~~stock~~apply ofto ~~the~~taxable ~~Merger~~income ~~Sub~~in ~~were~~the ~~converted~~years ~~into~~in ~~approximately~~which ~~16,150,000~~those ~~shares~~differences ofare ~~the~~expected ~~common~~to ~~stock~~be ofrecovered ~~the~~or ~~Company~~settled. soThe ~~that~~effect ~~upon~~on ~~completion~~deferred oftax ~~the~~assets ~~Merger,~~and ~~the~~liabilities ~~shareholder~~ of ~~Dragon~~a ~~Path~~change ~~owned~~in ~~approximately~~tax ~~95%~~rates ofis ~~the~~recognized ~~common~~in ~~stock~~income ofin the ~~Company(the~~period ~~“Share~~that ~~Exchange”~~includes orthe ~~“Merger”)~~enactment date.

~~Before~~The ~~the~~Company ~~closing~~adopted ofa ~~the~~new ~~Merger~~FASB guidance, which clarifies the ~~Company~~accounting ~~affected~~for auncertainty 4in income taxes recognized in an enterprise’s financial statements.~~61896118~~ The new FASB guidance prescribes a recognition threshold and measurement attribute for 1the ~~reverse~~financial ~~split~~statement recognition and measurement of ~~the~~a ~~outstanding~~tax ~~common~~position ~~stock~~taken or expected to be taken in a tax return. The new FASB guidance also provides guidance on de-recognition of ~~the~~tax ~~Company~~benefits, soclassification ~~that~~on ~~after~~the ~~such~~balance ~~split~~sheet, ~~there~~interest ~~were~~and ~~approximately~~penalties, ~~issued~~accounting ~~and~~in ~~outstanding~~interim ~~850~~periods,~~000~~ ~~shares~~disclosure, ofand ~~common~~transition. ~~stock~~In ofaccordance with the new FASB guidance, the Company performed a self-assessment and concluded that there were no significant uncertain tax positions requiring recognition in its consolidated financial statements.

~~Upon~~The ~~the~~Company ~~closing~~accounts offor ~~the~~income ~~Merger~~taxes asin ofinterim ~~February~~periods ~~12,~~in ~~2010,~~accordance ~~(i) the Merger Sub merged~~ with ~~and~~FASB ~~into~~ASC ~~Dragon Path~~740-270, ~~(ii)~~"Interim ~~the~~Reporting". The Company’s ~~total~~has ~~number~~determined ofan ~~outstanding~~estimated ~~shares~~annual ~~was~~effective ~~17,000,000,~~tax ~~(iii)~~rate. ~~Dragon~~The ~~Path~~rate ~~became~~will ~~the~~be ~~wholly~~revised, ~~owned~~if ~~subsidiary of the Company~~necessary, ~~(iv)~~as ~~the shareholder~~ of ~~Dragon Path became~~ the ~~owner~~end of ~~95%~~each ofsuccessive ~~the~~interim ~~Company’s~~period ~~common~~during ~~stock, and (v)~~ the Company’'s ~~prior~~fiscal ~~officers~~year ~~and~~to ~~directors~~its ~~resigned,~~best ~~and~~current Mrestimate. ~~Boping~~The Liestimated ~~was~~annual ~~appointed~~effective astax ~~the~~rate ~~Chairman~~is ~~and~~applied ~~Chief~~to ~~Executive~~the ~~Officer,~~year-to-date ~~and~~ordinary ~~Mr.~~income ~~Yuqiang~~(or Wuloss) ~~was~~at ~~appointed~~the asend of the ~~Director~~interim period.

~~Effective March 26, 2010, the Company changed its name from “T.O.D. Taste on Demand, Inc.” to “China Exvironmental Protection Inc.”, and the Company's Over~~F-~~the-Counter Bulletin Board trading symbol was changed from “TOOT” to “CNVP”.~~19

~~The~~CHINA ~~Company~~ENVIRONMENTAL ~~conducts all its business through Dragon Path~~PROTECTION, substantially all of whose operations are conducted through Yixing Dragon Path Environment Technology Limited (“Yixing Dragon Path”), a wholly foreign owned entity (“WFOE”) organized under the laws of PRC on January 26, 2010 INC. ~~Yixing~~ ~~Dragon~~AND Path entered into several exclusive contractual agreements with Jiangsu Zhenyu Environmental Protection Technology Co., Ltd. (“Zhenyu”), a company incorporated in Yixing City, Jiangsu Province, China on March 28, 1993. Pursuant to these agreements, Yixing Dragon Path is obligated to absorb a majority of the risk of loss from Zhenyu’s operation and entitled it to receive a majority of its expected residual returns. In addition, Zhenyu’s shareholders have pledged their equity interest in Zhenyu to Yixing Dragon Path, irrevocably granted Yixing Dragon Path an exclusive option to purchase, to the extent permitted under PRC Law, all or part of the equity interests in Zhenyu and agreed to entrust all the rights to exercise their voting power to the persons appointed by Zhenyu. Through these contractual arrangements, the Company and Yixing Dragon Path hold all the variable interests of Zhenyu. Therefore, the Company is the primary beneficiary of Zhenyu.SUBSIDIARIES

16(FORMERLY T.O.D. TASTE ON DEMAND INC)

~~Based~~NOTES onTO ~~these~~CONSOLIDATED contractual arrangements, the Company believes that Zhenyu and its subsidiary and affiliates should be considered as Variable Interest Entity (“VIE”) under the provisions of Accounting Standards Codification (“ASC”) 510 “Consolidation of Variable Interest Entities”. Accordingly, the Company consolidates Zhenyu and its subsidiary’s results, assets and liabilities.FINANCIAL STATEMENTS

~~Zhenyu~~Note ~~owns~~3- ~~75%~~SUMMARY ~~equity~~OF ~~interest~~SIGNIFICANT ofACCOUNTING ~~Jiangsu~~POLICIES ~~Jinyu Environmental Engineering Co., Ltd.~~ (~~“Jinyu”~~continued). On January 28, 2010, Dragon Path also acquired the remaining 25% equity interest of Jinyu from its minority shareholder for an amount of $280,000. As a result, Dragon Path currently owns 100% interest of Jinyu, consisting of the newly acquired 25% direct ownership and 75% indirect ownership through Zhenyu.

~~Our~~Segment ~~structure is set forth in the diagram below:~~Reporting

17 FASB ASC 820, “Segments Reporting”, establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in financial statements. The Company currently operates in two principal business segments, sales of waste water treatment equipment and equipment-bundled installation of waste water treatment facility.

~~Business~~Comprehensive ~~Overview~~income

WeFASB ~~conduct~~ASC ~~our~~220, ~~business~~“Comprehensive inIncome”, ~~China~~establishes ~~primarily~~standards ~~through~~for ~~our~~reporting ~~variable interest entities Zhenyu~~ and ~~Jinyu. We~~display ~~are~~of acomprehensive ~~prominent~~income, ~~China-based~~its ~~water~~components ~~treatment equipment supplier~~ and ~~project~~accumulated ~~contractor~~balances. ~~Holding~~Comprehensive ~~five~~income ~~national~~as ~~patents~~defined ~~and~~includes ~~through~~all ~~sixteen~~changes ~~years~~in ofequity ~~development,~~during wea ~~have~~period ~~relatively~~from ~~strong~~non-owner ~~market~~sources. ~~share~~Accumulated incomprehensive ~~waste~~income, ~~water~~as ~~treatment~~presented ~~sector~~ in ~~China~~the ~~and~~accompanying ~~are~~consolidated ~~ranked~~statements ~~among top six~~ of ~~Yixing~~changes ~~City’s~~in ~~best~~owners' ~~environmental~~equity ~~protection~~consists ~~enterprises~~of ~~based~~changes onin ~~Yixing~~unrealized ~~Municipal~~gains ~~Government’s~~and ~~ranking~~losses ofon ~~2009~~foreign ~~outstanding~~currency ~~environment~~translation. ~~protection~~This ~~enterprises~~comprehensive ~~(Yizhengfa~~income ~~Document No.[2010]18). Yixing~~ is ~~the~~not ~~country’s~~included ~~production base for environmental protection equipment. We are headquartered~~ in ~~Yixing,~~the ~~Jiangsu,~~computation ~~with total building areas~~ of ~~7,800~~income ~~square~~tax ~~meters.~~expense Asor ~~of June 30, 2010, we have 171 employees in total~~benefit.

WeEarnings ~~carry~~per out our business based on two models: (i) Equipment sales from customer orders; (ii) Project installation which includes the design, manufacturing and installation of waste water treatment equipment. We acquire our product orders and projects through a transparent auction bid process. In terms of pricing strategy, we have a flexible pricing policy to target different market segments and different customers.share

~~Our~~The ~~key~~Company ~~products~~computes ~~include~~earnings ~~ZFP-1380~~per ~~Rotating~~share ~~Disc~~(“EPS”) ~~Aeration~~in ~~equipment~~accordance with the ASC 260, ~~ZYXG~~“Earnings ~~Series~~per share” which requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of ~~Sludge~~potential ~~Suction~~common ~~Scraper~~shares (e.g., ~~ZYSR~~convertible ~~Series~~securities, options and warrants) as if they had been converted at the beginning of ~~Surface~~the ~~Scraper~~periods ~~and~~presented, ~~other~~or ~~water~~issuance ~~treatment~~date, ~~Environmental~~if ~~protection~~later. ~~equipment~~Potential common shares that have an anti-dilutive effect (i.e., ~~These~~those ~~products~~that ~~can~~increase beincome ~~divided~~per ~~into~~share ~~four~~or ~~categories:~~decrease loss per share) are excluded from the calculation of diluted EPS. There are no potentially dilutive securities outstanding (options and warrants) for the six months ended March 31, 2011 and 2010, respectively.

~~i. Circulating water treatment equipment~~F-20

~~ii.~~CHINA ~~Water~~ENVIRONMENTAL ~~purification~~PROTECTION, INC. ~~equipment~~AND SUBSIDIARIES

~~iii~~(FORMERLY T.O.D. ~~Waste~~TASTE ~~water~~ON DEMAND ~~treatment equipment~~INC)

~~iv.~~NOTES ~~Municipal~~TO ~~waste~~CONSOLIDATED ~~water treatment equipment~~FINANCIAL STATEMENTS

~~The~~Note ~~following~~3- ~~table~~SUMMARY ~~summarizes~~OF ~~our~~SIGNIFICANT ~~four~~ACCOUNTING ~~product~~POLICIES ~~lines:~~(continued)

	Circulating Water Treatment	Water Purification	Waste Water Treatment	Municipal Waste Water Treatment
Production Commencing Time	1993	1994	1996	2000
Name Of Major Product Under Each Product Line	Cooling tower, Mechanical accelerated clarification basin, Lime storage silo	Gravel filter, Automatic filter and Equipment for dealing with municipal sewage Reverse Osmosis System and devices Ultra Filtration Device	Equipment for dealing with sewage with waste coal, dealing with sewage with waste oil	Mechanical Grid, Grid of rotating drum, Whirlwind sand-settling machine, Peripheral-driven sludge scraper, Oxidation rotating disc aeration equipment, Rotatory decanter, etc.
Product Usage Example	Cooling Tower: used to cool high temperature water for recycling and reusing, often applied to enterprises in smelting industry Mechanical accelerated clarification basin: stratify (or separate) the clear water out of the sewage for recycling and reusing through increasing the coagulation of sewage and water treatment	Gravel filter and automatic filter: remove the large grain-shaped impurities, such as gravel, suspended solids, organic materials, etc. Reverse osmosis system and devices and Ultra filtration device: with the aid of reverse osmosis films, split heavy metal, pesticides, bacteria and suspended solids out of the waste water in order to purify the water	Integrated processing and treatment of the sewage and waste water from electricity plants	Integrated processing and treatment of industrial sewage, municipal sewage (through our oxidation ditch treatment process and SBR techniques) to lower (or) remove the suspended solids in sewage, lower BOD and COD, and make the water meet the national standards
Applied Industry	Applied to electricity industry, crude oil and chemical industry, steel smelting industry	Applied to electricity, petroleum and chemical, steel and smelting industries as well as to municipal waste water treatment	Applied to electricity industry	Applied to treatment of industrial waste and municipal waste water

Concentration of credit risk

18 Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of accounts receivables and other receivables. The Company does not require collateral or other security to support these receivables. The Company conducts periodic reviews of its clients' financial condition and customer payment practices to minimize collection risk on accounts receivables.

~~The~~Amendment ~~major~~to ~~characteristics~~the ~~and~~articles ~~competitive advantages~~ of ~~our core products include:~~incorporation

lEffective ~~ZFP-1380~~on ~~Rotating~~February ~~Disc~~12, ~~Aeration~~2010, ~~equipment-~~The ~~High~~Company ~~efficiency~~filed inwith ~~adding~~the ~~oxygen,~~Nevada ~~low~~Secretary ~~energy~~of ~~consumption~~State ~~rate,~~a ~~easy~~Certificate toof ~~maintain~~Amendment ~~and~~to ~~long~~its ~~useful~~Articles ~~life~~of Incorporation. The amendment effected

l(1) ~~ZYSR~~a ~~Rotatory~~reverse ~~Decanter-~~stock ~~Smart~~split ~~LCD~~of ~~control,~~the ~~high~~Company's ~~efficiency~~common stock in ~~prevention~~the ratio of ~~slag,~~1:4.61896118. ~~large~~The ~~volume~~number of ~~water~~common ~~decanting,~~stocks ~~long~~issued ~~stroke~~and outstanding immediately after the reverse stock split was 850,017. ~~reliable~~All ~~seal~~share and ~~lower~~per ~~power~~share ~~consumption~~information included in these consolidated financial statements have been adjusted to reflect this reverse stock split.

l(2) ~~ZYXG~~an ~~Peripheral-~~increase ~~Driven~~of ~~Sludge~~the ~~Suction~~par ~~Scraper-max~~value ~~width~~ of the ~~bridge~~preferred ~~reaches~~stock 60and ~~meters,~~the ~~supported~~common bystock afrom ~~center~~$0.001 ~~pedestal~~per ~~and~~share ~~with~~to ~~stable~~$0.01 ~~mechanical~~per ~~properties~~share.

l(3) ~~ZYTS~~a ~~Air~~decrease ~~Sand~~of ~~Bailer-~~the ~~Absorb~~number ~~gravel~~of ~~sands~~the ~~thoroughly~~authorized ~~with~~common nostock ~~jam~~from 160,000,000 to 34,639,823.

~~Jinyu primarily~~Recent ~~engages~~accounting ~~in the design, manufacture and installation of environmental protection equipment and engineering projects (or systems) for waste water treatment, as well as provide after-sales services to customers.~~pronouncements

~~For~~In January 2011, the ~~nine~~FASB ~~months~~temporarily ~~ended~~deferred ~~June~~the ~~30,~~disclosures ~~2010~~regarding troubled debt restructurings which were included in the disclosure requirements about the credit quality of financing receivables and the allowance for ~~the~~credit ~~most~~losses ~~recent fiscal~~which ~~year~~was ~~ended~~issued ~~September~~in 30July 2010. In April 2011, ~~2009~~the FASB issued additional guidance and clarifications to help creditors in determining whether a creditor has granted a concession, weand ~~generated~~whether ~~approximately~~a ~~net~~debtor ~~revenues~~is experiencing financial difficulties for purposes of $determining 41whether ~~million~~a restructuring constitutes a troubled debt restructuring. The new guidance and $the 26previously ~~million~~deferred disclosures are effective July 1, ~~respectively~~2011 applied retrospectively to January 1, ~~with~~2011. ~~net~~Prospective ~~income~~application is required for any new impairments identified as a result of $this 7guidance.77 ~~million~~The ~~and~~Management $does ~~6.018~~not ~~million~~expect ~~respectively~~the ~~for~~adoption of this new guidance will have a material effect on the ~~periods~~Company’s ~~indicated~~financial position, results of operations, and cash flows.

~~Factors Affecting Our Results of Operations~~F-21

WeCHINA ~~believe~~ENVIRONMENTAL ~~that~~PROTECTION, ~~the~~INC. AND ~~following factors will continue to affect our financial performance:~~SUBSIDIARIES

~~Increasing~~(FORMERLY ~~Demand~~T.O.D. ~~for~~TASTE ~~Water~~ON ~~Treatment~~DEMAND ~~Equipment~~INC)

~~The~~NOTES ~~rapid~~TO ~~growth~~CONSOLIDATED inFINANCIAL the water treatment equipment industry in China positively affects our financial result. The growth was driven by several key factors, including growth in population, industrialization and urbanization, and Chinese government’s economic stimulus plan released at the end of 2008. According to the Freedonia Group, the demand for water treatment products in China is estimated to increase nearly 15.5% per year through 2012. As the Chinese government imposes stricter environmental and water quality standards to promote sustainable economic growth, we anticipate that water treatment will become a priority issue for municipalities, industries and commercial businesses.STATEMENTS

OnNote ~~November 5,~~4- ~~2008,~~ACCOUNTS the State Council of China announced an economic stimulus plan in the amount of $585 billion to stimulate economic growth and bolster domestic demand. The economic stimulus plan includes, among others, increased spending on basic infrastructure construction projects for water, electricity, gas and heat to improve the standard of living in China and protect the environment. Because of the economic stimulus plan and the projected increase in demand for affordable purified water as China continues to industrialize and modernize, we believe that the water treatment industry, and in turn the demand for our products and related project engineering, will continue to experience strong growth for the foreseeable future.RECEIVABLE

~~Fluctuations~~Accounts inreceivable ~~Raw~~consists ~~Material~~of ~~and~~the ~~Components Costs~~following:

Major raw materials used in our production process include steel, polyresen, industrial chemicals, standardized mechanical parts, and electrical elements. 98% of our raw materials and parts were purchased locally. For parts that have to be imported, we choose to cooperate with the local agents of such foreign companies as SEW, Ruode, and Siemens. Some raw materials and components, especially steel, have been susceptible to fluctuations in price and availability. Significant increases in raw materials and components prices will have a direct and negative impact on our gross profits.

	March 31,			September 30,
	2011			2010
	(unaudited)
Accounts receivable	$	15,707,327		$	3,760,751
Less: Allowance for doubtful accounts		(10,973,291	)		(2,945,185	)
Accounts receivable, net	$	4,734,036		$	815,566

19 Bad debt expense charged to operations was $8,028,106 and $68,163 for the six months ended March 31, 2011 and 2010, respectively.

~~Intellectual~~Note ~~Property~~5- INVENTORY

WeThe ~~believe~~inventory ~~that~~consists ~~our~~of ~~patents,~~the trademarks, trade secrets and other intellectual property rights are critical to our business. We rely on trademark and copyright laws, trade secret protection, non-competition and confidentiality and/or licensing agreements with our executive officers, clients, research and development personnel and others to protect our intellectual property rights. We do not possess any licenses to use third-party intellectual property rights nor do we license to third-parties any intellectual property rights we own.following

a) Patents

	March 31,		September 30,
	2011		2010
	(unaudited)
Finished goods	$	1,333,386	$	2,576,575
Work-in-process		122,306		2,300,589
Raw materials		270,275		4,168,226
Total	$	1,725,967	$	9,045,390

WeNo ~~now~~allowance ~~owns~~for ~~five~~obsolete ~~national~~inventories ~~patents,~~was ~~four~~charged ~~of them are functional innovations and one is related~~ to ~~exterior~~operations ~~design. In 2009, we submitted applications~~ for the three ~~new~~months ~~patents~~ended ~~and~~December ~~as of June 30~~31, 2010, ~~these~~and ~~applications are still pending for approval by relevant authorities~~2009.

~~The~~Note ~~following~~6- ~~table~~PROPERTY, ~~summarizes~~PLANT ~~the~~AND ~~basic information of our patents:~~EQUIPMENT

Name of the patent	Innovator	Application number	Date of application	Date of public	Patent number	Effective period
Oxidation Rotating Disc	Boping Li & Jieping Wang	150178	9/25/1999	5/18/2000	ZL99325340.7	10 years
Improved Oxidation Rotating Disc	Boping Li & Jieping Wang	394958	10/4/1999	7/7/2000	ZL99229570.X	10 years
Improved Oxidation Rotating Disc	Boping Li & Jieping Wang	415406	2/16/2000	11/25/2000	ZL00219414.7	10 years
Improved Oxidation Rotating Disc	Boping Li & Jieping Wang	427729	5/16/2000	3/1/2001	ZL00220296.4	10 years
Improved Rotating Disc and Bearing	Boping Li & Jieping Wang	729298	4/30/2003	9/28/2005	ZL03221600.9	10 years
Improved Water Decanter	Boping Li & Jieping Wang	616921	4/30/2003	5/12/2004	ZL03221599.1	10 years

The detail of property, plant and equipment is as follows:

b) Trademark

	March 31,			September 30,
	2011			2010
	(unaudited)
Building and warehouses	$	1,711,681		$	1,678,971
Machinery and equipment		268,062			262,940
Office equipment and furniture		84,181			78,336
Motor vehicles		146,237			143,442
Sub total		2,210,161			2,163,689
Less: accumulated depreciation		(706,732	)		(627,331	)
Total property, plant and equipment, net	$	1,503,429		$	1,536,358

~~Our~~Depreciation ~~“Zhenyu”~~expense ~~trademark~~charged ~~(No~~to operations was $66,589 and $65,737 for the six months ended March 31, 2011 and 2010, respectively.~~5213411)~~ ~~has~~Depreciation ~~been~~expense ~~approved~~with byrespect to production equipment that was charged to cost of sales was $31,392 and $30,207 for the ~~national~~six ~~authority~~months ended March 31, 2011 and 2010. WeThe ~~also~~remainder, ~~have~~depreciation ~~filed~~expense ~~two~~attributable ~~other~~to ~~trademark~~equipment ~~applications~~used ~~which~~in ~~are~~administration, ~~now~~was ~~under~~$35,197 ~~review~~and by$35,530 for the ~~National~~six ~~Trademark~~months ~~Bureau~~ended March 31, 2011 and 2010, respectively, and was included in general and administration expenses.

~~Sales and Marketing~~F-22

WeCHINA ~~sell~~ENVIRONMENTAL PROTECTION, ~~our products and services primarily through direct sales~~INC. ~~Our~~AND ~~sales strategy is to appoint our sales representatives to market our products to targeted customers on a one-on-one basis.~~SUBSIDIARIES

~~In addition to the above sales strategy, we also have refined our strategies to target certain specific industries~~(FORMERLY T. For example, we have appointed sales representative in Jinmen, Hubei Province in order to promote our sales to the local branch of a leading petrochemical company; We also have appointed sales representative in Beijing in order to manage our projects with one of our important customers in Beijing and to promote our services to other companies in the electricity industry; In 2009, we newly appointed sales representatives in Xinjiang and Inner Mongolia in order to promote our equipment sales and engineering installation projects with targeted customers in the crude oil and electricity industry, respectivelyO.D. WeTASTE ~~believe~~ON ~~that~~DEMAND ~~this strategy will help us broaden the market coverage of our products and services.~~INC)

20NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Major~~Note ~~Customers~~7- INTANGIBLE ASSET-LAND USE RIGHT

~~Our~~The ~~major~~following ~~customers~~is ~~and~~a ~~product~~summary of ~~application~~land ~~include~~use right, less amortization:

i. Crude Oil and Chemical Industry- Our products for this industry include large-scale circulating water cooling tower equipment, filtering and purification equipment, devices for adding chemical reagents, deodorization project. We entered into the crude oil industry through our cooperative water treatment project with a leading Chinese petrochemical company. Our success and reputation gained from this project enabled us to expand our business in this industry.

	March 31,			September 30,
	2011			2010
	(unaudited)
Land use right	$	1,212,310		$	1,189,143
Less: Amortization		(92,944	)		(79,276	)
Land use right, net	$	1,119,366		$	1,109,867

iiAmortization expense charged to operations was $12,016 and $11,666 for the six months ended March 31, 2011 and 2010, respectively. ~~Municipal~~Amortization ~~Waste~~expense ~~Water~~with respect ~~Treatment-~~to ~~One~~the area where the production facility is located was charged to cost of ~~our~~revenues ~~sewage~~was ~~treatment~~$4,624 ~~projects~~and in$4,489 ~~Henan~~for ~~has~~the ~~helped~~six months usended ~~successfully~~March ~~win~~31, 2011 and 2010, respectively. The remainder, amortization expense attributable to the ~~bid~~area onwhere ~~several~~the ~~other~~administration facility ~~projects~~is located , was $7,392 and $7,177 for the six months ended March 31, 2011 and 2010, respectively, and was included in general and administration expenses.

~~iii.~~Note ~~Electricity and Smelting Industry~~8- Our products and services in these areas include chemistry water treatment equipment, boiler water supply equipment, condensate treatment equipment and industrial waste water recycling and reusing equipment. Our successful project with a leading Chinese electricity power companyhelped us maintain longSHORT-~~term~~TERM ~~cooperative~~BANK ~~relationship with the “Big Four” state-owned electricity companies, namely China Huaneng Group, China Power Investment Corporation, China Guodian Corporation, and China Datang Corporation.~~LOAN

~~iv.~~Short-term ~~Transportation~~bank ~~and~~loans represent ~~Infrastructure~~amounts ~~Construction~~due ~~Industry-~~to ~~Our~~a ~~projects~~local inbank ~~this~~and ~~area~~are ~~include~~due on the ~~design,~~dates ~~manufacturing~~indicated ~~and~~below. ~~installation~~These ofloans ~~waste~~generally ~~water~~can ~~treatment~~be ~~equipment~~renewed ~~related~~with tothe bank. ~~highway~~Short-term ~~construction.~~bank loans consisted of the following:

We normally sell our waste water treatment equipments to a wide range of customers. Since late 2009, we have shifted our business strategy from traditional equipment sales to focus on equipment-bundled installation projects, which have a 5% to 10% higher profit margin. As a result, some of the installation projects may account for significant percentage of our total sales revenue. For the nine months ended June 30, 2010, 88.81% of our sales revenue was generated from equipment-bundled installation projects, with four client accounted for more than 50.32% of our total sales. For the same period of 2009, two clients accounted for more than 45% of our total sales.

		March 31,		September 30,
		2011		2010
		(unaudited)
a)	Loan payable to China Construction Bank	$	-	$	746,480
	1 year term from 12/3/2009 to 12/2/2010
	a fixed interest rate of 0.487% per month

b)	Loan payable to China Construction Bank		761,023		-
	1 year term from 12/6/2010 to 12/5/2011
	a fixed interest rate of 0.487% per month
	Total	$	761,023	$	746,480

~~Raw~~a) ~~Materials~~The ~~and~~loan ~~Major~~payable ~~Vendors~~to China Construction Bank is one year term from December 3, 2009, to December 2, 2010 with a fixed interest rate of 0.4867% per month. The Company pledged a land use right in an amount of approximately $0.28 million as well as a building in an amount of approximately $0.52 million as collateral for the loan. This loan was paid back in December 2010.

~~Major~~b) ~~raw~~The ~~materials~~loan ~~used~~payable into ~~our~~China ~~equipment~~Construction ~~manufacturing~~Bank ~~process~~is ~~include~~one ~~steel,~~year ~~polyresen,~~term ~~industrial~~from ~~chemicals~~December 6, ~~standardized~~2010, ~~mechanical~~to ~~parts~~December 5, ~~and~~2011 ~~electrical~~with ~~elements;~~a ~~98%~~fixed interest rate of ~~our~~0.4867% ~~raw~~per ~~materials~~month. ~~and~~The ~~parts~~Company ~~were~~pledged ~~purchased~~a ~~locally.~~land ~~For~~use ~~those~~right ~~parts~~in ~~that~~an ~~have~~amount toof beapproximately ~~imported,~~$0.28 wemillion ~~choose~~as towell ~~cooperate~~as ~~with~~a ~~the~~building ~~local~~in ~~agents~~an amount of ~~such~~approximately ~~foreign~~$0.52 ~~companies~~million as ~~SEW,~~collateral ~~Ruode,~~for ~~and~~the ~~Siemens~~loan.

~~Over~~Interest expense for the ~~past~~above ~~years~~short term loans totaled $20,160 weand ~~have~~$16,208 ~~established~~for ~~strategic~~the ~~long~~six ~~term~~months ~~relationship~~ended ~~with~~March ~~our~~31, ~~suppliers~~2011 and 2010, respectively. InWe ~~order~~remitted tointerest ~~guarantee~~payment ~~our~~upon ~~raw~~receiving ~~material~~the ~~supply,~~bank's wemonthly ~~typically~~notice. ~~keep~~The ainterest ~~list~~amount ofin ~~multiple~~the ~~vendors~~bank's ~~for~~notice ~~each~~may ~~category~~be ofdifferent ~~materials~~from ~~rather~~the ~~than~~amount ~~using~~calculated anbased ~~exclusive~~on ~~vendor~~the interest rate descripted in the loan agreements.

Our purchase of raw materials from our two largest vendors accounts for approximately 21.43% of our total purchases of raw materials for the nine months ended June 30, 2010, with each vendor individually accounted for 10.78% and 10.65%, respectively. Two vendors provided 44.26% of the Company’s purchase of raw materials for the nine months ended June 30, 2009, with each vendor individually accounting for 24.19% and 20.08%, respectively.F-23

~~Product~~CHINA ENVIRONMENTAL ~~Delivery~~PROTECTION, INC. AND SUBSIDIARIES

We(FORMERLY T.O.D. ~~strive~~TASTE toON ~~deliver~~DEMAND ~~our products or services to our customers on a timely basis.~~INC)

~~For~~NOTES TO ~~orders~~CONSOLIDATED ofFINANCIAL our equipment in small quantity, we use China Railway Express or our own transportation vehicles for the delivery. For large-scale equipment or larger orders of our equipment, we rely on logistics companies to make the delivery. In order to ensure timely delivery of our products to our customers, we have maintained good business relationship with our local logistics companies to guarantee our product delivery.STATEMENTS

~~Quality~~Note ~~Control~~9- TAXES PAYABLE

WeThe ~~emphasize~~taxes ~~quality~~payable control to ensure that our products and projects meet our standards and provide high quality service. We have implemented a rigid quality control system and devote significant attention to quality control procedures at every stage consists of our manufacturing process. We monitor our manufacturing process closely and conduct performance and reliability testing to ensure our products to meet our end-user customers’ expectations. In addition, we regularly seek feedback from our end-user customers on the ~~quality of our products.~~following:

	March 31,		September 30,
	2011		2010
	(unaudited)
Income tax payable	$	1,977,225	$	1,725,048
VAT payable		2,279		32,438
Sales taxes and sales taxes affixation payable		1,648		-
Other taxes payable		11,223		11,009
Total taxes payable	$	1,992,375	$	1,768,495

InNote ~~2000,~~10- weSEGMENT acquired certificate of ISO9001. In terms of internal quality control in inventory management, we perform strict quality inspection on purchased materials and parts before warehousing. Inspection is conducted based on material quality, physical dimension, models and performance testing, etc. Personnel from our technology department, purchasing department, quality inspection department and warehouse participate in this process.REPORTING

WeThe Company ~~perform~~currently ~~strict~~operates ~~quality~~in ~~inspection~~two principal business segments, sales of waste water treatment equipment and ~~performance~~equipment-bundled installation ~~testing~~of inwaste ~~our~~water ~~manufacturing~~treatment ~~process~~facility, which are determined based upon differences in ~~order~~products and services. The Company does not allocate any operating expenses or assets to ~~ensure~~its ~~our~~two ~~finished~~business ~~goods~~segments ~~meet~~as management does not use this information to measure the ~~quality~~performance ~~standards~~of the operating segments. Certain costs of revenues are shared between business segments. Also, no measures of assets by segment are reported and ~~customer~~used ~~demand~~by the chief operating decision maker. Hence, the Company has not made disclosure of total assets by reportable segments.

~~Research~~The ~~and~~summarized ~~Development~~information by business segment follows:

In light of the rapid development of environmental protection industry and huge market demand emerging from the Chinese market, we are committed to strengthening our R&D abilities. In 1999, we established a cooperative relationship with Shanghai Tongji University to form a Rotating Disc Aeration Testing Center, focusing on research and development as well as technological improvement activities on rotating disc aeration equipment. Our R&D effort on this matter enabled us to obtain four national patents.

	For the Six Months Ended
	March 31,
	2011		2010
	(unaudited)		(unaudited)
REVENUE
Sales of Installation projects	$	24,850,263	$	17,145,371
Sales of equipment		714,492		1,049,179
Total revenue	$	25,563,122	$	18,194,550

COST OF SALES
Cost of installation projects	$	17,229,686	$	11,743,602
Cost of equipment		523,035		718,994
Total costs of revenue	$	17,751,088	$	12,462,596

GROSS PROFITS
Sales of Installation projects	$	7,620,577	$	5,401,769
Sales of equipment		191,457		330,185
Total gross profit	$	7,812,034	$	5,731,954

We established our own R&D center in September 2007 with eight technical personnel specializing in R&D activities. As a result, an innovative product, ZYTS Air Sand Bailer, has been developed by our R&D staff for our client in Sichuan.

	March 31,		September 30,
	2011		2009
	(unaudited)
TOTAL ASSETS OF THE COMPANY	$	14,614,820	$	23,934,172

Our current R&D focus includes (a) extension of the basic sewage treatment projects, such as engineering construction of sewage treatment plants in Hubei and Hunan provinces, and (b) advanced water treatment with technological innovation such as membrane treatment and biological packing for old sewage treatment plants remodeling along developed coastal areas in China.F-24

~~Competition~~CHINA ENVIRONMENTAL PROTECTION, INC. AND SUBSIDIARIES

~~The waste water treatment industry in China is highly competitive~~(FORMERLY T. ~~We compete primarily on the basis of customer recognition and industry reputation, market coverage, research and development strength, comprehensive product offerings, and a competitive cost structure~~O. We believe that we have some competitive advantages over our international competitors because of our relatively low cost structure, our good relationship with local government, our advanced technology applied in our manufacturing process, our patent protection as well as our sufficient manufacturing capacity and capabilityD. -.TASTE InON ~~order~~DEMAND ~~to maintain and enhance our competitive advantage, we must continue to focus on competitive pricing and technological innovation by improving our proprietary manufacturing processes.~~INC)

~~Employees~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AsNote of11- ~~June~~CORPORATE ~~30,~~INCOME ~~2010, we had 171 full time employees. The following table sets forth the number of our full time employees for the period indicated:~~TAXES

	As of June 30, 2010
Management	9
R&D	8
Manufacturing	107
Sales and marketing	29
Quality control	5
Administrative and human resource	9
Accounting and finance	4
Total	171

Dragon Path is registered in the BVI. Under the current laws of the BVI, the Company is not subject to tax on income or capital gains. Additionally, upon payments of dividends by the Company to its shareholders, no BVI withholding tax will be imposed. Dragon Path had no income during the period.

~~Properties~~PRC Income Tax

~~Our~~The Company's ~~principal~~PRC ~~executive~~subsidiaries, ~~offices~~Yixing ~~are~~Dragon ~~located~~Path, ~~at West Garden~~Zhenyu, ~~Gaocheng~~and ~~Town,~~Jinyu ~~Yixing~~are ~~City,~~governed ~~Jiangsu~~by ~~Province,~~the ~~P.R.~~Income ~~China,~~Tax ~~214214.~~Law Weof ~~obtained~~the aPeople’s ~~land~~Republic of ~~use~~China ~~right~~concerning ofprivate-run 10enterprises,~~619~~ ~~square~~which ~~meters~~are ~~(approximately~~generally ~~114,302~~subject ~~square~~to ~~feet)~~income ~~from~~tax ~~the~~at ~~relevant~~statutory ~~PRC~~rate ~~land~~on ~~authority~~income reported in the ~~April~~statutory ~~2007.~~financial Westatements ~~have~~after ~~the~~appropriate ~~right~~tax toadjustments. ~~use~~The ~~the~~PRC ~~land~~companies ~~for~~are 50subject ~~years~~to oneffective ~~which~~income ~~our~~tax ~~office~~rate of ~~premises,~~25% ~~production~~beginning ~~facilities~~from ~~and~~January ~~warehouse~~1, ~~are situated~~2008.

22The following table reconciles the U.S. statutory rates to the Company’s effective tax rate:

Discussion of Operation Result

	For the Six Months Ended
	March 31,
	2011			2010

U.S. Statutory income tax rate		35.00	%		35.00	%
Foreign income not recognized in the U.S.		-35.00	%		-35.00	%
China Statutory income tax rate		25.00	%		25.00	%
Net operating loss carry-forward		-7.38	%		0.00	%
Effective tax rate		17.62	%		25.00	%

~~Operation~~The Company ~~Results~~and ~~for~~its majority owned subsidiary, Yixing Dragon, Zhenyu, and Jinyu suffered operating losses in the ~~three~~prior ~~Months~~years' ~~Ended~~operations. For ~~June~~the 30Chinese income tax purpose, these operating losses can be carried forward in in a 5-year period and be available to reduce future years' taxable income. The Management believes that the realization of the deferred tax asset arising from the operating losses of Jinyu is the best interest to the Company's business operations to offset future taxable income. Since there is no certainty that Yixing Dragon will generate taxable income in the future, the Management established a 100% valuation allowance for the operation losses carried forward by Yixing Dragon Path and no deferred tax assets have been recorded as a result of these losses. Beginning from October 2010, since there is no certainty that Zhenyu will generate taxable income in the future, the Management established a 100% valuation allowance for the operation losses carried forward by Zhenyu and ~~2009~~no deferred tax assets have been recorded as a result of these losses.

~~Revenues~~Deferred income tax reflects the net effects of temporary difference between the carrying amounts of assets and liabilities for financial statements purposes and the amounts used for income tax purposes, and operating loss carry-forward.

During the three months ended June 30, 2010, we reported revenues of $15.8 million as compared to $8.24 million for the three months ended June 30, 2009, an increase of $7.58 million, or 92.01%. The increase in our revenue for the three months ended June 30, 2010 compared to the prior comparative period was attributable to the following reasons (1) in the same period of prior year, we still focused on equipment sales, rather than on equipmentF-bundled installation projects which normally have a 5% to 10% higher profit margin than ordinary equipment sales. Started from 2009, our company's business has undergone a big transition from traditional equipment sales to focus on the equipment installation projects. This transition has helped us to generate more sales revenue, (2) the market demand in China for high-quality waste water treatment equipment was huge, especially as more and more old waste water treatment plants all over China are undergoing improvement or upgrades, as required by many local governments, such market demand enables us to grasp more market opportunities to generate more revenue, (3) our rich experience in this industry and well-known brand has helped us to win customer trust, resulting many clients are willing to establish good long-term relationship with us, and referring us to other new clients, (4) we own several patents which technically helped to increase our voting power in the contract bidding process to successfully acquire customer orders, (5) we have established good relationship with many local engineering design institutes and their decisions normally play an important role to affect many clients in the project bidding process. Our good relationship with these engineering institutes has greatly helped us to obtain product orders or installation projects, (6) during the three months ended June 30, 2010, we strengthened our marketing efforts targeting several important market areas and several potential clients and eventually successfully obtained these product orders and projects. Among them, Hua Ning Waste Water Treatment Plant, Ningbo Beilun Waste Water Treatment Plant project phase III, Henan Zhengzhou Xinli Electricity Plant Waste Water Treatment Project as well as Chongqing Yudong Waste Water Treatment Plant have accounted for 17.3%, 11.84%, 10.78% and 10.4% of our total revenues respectively, and (7) during the three months ended June 30, 2010, we improved our after-sales services and dedicated to maintain a long-lasting good relationship with many of our old customers, which also helps us attract new clients throught old clients' referral. 25

~~Cost~~CHINA ENVIRONMENTAL ofPROTECTION, ~~Revenue~~INC. AND SUBSIDIARIES

~~During the three months ended June 30, 2010, our cost of revenue was $10~~(FORMERLY T.~~1 million as compared to $5~~O.~~35 million during the three months ended June 30, 2009, an increase of $4,817,203, or 90~~D.~~00%. The~~ ~~increase~~TASTE inON ~~cost~~DEMAND of revenue was primarily due to increased sales and associated sales taxes levied by various tax authorities, increased direct labor costs and increased prices of raw materials used in our manufacturing and installation projects for the three months ended June 30, 2010 as compared with that of in the prior comparative period.INC)

~~Gross~~NOTES TO ~~profit~~CONSOLIDATED FINANCIAL STATEMENTS

~~For~~Note ~~the~~11- ~~three~~CORPORATE ~~months~~INCOME ~~ended~~TAXES June 30, 2010, the our gross profit was $5.66 million, an increase of $2.77 million or 95.73%, as compared with that of for the three months ended June 30, 2009. Our overall gross profit as a percentage of revenues increased to 35.78% in the three months ended June 30, 2010 compared to 35.10% in the comparable period in the prior year. The increase in our gross profit was because (1continued) during the three months ended June 30, 2009, our business operation was still limited to traditional equipment sales which was characterized as relatively small sales quantities, higher production costs and relatively lower profit margin, (2) started from the middle of 2009, we have shifted our business strategy to focus on providing comprehensive equipment sales and installation as well as project management, which enables us to conduct mass equipment sales and allows us to better utilize our manufacturing capacity and labor force, and effectively manage the production costs.

~~Operating~~The ~~Expenses~~components of deferred tax assets consist of the following:

Our operating expenses, which include selling, general and administrative expense, totaled $1.45 million during the three months ended June 30, 2010, as compared to $130,463 for the three months ended June 30, 2009. The increase in our operating expenses was mainly attributable to the increase in marketing and promotion expenses incurred to obtain the targeted product orders or projects. In addition, increase in our general administrative expenses to support our expanded business as we consecutively opened six local branches in different part of China, increase in salaries expenses in support our sales growth, increase in selling expenses for successful bidding the equipment-bundled installation project contracts, increase in our product delivery fees, and increase in the advertising expenses to raise our brand awareness among customers all attributed to the increase of our operating expenses for the three months ended June 30, 2010 as compared to the prior comparative period.

Name of the companies	Zhenyu		Jinyu		Total

Net deferred tax assets @ September 30, 2009	$	-	$	39,465	$	39,465

Income (loss) before income tax
Zhenyu	$	4,163,258
Jinyu		(46,967	)
Total	$	4,116,291

Selling and Distribution Expenses

Deferred tax benefit (expense) utilized		-		11,742		11,742
Other comprehensive income, net of tax:
effects of foreign currency conversion		-		5		5
Deferred tax assets @ March 31, 2010 (unaudited)	$	-	$	51,212	$	51,212

Deferred tax assets @ September 30, 2010	$	-	$	98,514	$	98,514

Our selling and distribution expenses include:

Income (loss) before income tax
Zhenyu	$	(1,845,366	)
Jinyu		1,348,542
Total	$	(496,824	)

(1) Public relationship, marketing and promotion expenses,

Deferred tax benefit (expense) utilized		-		(99,547	)		(99,547	)
Other comprehensive income, net of tax:
effects of foreign currency conversion				1,033			1,033
Deferred tax assets @ March 31, 2009 (unaudited)	$	-	$	-		$	-

~~(2)~~Income ~~Staff~~taxes ~~costs, which primarily~~ consist of ~~salaries~~the ~~and sales commissions as well as bonuses; and~~following:

(3) Other related expenses.

	For the Six Months Ended March31,
	2010
	(unaudited)
Name of the companies	Zhenyu		Jinyu			Total

Income (loss) before income tax provision	$	4,163,258	$	(46,967	)	$	4,116,291

Current income tax expense		1,040,814		-			1,040,814
Deferred income tax expense (benefit)		-		(11,742	)		(11,742	)
Total provision for income taxes	$	5,204,072	$	(58,709	)	$	1,029,072

Selling and distribution expenses increased by $588,113, or 3,558%, to $604,642 for the three months ended June 30, 2010 from $16,529 for the three months ended June 30, 2009. The increase in selling and distribution expenses was attributable to our increased expenses in marketing our brand and products to local government, engineering design institutes as well as potential clients, in order to win the contract bid. The increase in selling expenses was in line with our increased business activities in different geographic provincial parts of China. The increase in our selling and distribution expenses was also affected by our increased salary, sales commissions incurred in line with our increased sales volume.

	For the Six Months Ended March31,
	2011
	(unaudited)
Name of the companies	Zhenyu			Jinyu		Total

Income (loss) before income tax provision	$	(1,845,366	)	$	1,348,542	$	(496,824	)

Current income tax expense		-			237,589		237,589
Deferred income tax expense (benefit)		-			99,547		99,547
Total provision for income taxes	$	-		$	337,136	$	337,136

~~We expect our selling and marketing expense to increase in the near future as we increase our sales efforts, launch more projects and target new markets to expand our operations.~~F-26

~~General~~CHINA ~~and~~ENVIRONMENTAL PROTECTION, ~~Administrative~~INC. ~~Expenses~~AND SUBSIDIARIES

~~Our~~(FORMERLY T.O.D. ~~General~~TASTE ~~and~~ON ~~administrative~~DEMAND ~~expenses principally include:~~INC)

~~(1)~~NOTES ~~Staff~~TO CONSOLIDATED ~~salaries~~FINANCIAL ~~and benefits;~~STATEMENTS

~~(2)~~Note ~~Traveling~~11- ~~and~~CORPORATE ~~entertainment~~INCOME ~~expenses;~~TAXES (continued)

~~(3)~~Accounting for ~~Professional~~Uncertainty ~~fees,~~in ~~such~~Income ~~as audit and legal fees, and~~Taxes

~~(4)~~The tax ~~Other~~authority ~~associated~~of ~~fees~~the PRC Government conducts periodic and ad hoc tax filing reviews on business enterprises operating in the PRC after those enterprises complete their relevant tax filings. Therefore, the Company’s tax filings results are subject to change. It is therefore uncertain as to whether the PRC tax authority may take different views about the Company’s tax filings, which may lead to additional tax liabilities.

~~For~~The Company adopted the ~~three~~provisions ~~months~~of ~~ended~~Accounting ~~June~~for ~~30,~~Uncertainty ~~2010,~~in ~~our~~Income ~~general~~Taxes ~~and~~on ~~administrative~~January ~~expenses were $847~~1,~~346,~~ ~~representing a increase of $733,412 or 643~~2007.~~72%,~~ asThe ~~compared~~provisions toclarify the ~~general and administrative expenses incurred~~ accounting for ~~the~~uncertainty ~~three~~in ~~months~~income ~~ended~~taxes ~~June~~recognized ~~30, 2009. The increase~~ in ~~our~~an ~~general~~enterprise’s ~~and~~financial ~~administrative~~statements ~~expenses~~in ~~was~~accordance ~~primarily~~with ~~due to~~ the ~~following~~standard ~~reasons (1) increased salary expenses incurred~~ “Accounting for ~~management~~Income ~~because our Company has opened several local offices in different provinces~~Taxes,” ~~we need to send more accounting, financing~~ and ~~technical~~prescribes ~~personnel~~a torecognition ~~different~~threshold ~~local branches or clients to better manage the business operations, resulting increased travel expenses, (2) increased office expenses due to six new local offices been opened, (3) increased meals~~ and ~~entertainment~~measurement ~~expenses~~process ~~because~~for ~~increased~~financial ~~business~~statement ~~activities~~recognition ~~required more employee training be provided to sales representatives,~~ and measurement ~~such~~of ~~training~~a ~~required~~tax ~~these~~position ~~sales~~taken ~~representatives~~or ~~travel~~expected ~~back~~ to ~~our~~be ~~Company's~~taken ~~headquarter, lead to increased hotel, meals and entertainment expenses,~~ in ~~addition, increased~~a ~~business~~tax ~~activities~~return. ~~lead~~The toprovisions ~~increased~~of ~~potential~~Accounting ~~clients,~~for ~~potential~~Uncertainty ~~investors~~in toIncome Taxes ~~visit~~also ~~the~~provides ~~Company's~~guidance ~~headquarter~~on ~~or construction sites~~derecognition, ~~which lead to related expenses increased~~classification, ~~and (4)~~interest ~~we incurred more legal~~ and penalties, accounting ~~fees~~ in ~~connection~~interim ~~with~~periods, ~~our~~disclosure and ~~public listing in the U~~transition.~~S. capital market.~~

WeBased on expect that general and administrative expenses will increase as we expand our business and operations, especially when we launch more installation projects and expand our business into more areas. In addition, as a result of the Company’s ~~shares of common stock being quoted on the Over-the-Counter Bulletin Board~~evaluation, the Company ~~will~~has ~~need~~concluded to enhance its management’s skills and levels to adapt to the complex business environment for subjecting to the rules and regulations of United States securities laws and corporate governance and internal controls. We believe that wethere ~~will~~are ~~need~~no tosignificant ~~hire~~uncertain ~~more~~tax ~~personnel~~positions asrequiring ~~our business continues to grow, and we believe that we will need to incur additional general and administrative costs~~ recognition in ~~the~~its ~~near~~financial ~~future~~statements.

~~Interest~~The Company may from time to time be assessed interest or penalties by local tax jurisdictions. In the event it receives an assessment for interest and/or penalties, it will be classified in the financial statements as tax expense.

~~Net~~Note Interest expense increased from $4,606, during the three months ended June 30, 2009 to $11,024 for the three months ended June 30, 2010. The increase in interest expense was because we raised additional RMB 5 million short12-~~term~~ ~~bank~~EXTRAORDINARY loan in December 2009 as a working capital. As the bank loan balance increased, we incurred more interest expenses for the three months ended June 30, 2010. For the same period of last year, we only had RMB 2 million outstanding bank loan, accordingly, our interest expense was much lower than in 2010.ITEM

24In October 2010, one of our subsidiaries, Zhenyu, executed an agreement with Jiangsu Guangyang Dongli Environmental Protection Equipment Co., Ltd. ("Jiangsu Guangyang"), pursuant to which both parties will jointly work on an installation of a waste water treatment plant, located in Yingjiang City, Yunnan Province, the PRC. The sales price of this project is RMB 600,000,000 (then equivalent to approximately $89,995,230) and the municipal client will not make any payment until the project is 30% completed. While Zhenyu owns 15% interest in the project, Jiangsu Guangyang owns 75% interest in the project and is in charge of the installation of the project. In according to the agreement, Zhenyu made payment of RMB 30,000,000 (equivalent to approximately $4,525,822) to Jiangsu Guangyang in October 2010.

~~Income~~In March ~~taxes~~2011, an earthquake occurred in Yingjiang County and the earth quake triggered landslides. Our ongoing installation project was buried. Since the installation project was not insured, no insurance compensation can be claimed. Jiangsu Guangyang and Zhenyu are in discussion with the municipal client for the compensation and the Management believes that the compensation, if any, will be minimal.

~~The majority of our net income was from~~ Since Zhenyu’s ~~operation,~~usually ~~which~~works ison ~~subject~~installation toprojects ~~25%~~alone ofand ~~corporate~~earthquake ~~income~~has ~~tax~~not ~~rate~~occurred in ~~PRC.~~the ~~Zhenyu~~location, ~~suffered~~we ~~operating~~treat the loss inas ~~2006~~an ~~and 2007~~extraordinary item. ~~For~~ ~~Chinese income tax purpose~~Also, ~~these~~because ~~operating~~there ~~losses~~is ~~can~~not ~~be carried forward and be available to reduce future years'~~ taxable income. ~~Management~~in ~~believes that~~ the ~~realization~~current ofperiod ~~the~~and ~~deferred~~it ~~tax~~is ~~asset~~uncertain ~~arising~~that ~~from~~Zhenyu ~~these~~will ~~losses~~generate ~~appear~~taxable ~~to be~~ income in the ~~best interest to the Company's business operations. For the three months ended June 30~~future, ~~2009,~~no ~~we reported total~~ income tax ofbenefit ~~$954,897,~~has ~~including~~been ~~deferred~~recorded ~~income~~as ~~tax~~a ~~assets~~result of ~~$260,844,~~this ~~which was the realization of prior period’s net operating~~ loss ~~carry-forward for Zhenyu~~.

~~For the three months ended June 30, 2010, we recorded income tax provision of $1,081,709 in line with the increased taxable income.~~F-27

~~Net~~CHINA ~~Income~~ENVIRONMENTAL PROTECTION, INC. AND SUBSIDIARIES

~~As a result of the factors described above, we reported net income of $3,124,408 for the three months ended June 30, 2010, as compared with $1,804,6352 during the three months ended June 30, 2009~~(FORMERLY T.O.D. ~~The~~TASTE ~~$1,319,559~~ON ~~increase~~DEMAND in our net income was primarily attributable to our increased revenue for the three months ended June 30, 2010, as well as our higher profit margin on the contracted projects versus sales of equipments in prior years.INC)

~~Other~~NOTES ~~Comprehensive~~TO CONSOLIDATED ~~Income~~FINANCIAL STATEMENTS

WeNote ~~operate~~13- ~~exclusively~~CONCENTRATION inOF the PRC and the functional currency of our operating subsidiary is the Chinese Renminbi (”RMB”). The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into USD at the rates used in translation.RISKS

~~Translation~~Two major ~~adjustments~~customers ~~resulting~~accounted ~~from~~for ~~this~~approximately ~~process~~81.79% ~~amounted~~of toour ~~$766,343~~revenue ~~and~~in ~~$124,912 during~~ the ~~three~~six months ended ~~June~~ 30March 31, ~~2010 and 2009~~2011, ~~respectively. The balance sheet amounts~~ with ~~the~~each ~~exception~~customer ofindividually accounting ~~equity~~for ~~at June 30, 2010 were translated at 6~~43.~~7814~~34% ~~RMB~~and ~~to 1~~38.0045%, ~~USD as compared to 6~~respectively.~~8336~~ ~~RMB~~Four tomajor ~~1.00~~customers ~~USD~~accounted atfor ~~June~~approximately ~~30, 2009~~70.96% ~~The~~of ~~equity~~our ~~accounts~~revenue ~~were~~in ~~stated~~the six atmonths ~~their~~ended ~~historical~~March ~~rate.~~31, ~~The~~2010, ~~average~~with ~~translation~~each ~~rates~~customer ~~applied~~individually toaccounting ~~the income statements accounts~~ for ~~the~~20.09%, ~~periods~~17.61%, ~~ended June 30~~17.07%, ~~2010 and 2009 were 6~~16.~~8241~~19%, ~~RMB~~ and 616.~~8300 RMB~~19%, respectively.

~~Operation~~Three vendors ~~Results~~provided approximately 86.81% of the Company’s purchases for the ~~Nine~~six ~~Months~~months ~~Ended~~ended ~~June~~September 30, 2011, with each vendor individually accounting for 41.83%, 30.56%, and 14.41%, respectively. Three major vendors provided approximately 37.47% of the Company’s purchases for six months ended March 31, 2010, with each vendor individually accounting for 16.37%, 10.63%, and ~~2009~~10.46%, respectively.

~~Revenues~~Note 14- COMMITMENTS AND CONTINGENCIES

During the nine months ended June 30, 2010, we reported revenues of $41.5 million as compared to $16.7 million for the nine months ended June 30, 2009, an increase of $24.8 million, or 148.93%. The increase in our sales revenue for the nine months ended June 30, 2010 compared to the prior comparative period was attributable to the following reasons (1) in the same period of prior year, we still focused on equipment sales , rather than on equipment-bundled installation projects which normally have a 5% to 10% higher profit margin than ordinary equipment sales. Started from 2009, our company's business has undergone a big transition from traditional equipment sales to focus on the equipment installation projects. This transition has helped us to generate more sales revenue, (2) the market demand in China for high-quality waste water treatment equipment was huge, especially as more and more old waste water treatment plants all over China are undergoing improvement or upgrades, as required by many local governments, such market demand enables us to grasp more market opportunities, (3) our rich experience in this industry and well-known brand has helped us to win customer trust, resulting many clients are willing to establish good long-term relationship with us, and referring us to other new clients, (4) we own several patents which technically helped to increase our voting power in the contract bidding process to successfully acquire customer orders, (5) we have established good relationship with many local engineering design institutes and their decisions normally play an important role to affect many clients in the project bidding process. Our good relationship with these engineering institutes has greatly helped us to obtain product orders or installation projects, (6) during the nine months ended June 30, 2010, we strengthened our marketing efforts targeting several important market areas and potential clients and eventually successfully obtained these product orders and projects. Among them, Hua Ning Waste Water Treatment Plant, Ningbo Beilun Waste Water Treatment Plant project phase III, Henan Zhengzhou Xinli Electricity Plant Waste Water Treatment Project , Chongqing Yudong Waste Water Treatment Plant, Datang Group Waste Water Treatment Plant, and Ningxia Xiajin Waste Water Treatment Plan have accounted for 17.3%, 11.84%, 10.78% and 10.4% , 9.91% and 8.42% of our total revenues respectively, and (7) during the nine months ended June 30, 2010, we have improved our after-sales services efforts and dedicated to maintain a long-lasting good relationship with many of our old customers, which also helps us attract new clients throught old clients' referral.Operating Lease

Our 25subsidiary, Jinyu leased a land use right for a piece of land, approximately 0.52 acre (2,100 square meters), located in Gaocheng County, Yixing City, Jiangsu Province, for a three-year period from March 22, 2011 to March 21, 2014, from the local government. The annual rent is RMB 50,000 (then equivalent to $7,140) and payable quarterly. The lease can not be automately renewed. The parties will negotiate a new lease if both parries desire to do so when the lease expires. Jinyu's office premises, production facilities, and warehouse are located in this piece of land. The rental expense was $4,526 and $4,394 for the six months ended March 31, 2011 and 2010, respectively. The future lease payments for the lease are as following at March 31, 2011.

Cost of Revenue

The Year Ending September 30,	Future Lease Payment
2011	$	3,805
2012		7,610
2013		7,610
2014		3,805
	$	22,830

~~During~~The Company’s ~~the~~assets ~~nine~~are ~~months~~located ended June 30, 2010, our cost of revenue was $27.6 million as compared to cost of revenue of $12.1 million during the nine months ended June 30, 2009, an increase of $15.4 million, or 127.86%. The increase in ~~cost~~PRC ~~of revenue is primarily due to increased sales~~ and ~~associated~~revenues ~~sales~~are ~~taxes~~derived ~~levied~~from byoperations ~~various tax authorities, increased direct labor costs and increased prices of raw materials used~~ in ~~our manufacturing and installation projects~~PRC.

~~Gross~~The Company’s ~~profit~~operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in the North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

~~For~~The Company’s ~~the nine months ended June 30~~sales, ~~2010,~~purchases ~~our~~and ~~gross~~expenses ~~profit~~transactions ~~was~~are ~~$13.9~~denominated ~~million,~~in anRMB ~~increase~~and ofall ~~$9.36 million or 204.75%, as compared with that~~ of ~~for~~ the ~~nine~~Company’s ~~months~~assets ~~ended~~and ~~June~~liabilities are ~~30,~~also ~~2009.~~denominated ~~Our overall gross profit as a percentage of revenues increased to 33.55%~~ in ~~the nine months ended June 30, 2010 compared to 27~~RMB.~~41%~~ ~~in the comparable period in prior year.~~ The ~~increase~~RMB inis ~~our~~not ~~gross~~freely ~~profit~~convertible ~~was~~into ~~primarily~~foreign ~~attributable~~currencies tounder ~~our~~the ~~increased~~current ~~sales revenue~~law. ~~The~~In ~~increase in our gross profit margin was also because (1) during the nine months ended June 30~~China, ~~2009,~~foreign exchange ~~our~~transactions ~~business~~are ~~operation~~required ~~was~~by ~~still~~law ~~limited~~ to ~~traditional~~be ~~equipment~~transacted ~~sales~~only ~~which~~by ~~was~~authorized ~~characterized~~financial asinstitutions ~~relatively~~at ~~small~~exchange ~~sales~~rates ~~quantities,~~set ~~higher~~by the ~~production~~People’s ~~costs~~Bank ~~and~~of ~~relatively lower profit margin~~China, ~~(2) started from~~ the ~~middle~~central bank of ~~2009, we~~China. ~~have~~Remittances ~~shifted~~in ~~our~~currencies ~~business~~other ~~strategy to~~than ~~focus~~RMB onmay ~~providing~~require ~~comprehensive~~certain ~~equipment~~supporting documentation ~~sales~~in ~~and~~order ~~installation as well as project management, which enables us~~ to ~~conduct~~affect ~~mass equipment sales and allows us to better utilize our manufacturing capacity and labor force, and effectively manage~~ the ~~production costs~~remittance. ~~As a result, we can earn a much higher profit margin for the nine months ended June 30, 2010.~~

~~Operating Expenses~~F-28

~~Our~~CHINA ~~operating expenses~~ENVIRONMENTAL PROTECTION, ~~which include selling, general and administrative expense, totaled $3~~INC.74 ~~million~~AND during the nine months ended June 30, 2010, as compared to $1.29 million for the nine months ended June 30, 2009. The increase in our operating expenses was mainly attributable to the increase in marketing and promotion expenses incurred in order to obtain the targeted product orders or projects. In addition, increase in our general administrative expenses to support our expanded business as we consecutively opened six local branches in different part of China, increases in salaries expenses in support of our sales growth, increase in selling expenses for successful bidding the equipment-bundled installation project contracts, increase in our product delivery fees, and increase in the advertising expenses to raise our brand awareness among customers all attributed to the increase of our operating expenses for the nine months ended June 30, 2010 as compared to the prior comparative period.SUBSIDIARIES

~~Selling~~(FORMERLY T.O.D. ~~and~~TASTE ~~Distribution~~ON ~~Expenses~~DEMAND INC)

~~Our~~NOTES ~~selling~~TO CONSOLIDATED ~~and~~FINANCIAL ~~distribution expenses include:~~STATEMENTS

~~(1)~~Note ~~Public~~14- ~~relationship,~~COMMITMENTS ~~marketing~~AND ~~and~~CONTINGENCIES ~~promotion expenses,~~(continued)

~~(2) Staff costs, which primarily consist~~ Lack of ~~salaries and sales commissions as well as bonuses; and~~Insurance

~~(3)~~The Company ~~Other~~does ~~related~~not ~~expenses~~carry any business interruption insurance, products liability insurance or any other insurance policy except for a limited property insurance policy. As a result, the Company may incur uninsured losses, increasing the possibility that the investors would lose their entire investment in the Company.

~~Selling~~The Company ~~and~~could ~~distribution~~be ~~expenses~~exposed ~~increased~~to byliabilities ~~$1.85 million,~~ or ~~933.59%,~~other toclaims ~~$2.05 million~~ for which the ~~nine~~Company ~~months~~would ~~ended~~have ~~June~~no ~~30,~~insurance ~~2010~~protection. ~~from~~The ~~$198,440~~Company does ~~for~~not ~~the~~currently ~~nine~~maintain ~~months~~any ~~ended~~business ~~June~~interruption 30insurance, ~~2009.~~products ~~The~~liability ~~increase~~insurance, inor ~~selling~~any ~~and~~other ~~distribution~~comprehensive ~~expenses~~insurance policy ~~was~~except ~~attributable~~for toproperty ~~our~~insurance ~~increased~~policies ~~expenses~~with inlimited ~~marketing our~~coverage. ~~company's~~As ~~brand~~a ~~and~~result, ~~products to~~ the ~~local~~Company ~~government,~~may ~~engineering~~incur ~~design~~uninsured ~~institutes~~liabilities and losses as ~~well~~a asresult ~~potential~~of ~~clients,~~the inconduct ~~order~~of toits ~~win~~business. There can be no guarantee that the ~~contract~~Company ~~bid.~~will ~~The~~be ~~increase~~able into ~~selling~~obtain ~~expenses~~additional insurance ~~was~~coverage in ~~line~~the ~~with~~future, ~~our~~and ~~increased~~even ~~business~~if ~~activities~~it incan ~~different~~obtain ~~geographic~~additional ~~provincial~~coverage, ~~parts~~the ofCompany ~~China.~~may ~~The~~not ~~increase~~carry insufficient ~~our~~insurance coverage ~~selling~~to ~~and~~satisfy ~~distribution~~potential ~~expenses~~claims. ~~was~~If ~~also~~an ~~affected~~uninsured byloss ~~our~~should ~~increased salary~~occur, ~~sales~~any ~~commissions~~purchasers ~~incurred~~of inthe ~~line~~Company’s ~~with~~common ~~our~~stock ~~increased~~could lose ~~sales~~their ~~volume~~entire investment.

WeBecause the ~~expect~~Company ~~that~~does ~~our~~not ~~selling~~carry products liability insurance, a failure of any of the products marketed by the Company may subject the Company to the risk of product liability claims and ~~marketing~~litigation ~~expense~~ arising from injuries allegedly caused by the improper functioning or design of its products. The Company cannot assure that it will ~~increase~~have asenough wefunds ~~increase~~to ~~our~~defend ~~sales~~or ~~efforts~~pay for liabilities arising out of a products liability claim. To the extent the Company incurs any product liability or other litigation losses, ~~launch~~its ~~more~~expenses could ~~projects~~materially ~~and~~increase ~~target~~substantially. ~~new~~There ~~markets~~can be no assurance that the Company will have sufficient funds to ~~expand~~pay ~~our~~for such expenses, which could end its operations and the investors would lose their entire investment.

~~General~~Control by ~~and~~Principal ~~Administrative Expenses~~shareholders

~~Our~~The directors, ~~General~~executive officers, their affiliates, and ~~administrative~~related parties own, directly or indirectly, beneficially and in the aggregate, the majority of the voting power of the outstanding capital of the Company. Accordingly, directors, executive officers and their affiliates, if they voted their shares uniformly, would have the ability to control the approval of most corporate actions, including approving significant expenses, ~~principally~~increasing ~~include:~~the authorized capital and the dissolution, merger or sale of the Company's assets.

~~(1)~~Contingent Liability ~~Staff~~from ~~salaries~~Prior ~~and benefits;~~Operation

~~(2)~~Prior to ~~Traveling~~the reverse merger with Dragon Path International Limited on February 12, 2010, the Company was a development stage company and ~~entertainment~~was ~~expenses;~~engaged in the business of developing a device that will allow drinkers of bottled water to choose a few flavors as they pour the water from the bottle in the glass. Management believes that there are no valid outstanding liabilities from prior operations. If a creditor were to come forward and claim a liability, the Company has committed to contest such claim to the fullest extent of the law. No amount has been accrued in the financial statements for this contingent liability.

~~(3) Professional fees, such as audit and legal fees, and~~F-29

~~(4)~~CHINA ~~Other~~ENVIRONMENTAL PROTECTION, ~~associated fees~~INC. AND SUBSIDIARIES

~~For the nine months ended June 30, 2010, our general and administrative expenses were $1~~(FORMERLY T.69O.D. ~~million,~~TASTE ~~representing~~ON anDEMAND INC)

~~increase~~NOTES ofTO CONSOLIDATED ~~$591,169~~FINANCIAL or 53.76%, as compared to the general and administrative expenses for the nine months ended June 30, 2009. The decrease in our general and administrative expenses was primarily due to the following reasons (1) increased salary expenses incurred for management because our Company has opened several local offices in different provinces, we need to send more accounting, financing and technical personnel to different local branches or clients to better manage the business operations, resulting increased travel expenses, (2) increased office expenses due to six new local offices been opened, (3) increased meals and entertainment expenses because increased business activities required more employee training be provided to sales representatives, and such training required these sales representatives travel back to our Company's headquarter, lead to increased hotel, meals and entertainment expenses, in addition, increased business activities lead to increased potential clients, potential investors to visit the Company's headquarter or construction sites, which lead to related expenses increased, and (4) we incurred more legal and accounting fees in connection with our public listing in the U.S. capital market.STATEMENTS

26 Note 15- CONDENSED PARENT COMPANY FINANCIAL INFORMATION

We expect that general and administrative expenses will increase as we expand our business and operations, especially when we launch more installation projects and expand our business into more areas. In addition, as a result Basis of the Company’s shares of common stock being quoted on the Over-the-Counter Bulletin Board, the Company will need to enhance its management’s skills and levels to adapt to the complex business environment for subjecting to the rules and regulations of United States securities laws and corporate governance and internal controls. We believe that we will need to hire more personnel as our business continues to grow, and we believe that we will need to incur additional general and administrative costs in the near future.Presentation

~~Interest~~The condensed ~~expense~~parent company financial statements have been prepared in accordance with Rule 12-04, Schedule I of Regulation S-X, as the restricted net assets of the subsidiaries of China Environmental Protection, Inc. exceed 25% of the consolidated net assets of China Environmental Protection, Inc. The ability of the Company’s Chinese operating subsidiaries to pay dividends may be restricted due to the foreign exchange control policies and availability of cash balances of the Chinese operating subsidiaries. Because substantially all of the Company’s operations are conducted in China and a substantial majority of its revenues are generated in China, a majority of the Company’s revenue being earned and currency received are denominated in Renminbi (RMB). RMB is subject to the exchange control regulation in China, and, as a result, the Company may be unable to distribute any dividends outside of China due to PRC exchange control regulations that restrict its ability to convert RMB into US Dollars.

~~Net~~The condensed ~~Interest~~parent ~~expense~~company ~~increased~~financial ~~from~~statements ~~$14,218,~~have ~~during~~been ~~the~~prepared ~~nine~~using ~~months ended June 30, 2009 to $31,133 for~~ the ~~nine~~same ~~months~~accounting ~~ended~~principles ~~June~~and ~~30,~~policies ~~2010.~~described ~~The increase~~ in the ~~interest~~notes ~~expense~~to ~~was because we raised additional RMB 5 million short-term bank loan in December 2009 as working capital. As~~ the ~~bank~~consolidated ~~loan~~financial ~~balance increased~~statements, wewith ~~incurred~~the ~~more~~only ~~interest~~exception ~~expenses~~being ~~for~~that the ~~nine~~parent ~~months~~company ~~ended~~accounts ~~June~~for ~~30,~~its ~~2010. For~~subsidiaries using the ~~same~~equity ~~period~~method. ofRefer ~~last~~to ~~year,~~the weconsolidated ~~only~~financial ~~had~~statements ~~RMB~~and 2notes ~~million~~presented ~~outstanding~~above ~~bank~~for ~~loan,~~additional ~~accordingly,~~information ~~our~~and disclosures ~~interest~~with ~~expense~~respect ~~was~~to ~~much~~these ~~lower~~financial ~~than in 2010~~statements.

~~Income~~CHINA ENVIRONMENTAL ~~taxes~~PROTECTION, INC.

~~The~~CONDENSED PARENT ~~majority~~COMPANY ofBALANCE our net income was from Zhenyu, which is subject to 25% of corporate income tax rate in PRC. Zhenyu suffered operating loss in 2006 and 2007. For Chinese income tax purpose, these operating losses can be carried forward and be available to reduce future years' taxable income. Management believes that the realization of the deferred tax asset arising from these losses appear to be in the best interest to the Company's business operations. For the nine months ended June 30, 2009, we reported a total income tax of $1,080,273, including deferred income tax assets of $386,220 utilized, which was the realization of prior period’s net operating loss carry-forward for Zhenyu.SHEETS

~~For~~(Dollars in ~~the nine months ended June 30, 2010, we recorded income tax provision of $2,557,075.~~Thousands)

Net Income

	March 31,			September 30,
	2011			2010
	(unaudited)
ASSETS
Investment in subsidiaries, at equity in net assets		2,820			8,097
Total Assets	$	2,820		$	8,097

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities		-			-

Commitments and Contingencies		-			-

Shareholders' Equity:
Preferred stock, $0.01 par value. 10,000,000 shares authorized; Authorized 10,000,000 shares; none issued as of March 31, 2011 and September 30, 2010, respectively		-			-
Common stock, $0.01 par value; authorized 34,639,823 shares; Issued and outstanding- 17,170,015 shares as of March 31, 2011 and September 30, 2010, respectively		172			172
Additional paid-in capital		2,961			2,961
Retained earnings		(497	)		4,890
Accumulated other comprehensive income (loss)		184			74
Total Shareholders' equity (deficit)	$	2,820		$	8,097

~~As a result of the factors described above, we reported net income of $7,771,183 for the nine months ended June~~ F-30, 2010, as compared with $2,180,756 during the nine months ended June 30, 2009. The $5,590,427 increase in our net income was primarily attributable to our increased revenue for the nine months ended June 30, 2010, as well as our higher profit margin on the contracted projects versus sales of equipments in prior years.

~~Other~~CHINA ~~Comprehensive~~ENVIRONMENTAL PROTECTION, ~~Income~~INC. AND SUBSIDIARIES

~~We operate exclusively in the PRC and the functional currency of our operating subsidiary is the Chinese Renminbi~~ (~~”RMB”)~~FORMERLY T. ~~The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions~~O.D. NoTASTE ~~representation~~ON isDEMAND ~~made that the RMB amounts could have been, or could be, converted into USD at the rates used in translation.~~INC)

~~Translation~~NOTES ~~adjustments~~TO CONSOLIDATED ~~resulting~~FINANCIAL from this process amounted to $767,665 and $135,489 for the nine months ended June 30, 2010 and 2009, respectively. The balance sheet amounts with the exception of equity at June 30, 2010 were translated at 6.7814 RMB to 1.00 USD as compared to 6.8336 RMB to 1.00 USD at June 30, 2009. The equity accounts were stated at their historical rate. The average translation rates applied to the income statements accounts for the periods ended June 30, 2010 and 2009 were 6.8263 RMB and 6.8352RMB, respectively.STATEMENTS

27 Note 15- CONDENSED PARENT COMPANY FINANCIAL INFORMATION (continued)

~~Liquidity~~CHINA ~~and~~ENVIRONMENTAL PROTECTION, ~~Capital Resources~~INC.

~~Liquidity~~CONDENSED isPARENT COMPANY ~~the~~STATEMENT ~~ability~~OF ~~of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis.~~OPERATIONS

To(Dollars ~~date, we have financed our operations primarily through cash flows from operations and borrowings from banks. As of June 30, 2010, we had $7,765,030~~ in working capital, Based on our current operating plan, we believe that our existing resources, including cash generated from operations as well as the bank loans, will be sufficient to meet our working capital requirement for our current operations. In order to fully implement our business plan and continue our growth, however, we will require additional capital either from our shareholders or from outside sources.Thousands)

Total current assets increased to $23,074,489 as of June 30, 2010 from $4,092,724 as of September 30, 2009. The primary changes in our current assets during this period were from changes in cash, accounts receivables, and inventory.

	For the Six Months Ended
	March 31,
	2011			2010
	(unaudited)			(unaudited)

Operating Expenses	$	-		$	-

Equity in undistributed income of subsidiaries		(5,387	)		3,139
Net Income	$	(5,387	)	$	3,139

~~The~~CHINA ~~increase in our cash and cash equivalents from $538~~ENVIRONMENTAL PROTECTION,~~767~~ ~~at September 30, 2009 to $7,863,364 at June 30, 2010 was due to our increased sales revenue and rapid collection from clients upon completion of the projects~~INC. Our increased bank loan also made more cash available to be used in our daily operations. Our strategic business transition from traditional equipment sales model to current equipment-bundled installation project model and associated several equipment-bundled installation projects completed as of June 30, 2010 accounted for the increase of cash and accounts receivables. The increase in our accounts receivable from $614,158 at September 30, 2009 to $5,856,729 at June 30, 2010 was primarily because our increased sales activities related to several equipment-bundled installation projects which we carried out during the past nine months increased our uncollected sales on account balance. The increase of inventory, primarily in raw materials and finished goods, from $1,457,480 as of September 30, 2009 to $6,834,521 as of June 30, 2010 was because (1) we increased the stockpiling of certain key materials to be used in our production and installation projects based on our successful bid, in order to prevent against the possible severe price fluctuation, especially the price of steel, and (2) our increased sales activities require us to increase our inventory level to prepare for several new projects we’re carrying out or will be executed soon. .

~~Our~~CONDENSED ~~balance~~PARENT COMPANY ~~sheet~~STATEMENT asOF ofCASH June 30, 2010 and September 30, 2009 also reflect a change in retainage from $2,485,432 at September 30, 2009 to $2,771,087 as of June 30, 2010. Retainage represents the security deposits withheld by our customers to warrant against potential defects for the initial one year period upon sales of equipments or installation of water treatment projects. Retainage normally accounts for 5% to 10% of the total contract price, depending on various terms included in different equipment sales contracts or waste water treatment construction contracts. The deposits are to be refunded in one year up to two years after the completion of sales or installation.FLOWS

~~Our~~(Dollars ~~total current liabilities as of June 30, 2010 totaled~~ in the amount of $15,309,459 as compared to $4,474,210 at September 30, 2009. The increase in current liabilities was primarily due to the increase in our short-term bank loan, increase in advance from customers as well as tax payable. Our bank loan increased from $292,983 at September 30, 2009 to $1032,229 at June 30, 2010 was due to our working capital need in order to support our increased business activities. The increase of tax payable from $1,341,918 at September 30, 2009 to $3,452,861 as of June 30, 2010 was because our increased sales and taxable income required us to pay more taxes.Thousands)

Based on our current operating plan, we believe that existing cash and cash equivalents balances, as well as cash forecast by management to be generated by operations will be sufficient to meet our working capital and capital requirements for our current operations.

	For the Six Months Ended
	March 31,
	2011			2010
	(unaudited)			(unaudited)

Cash Flows from Operating Activities
Net income	$	(5,387	)	$	3,139
Adjustments to reconcile net income (loss) provided by cash flows from operations Equity in undistributed income of subsidiaries		5,387			(3,139	)
Net cash provided by operating activities		-			-

Increase (decrease) in cash		-			-
Cash at beginning of period		-			-
Cash at end of period	$	-		$	-

~~Discussion~~Note of16- ~~Cash~~SUBSEQUENT ~~Flow~~EVENT

~~Comparison of cash flows results for the nine months ended June 30, 2010 to the nine months ended June 30, 2009, is summarized as follows:~~Litigation

	For the nine months ended June 30,
	2010			2009
Cash flow from operating activities	$	5,966,331		$	3,784,093
Cash flow from investing activities	$	(389,710	)	$	(10,723	)
Cash flow from financing activities	$	1,012,462		$	(1,754,920	)

On March 16, 2012, Ms. Ping Ye, the alleged former CFO of the Company, filed a complaint in the United States District Court, Eastern District of Pennsylvania, asserting breach of contract, unjust enrichment, fraud and conversion claims against the Company. All these claims arise from the Company’s non-payment under an alleged oral contract for Ms. Ping Ye’s services in 2010-2011. Ms. Ping Ye’s claim is for $240,000 in cash and 250,000 shares of stock options in the Company. Although Ms. Ping Ye has not yet correctly served the Complaint on the Company, it is expected that she will do so soon. The parties are currently discussing settlement. If this case cannot settle, and if Ms. Ping Ye correctly serves the Complaint on the Company, we will contest the Complaint. Although the outcome of this matter is currently not determinable, management does not expect that the ultimate costs to resolve this matter will have a material adverse effect on its consolidated financial position, results of operations, or cash flows.

28 Discontinued Operation-Zhenyu

On July 1, 2011, Yixing Dragon Path, Zhenyu and shareholders of Zhenyu, agreed to terminate certain contractual agreements that the parties entered into on January 17, 2010 (collectively, “VIE Agreements”), and entered into a series of agreements, namely, the Termination Agreement on Consulting Services Agreement, Termination Agreement on Operating ~~activities~~Agreement, Termination Agreement on Option Agreement, Termination Agreement on Voting Rights Proxy Agreement and Termination Agreement on Equity Pledge Agreement (collectively, “Termination Agreements”). Pursuant to the Termination Agreements, all the VIE Agreements were terminated in their entirety and of no further force or effect, effective July 1, 2011. Accordingly, the Company ceased consolidating Zhenyu in its consolidated financial statements beginning from July 1, 2011. In connection with the termination of the VIE Agreements, Zhenyu agreed to transfer its 75% equity interest in Jinyu and its shares in five patents which are co-owned by Zhenyu and Jinyu to Yixing Dragon Path. Therefore Jinyu becomes a wholly owned subsidiary of the Company and will continue to be consolidated into the Company’s consolidated financial statements.

~~Cash~~Change flows provided by operating activities during the nine months ended June 30, 2010 amounted to $5,966,331, which consists of our net income of $7,771,183, adds back noncash adjustments of $1,013,246 and offset by net changes in ~~operating~~Fiscal assets and liabilities due to our expanded operating activities, including the increase in accounts receivables of $6,199,718 resulted from our expanded sales activities and the increase in taxes payable of $2,519,548 as a result of increased taxable income, increase in inventory in the amount of $5,332,128 to support our increased installation projects and prevent against the price fluctuation of raw materials and the increase in advance from customers of $6,952,277 resulted from increase of our total projects under execution.Year-end

~~Cash~~On ~~flows~~December ~~provided by operating activities in the nine months ended June 30~~16, ~~2009 amounted to $3~~2011,~~784,093,~~ ~~which~~the ~~consist~~Board of ~~our~~Directors ~~net income~~ of ~~$2,180,756~~the ~~adds~~Company ~~back~~approved ~~noncash~~a ~~adjustments~~change ~~of $631,095 and offset by net changes~~ in ~~operating assets and liabilities including~~ the ~~increase~~Company’s fiscal inyear-end ~~accounts~~from ~~receivables~~September of30 ~~$5,061,033 and~~to ~~the~~December ~~increase~~31 of ~~accounts~~each ~~payable~~year. ofThis ~~$2,969,311,~~change ~~primarily attributable~~ to ~~our~~the ~~increased~~calendar ~~installation~~year ~~projects~~reporting ~~and~~cycle ~~equipment~~began ~~sales~~January 1, ~~which required more advances been made to us by our material suppliers to support our operating activities~~2012.

Cash flows from operations during the nine months ended June 30, 2010 increased by $2,182,238 or 57.67% as compared to the prior comparative period. The increase in our cash flows provided by operations as of June 30, 2010 was mainly attributable to our increased sales activities which generated more cash to be used in our operations.F-31

~~Investing~~Item ~~activities~~2. Management Discussion and Analysis of Financial Conditions and Results of Operations.

~~Net~~You ~~cash~~should ~~used~~read the following discussion and analysis of our financial condition and results of operations in ~~investing~~conjunction ~~activities~~with ~~amounted~~our consolidated financial statements and the related notes included elsewhere in this document. The following discussion contains forward-looking statements. China Environmental Protection, Inc. is referred to ~~$389~~herein as “we”,~~710~~ in“us”, “our”, or the ~~nine~~“Company.” ~~months~~The words ~~ended~~or ~~June~~phrases 30“would be,” ~~2010~~“will allow,” ~~which~~“expect ~~represented~~to”, ~~the~~“intends ~~addition~~to,” of“will likely ~~some~~result,” ~~manufacturing~~“are ~~machineries~~expected atto,” “will continue,” “is anticipated,” “estimate,” or similar expressions are intended to identify forward-looking statements. Such statements include, among others, those statements concerning our ~~plants~~expected financial performance, our corporate strategy and ~~some~~operational ~~office~~plans. ~~equipments~~Actual atresults ~~our~~could ~~administration~~differ ~~headquarter~~materially from asthose ~~well~~projected asin ~~local~~the ~~branches,~~forward-looking statements as ~~well~~a asresult of a ~~long-term~~number ~~investment~~of ~~furnished~~risks toand usuncertainties, byincluding, ~~Dragon~~but ~~Path~~not ~~International~~limited to, (a) ~~company~~those ~~incorporated~~risks ~~under~~and ~~the~~uncertainties ~~laws~~related ofto ~~British~~general ~~Virgin~~economic ~~Island.~~conditions ~~Cash~~in ~~flows~~China, ~~used~~including inregulatory ~~investing~~factors ~~activities~~that ~~amounted~~may affect such economic conditions; (b) whether we are able to ~~$10~~manage our planned growth efficiently and operate profitable operations,~~723~~ inincluding whether ~~the~~our ~~nine~~management ~~months~~will ~~ended~~be ~~June~~able 30to identify, ~~2009~~hire, ~~which~~train, ~~represented~~retain, ~~our~~motivate ~~purchase~~and ofmanage ~~some~~required ~~manufacturing~~personnel ~~equipment~~or tothat management will be ~~used~~able into successfully manage and exploit existing and potential market opportunities; (c) whether we are able to generate sufficient revenues or obtain financing to sustain and grow our ~~manufacturing~~current ~~plant~~operations; and (d) whether we are able to successfully fulfill our primary requirements for cash which are explained below under “Liquidity and Capital Resources”. ~~Cash~~ ~~flows~~Unless otherwise ~~used~~expressly required by applicable law, we do not undertake, and we specifically disclaim any obligation, to update any forward-looking statements or the inform set forth in ~~investing~~this ~~activities~~Quarterly Report to reflect occurrences, developments, unanticipated events or any other circumstances after the date of such statement and/or this Form 10-Q. For additional information regarding these risks and uncertainties, see “Risk Factors” in the ~~nine~~company’s ~~months~~Current ~~ended~~Report ~~June~~on 30Form 8-K filed with SEC on February 12, 2010. ~~increased~~Our byconsolidated ~~$378~~financial statements have been prepared in accordance with U.S. GAAP. In addition,~~987~~ asour ~~compared~~consolidated financial tostatements and the ~~prior~~financial ~~comparative~~data ~~period~~included in this document reflect the Merger and have been prepared as if our current corporate structure had been in place throughout the relevant periods.

~~Financing~~Organizational ~~activities~~History

~~Net~~China ~~cash~~Environmental ~~provided by financing activities amounted to $1~~Protection,~~012,462~~ ~~in the nine months ended June 30, 2010, which was due to increased short term bank loans in the amount of RMB 5 million~~ Inc.(~~equivalent to $732,462~~the “Company”) ~~in late 2009 as working capital~~, asformerly ~~well~~known as ~~capital~~T.O.D. ~~contribution~~Taste ofOn ~~$280,000~~Demand ~~from our shareholders~~Inc., ~~Net~~was ~~cash~~incorporated ~~used~~ in ~~financing activities in~~ the ~~nine~~State ~~months~~of ~~ended~~Nevada ~~June~~on ~~30,~~August ~~2009 amounted to $1~~31,~~754,920~~ ~~which represented our repayment of our long-term loans back to some un-related companies or individuals~~2007.

~~Off~~On February 12, 2010, the Company, through an acquisition by China Environmental Protection, Inc., a Nevada corporation (the “Merger Sub”) wholly owned by the Company, and then the merger of the Merger Sub with and into the Company (the “Merger”), acquired all of the outstanding capital stock of Dragon Path International Limited, a British Virgin Islands corporation (“Dragon Path”). Dragon Path is a holding company whose only asset is 100% of the registered capital of Yixing Dragon Path Environment Technology Limited (“Yixing Dragon Path”), a limited liability company organized under the laws of the People’s Republic of China (“China” or “PRC”) on January 26, 2010. Substantially all of Dragon Path's operations are conducted in China through Yixing Dragon Path, and through contractual arrangements with Yixing Dragon Path’s consolidated affiliated entity in China, Jiangsu Zhenyu Environmental Protection Technology Co. Ltd. (“Zhenyu”), a limited liability company incorporated under the laws of PRC on December 28, 1993. Zhenyu is engaged in design, manufacture, and installation of waste water treatment equipment for environmental protection purposes, as well as providing high-~~Balance~~quality ~~Sheet~~after-sales ~~Arrangements~~services.

AsBefore of the ~~date~~closing of ~~this~~the ~~report~~Merger, wethe doCompany effected ~~not have any off-balance sheet arrangements that have or are reasonably likely to have~~ a ~~current~~4.61896118 orfor ~~future~~1 ~~effect~~reverse onsplit of our ~~financial~~outstanding ~~condition,~~common ~~changes in financial condition~~stock, ~~revenues~~so ~~or expenses, results of operations, liquidity, capital expenditures or capital resources~~ that ~~are~~after material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have: (i) any obligation arising under a guarantee contract, derivative instrument or variable interest; or (ii) a retained or contingent interest in assets transferred to such ~~entity~~split orthere ~~similar~~were ~~arrangement~~approximately ~~that serves as credit~~850,000 shares ~~liquidity~~of orour ~~market~~common ~~risk~~stock ~~support~~issued ~~for~~and ~~such assets~~outstanding.

~~Critical~~In ~~Accounting~~connection ~~Policies~~with the acquisition, the Merger Sub issued 100 shares of the common stock of the Merger Sub which constituted no more than 10% ownership interest in the Merger Sub in exchange for all the shares of the capital stock of Dragon Path (the “Share Exchange” or “Merger”). The 100 shares of the common stock of the Merger Sub were converted into approximately 16,150,000 shares of our common stock. As a result, upon completion of the Merger, the shareholders of Dragon Path owned approximately 95% of the common stock of the Company.

~~See~~Upon “completion ~~Note 2. Summary~~ of ~~Significant~~the ~~Accounting~~Merger, ~~Policies~~there ”were 17,000,017 inshares ~~“ Item 1. Financial Statements ” herein for a discussion~~ of the ~~critical~~Company’s ~~accounting~~common ~~pronouncements~~stock ~~adopted~~issued inand ~~this Quarterly Report on Form 10-Q~~outstanding.

~~Recent~~As ~~Accounting~~a ~~Pronouncements~~result of these transactions, persons affiliated with Zhenyu now own securities that in the aggregate represent approximately 95% of the equity in the Company. In addition, in connection with the change of control contemplated by the Share Exchange, the directors and officers of the Company resigned from their positions and new directors and officers affiliated with Zhenyu controlled the Board of Directors of the Company.

~~See~~As ~~“Note~~part 2.of ~~Summary~~the ofMerger, ~~Significant~~the ~~Accounting~~Company’s name ~~Policies”~~was inchanged ~~“Item~~from 1“T.O.D. ~~Financial~~Taste ~~Statements”~~on ~~herein~~Demand ~~for~~Inc.” ato ~~discussion~~“China ofEnvironmental ~~the~~Protection, ~~new~~Inc.” ~~accounting pronouncements adopted in this Quarterly Report~~ on ~~Form~~February ~~10-Q~~12, 2010.

29 3

~~ITEM~~The 3transaction has been accounted for as a reverse merger under the purchase method of accounting since there was a change of control. ~~QUANTITATIVE~~Accordingly, ~~AND~~Dragon ~~QUALITATIVE~~Path ~~DISCLOSURE~~is ~~ABOUT~~treated as ~~MARKET~~the ~~RISK~~continuing entity for accounting purposes.

~~Not~~Dragon ~~applicable~~Path, which was organized under the laws of the British Virgin Island on November 5, 2009, owns 100% of the equity interest of Yixing Dragon Path, a wholly foreign-owned entity incorporated under the laws of the PRC on January 26, 2010.

~~ITEM~~Dragon 4Path does not conduct any substantive operations on its own. ~~CONTROLS~~Instead, ~~AND~~through ~~PROCEDURES~~its subsidiary, Yixing Dragon Path, it had entered into certain exclusive contractual agreements with Zhenyu. Pursuant to these agreements, Yixing Dragon Path is obligated to absorb a majority of the risk of loss from Zhenyu’s activities and entitled it to receive a majority of its expected residual returns. In addition, Zhenyu’s shareholders have pledged their equity interest in Zhenyu to Yixing Dragon Path, irrevocably granted Yixing Dragon Path an exclusive option to purchase, to the extent permitted under PRC Law, all or part of the equity interests in Zhenyu and agreed to entrust all the rights to exercise their voting power to the persons appointed by Zhenyu. Through these contractual arrangements, the Company and Yixing Dragon Path hold all the variable interests of Zhenyu. Therefore, the Company is the primary beneficiary of Zhenyu.

~~Evaluation~~Zhenyu owns 75% of ~~Disclosure~~Jiangsu ~~Controls~~Jinyu Environmental Engineering Co., Ltd. (“Jinyu”), a sino-foreign joint venture established under the laws of PRC on June 7, 2004, with registered capital of $1,120,000. Jinyu primarily engages in the design, manufacture and ~~Procedures~~installation of environmental protection equipment and engineering projects (or systems) for waste water treatment, as well as providing after-sales services to customers. Jinyu is located in Yixing City, the same location of Zhenyu. On January 28, 2010, before the closing of the Merger, the minority shareholder of Jinyu transferred the remaining 25% of the interest in Jinyu to Dragon Path in exchange for $280,000. As a result, Dragon Path assumed 100% control of Jinyu, partly through direct equity interest ownership and partly through Zhenyu. Based on these contractual arrangements, the Company believes that Zhenyu and its subsidiary and affiliates should be considered as Variable Interest Entity (“VIE”) under the provisions of Accounting Standards Codification (“ASC”) 510 “Consolidation of Variable Interest Entities. Accordingly, the Company consolidates Zhenyu and its subsidiary’s results, assets and liabilities.

~~Under~~Our ~~the~~corporate ~~supervision~~structure and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this Quarterly Report on Form 10- Q (the “Evaluation Date”). The evaluation of our disclosure controls and procedures included a review of our processes and the effect on the information generated for use in this Quarterly Report on Form 10-Q. In the course of this evaluation, we sought to identify any material weaknesses in our disclosure controls and procedures and to confirm that any necessary corrective action, including process improvements, was taken. The purpose of this evaluation is toset ~~determine~~forth ~~if, as of the Evaluation Date, our disclosure controls and procedures were operating effectively such that the information, required to be disclosed~~ in ~~our Securities and Exchange Commission (“SEC”) reports (i) was recorded, processed, summarized and reported within~~ the ~~time~~diagram periods specified in SEC rules and forms, and (ii) was accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.below:

As of June 30, 2010, our Chief Executive Officer and its Chief Financial Officer have concluded that, as of that date, the Company’s controls and procedures were not effective due to some significant deficiencies (as defined in Public Company Accounting Oversight Board Standard No. 2) in the our internal controls over financial reporting. This is due to the fact that the we lack sufficient personnel with the appropriate levels of knowledge, experience and training in the application of US generally accepted accounting principles (“GAAP”) standards, especially related to complicated accounting issues. This could cause us to be unable to fully identify and resolve certain accounting and disclosure issues that could lead to a failure to maintain effective controls over preparation, review and approval of certain significant account reconciliation from Chinese GAAP to US GAAP and necessary journal entries.4

~~The~~Our ~~Company~~Business has relatively small number of professionals employed by the Company in bookkeeping and accounting functions, which prevents the Company from appropriately segregating duties within its internal control systems. The inadequate segregation of duties is a weakness because it could lead to the untimely identification and resolution of accounting and disclosure matters or could lead to a failure to perform timely and effective reviews.Overview

~~Based~~We onconduct ~~the~~our ~~control~~business ~~deficiency~~in ~~identified~~China ~~above~~primarily through our variable interest entity Zhenyu and its 75% owned subsidiary Jinyu. We believe we are a well-recognized China-based water treatment equipment supplier and project contractor. Holding five national patents and through sixteen years of development, we believe we have ~~designed~~a relatively strong market share in waste water treatment sector in China and ~~plan~~are toranked ~~implement,~~among ortop six of Yixing City’s best environmental protection enterprises based on Yixing Municipal Government’s ranking of 2009 outstanding environment protection enterprises (Yizhengfa Document No.[2010]18). We believe Yixing is the country’s production base for environmental protection equipment. We are headquartered in ~~some~~Yixing, ~~cases~~Jiangsu, ~~have~~with ~~already~~total ~~implemented~~building areas of 7,800 ~~the~~square ~~specific~~meters. As ~~remediation~~of ~~initiatives~~March ~~described~~31, ~~below:~~2011, we have 171 employees in total.

● We ~~are~~carry ~~evaluating~~out ~~the~~our ~~roles~~business ofbased ~~our~~on ~~existing~~two models: ~~accounting~~(i) ~~personnel~~equipment insales anfrom ~~effort~~customer toorders; ~~realign~~and (ii) project installation which includes the ~~reporting~~design, ~~structure~~manufacturing and installation of ~~our~~waste ~~internal~~water ~~auditing~~treatment ~~staff~~equipment. inWe ~~China~~acquire ~~that~~our ~~will~~product ~~test~~orders and ~~monitor~~projects ~~the~~through ~~implementation~~a transparent auction bid process. In terms of ~~our~~pricing ~~accounting~~strategy, ~~and~~we ~~internal~~have ~~control~~a ~~procedures~~flexible pricing policy to target different market segments and different customers.

●Our Wekey ~~are~~products ininclude ~~the~~ZFP-1380 ~~process~~Rotating Disc Aeration equipment, ZYXG Series of ~~completing~~Sludge aSuction ~~review~~Scraper, ~~and~~ZYSR ~~revision~~Series of ~~the~~Surface ~~documentation~~Scraper ofand ~~the~~other ~~Company’s~~water ~~internal~~treatment ~~control~~equipment, which ~~procedures~~can be divided into four categories: circulating water treatment, water purification, waste water treatment and ~~policies~~municipal waste water treatment.

●Discussion ~~We will begin implementation an initiative and training in China to ensure the importance~~ of ~~internal~~Operation controls and compliance with established policies and procedures are fully understood throughout the organization and will provide additional U.S. GAAP training to all employees involved with the performance of or compliance with those procedures and policies.Result

●Operation WeResults ~~will~~for ~~implement~~the aThree ~~formal~~Months Ended ~~financial~~March ~~reporting~~31, ~~process~~2011 ~~that includes review by our Chief Executive Officer~~ and ~~the full Board of Directors of financial statements prior to filing with the SEC.~~2010

~~● We will increase our accounting and financing personnel resources, by retaining more U.S. GAAP knowledgeable financial professionals.~~Revenues

30For the three months ended March 31, 2011, we reported revenues of $25,106,685 as compared to $10,838,405 for the three months ended March 31, 2010, an increase of $14,268,280, or 131.63%. The increase was attributable to the increase in the installation project sales, as new customers were brought in by existing customers.

~~The~~Revenues ~~remedial~~from ~~measures~~installation ~~being~~projects ~~undertaken~~were $24,850,263 ~~may~~for ~~not~~the bethree ~~fully~~months ~~effectuated~~ended orMarch ~~may~~31, be2011, ~~insufficient~~an toincrease ~~address~~of ~~the significant deficiencies we identified~~$14,012,591, ~~and there can be no assurance that significant deficiencies~~ or ~~material~~129.30% ~~weaknesses~~as incompared ~~our~~to ~~internal~~$10,837,672 ~~control~~for ~~over~~the comparable ~~financial~~period ~~reporting will not be identified or occur~~ in ~~the future~~2010. IfRevenues ~~additional~~from ~~significant~~sales ~~deficiencies~~of ~~(or~~equipment ifwere ~~material~~$256,422 ~~weaknesses)~~for inthe ~~our~~three ~~internal~~months ~~controls~~ended ~~are~~March ~~discovered~~31, or2011, ~~occur~~an inincrease of ~~the future~~$255,689, ~~among other similar~~ or ~~related~~34,882.54% ~~effects:~~as ~~(i)~~compared ~~the Company may fail~~ to ~~meet~~$733 ~~future~~for ~~reporting~~the ~~obligations~~comparable onperiod ain ~~timely~~2010. ~~basis,~~The ~~(ii)~~increase ~~the~~in ~~Company’s~~revenues ~~consolidated~~from ~~financial~~both ~~statements~~segments ~~may~~was mainly ~~contain~~attributable ~~material~~to ~~misstatements, (iii)~~ the ~~Company’s~~factor ~~business~~cited ~~and operating results may be harmed~~above.

~~Based~~Cost ~~on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as~~ of ~~the Evaluation Date, our disclosure controls and procedures were not operating effectively.~~Revenue

~~Changes~~For the three months ended March 31, 2011, our cost of revenue was $17,229,686 as compared to cost of revenue of $7,461,235 for the three months ended March 31, 2010, an increase of $9,768.451, or 131%. The increase in ~~Internal~~cost ~~Control~~of ~~over~~revenue ~~Financial~~was ~~Reporting~~primarily due to increase in sales.

~~There~~Gross were no changes in our internal control over financial reporting for the nine months ended June 30, 2010 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.Profit

~~PART~~For IIthe -three ~~OTHER~~months ~~INFORMATION~~ended March 31, 2011, our gross profit was $7,638,328, an increase of $4,261,664 or 126.21% as compared to $3,376,664 for the comparable period in 2010. Our overall gross profit as a percentage of revenues decreased to 24.12% for the three months ended March 31, 2011 as compared to 31.12% for the comparable period in the prior year. The decrease in our gross profit and gross profit margin was mainly due to the fact that we lowered our profits in order to win the contacts for installation projects from the government.

~~Item~~ Operating ~~1. Legal Proceedings.~~Expenses

~~None~~Our operating expenses, which include selling, general and administrative expense, totaled $7,884,843 for the three months ended March 31, 2011, an increase of $6,821,295, or 641.37% as compared to $1,063,548 for the three months ended March 31, 2010. The increase in our operating expenses was mainly attributable to the increase in the bad debt expenses, as we were not able to collect certain portion of accounts receivable resulted from the installation project sales.

~~Item~~The 1ACompany carries accounts receivable at the invoiced amount without bearing interest, less an allowance for doubtful accounts. ~~Risk~~Allowances ~~Factors~~for doubtful accounts are recorded as a general and administrative expense. The Company evaluates the adequacy of the allowance for doubtful accounts at least quarterly and computes the allowance for doubtful accounts based on the history of actual write-offs. The Company also performs a subjective review of specific large accounts to determine if an additional reserve is necessary. The formula for calculating the allowance closely parallels the Company’s history of actual write-offs and account adjustments based upon contractual terms. In circumstances in which we receive payment for accounts receivable which have previously been written off, we reverse the allowance and bad debt expenses.

~~Not Applicable.~~5

~~Item~~Other 2.Income ~~Unregistered Sales of Equity Securities and Use of Proceeds.~~(Expenses)

~~None~~Other income (expenses) primarily includes interest income (expenses), bargain purchase gain and other income (expenses). Total net other expenses amounted to $11,613 for the three months ended March 31, 2011, which primarily included interest expenses, as compared to other income of $41,415 for the three months ended March 31, 2010.

~~Item 3. Defaults Upon Senior Securities.~~Income Taxes

~~None~~The Company and its subsidiary and affiliated entities, Yixing Dragon Path, Zhenyu, and Jinyu suffered operating losses in the prior years' operations. For the Chinese income tax purpose, these operating losses can be carried forward in in a 5-year period and be available to reduce future years' taxable income. The Management believes that the realization of the deferred tax asset arising from the operating losses of Zhenyu and Jinyu is the best interest of the Company's business operations. Since there is no certainty that Yixing Dragon Path will generate taxable income in the future, the Management established a 100% valuation allowance for the operation losses carried forward by Yixing Dragon Path and no deferred tax assets have been recorded as a result of these losses. Beginning from October 2010, since there is no certainty that Zhenyu will generate taxable income in the future, the Management established a 100% valuation allowance for the operation losses carried forward by Zhenyu and no deferred tax assets have been recorded as a result of these losses. For the three months ended March 31, 2010 and March 31, 2011, we recorded income tax of $575,752 and $333,318, respectively. The decrease in income tax was mainly due to the decrease in our operating income.

~~Item~~Net ~~4. (Removed and Reserved).~~Income

~~Item~~We reported a net loss of $5,117,268 for the three months ended March 31, 2011 as compared to a net income of $1,778,779 for the three months ended March 31, 2010. ~~Other~~Such decrease ~~Information~~in our net income was primarily attributable to the loss in connection with a project that was buried in landslides triggered by an earthquake in March 2011. Please see Note 12 Extraordinary Item of the financial statements for more information.

~~(a)~~Other ~~None.~~Comprehensive Income

~~(b)~~Our ~~None~~business operations are conducted exclusively in the PRC, and, therefore, our functional currency is the RMB. The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into USD at the rates used in translation.

~~Item~~For 6financial reporting purpose, RMB has been translated into USD as the reporting currency in accordance with FASB ASC 830, “Foreign Currency Matters”. ~~Exhibits~~The financial information is translated into U.S. dollars at period-end exchange rates as to assets and liabilities and average exchange rates as to revenue and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred. The effects of foreign currency translation adjustments are included as a component of accumulated other comprehensive income in stockholders’ equity.

No.		Description
31.1		Rule 13a-14(a)/ 15d-14(a) Certification of Chief Executive Officer
31.2		Rule 13a-14(a)/ 15d-14(a) Certification of Chief Financial Officer
32.1		Section 1350 Certification of Chief Executive Officer and Chief Financial Officer

Translation adjustments resulting from this process amounted to other comprehensive income of $6,326 for the three months ended March 31, 2011, as compared to other comprehensive expense of $23,757 for the three months ended March 31, 2010. The balance sheet amounts with the exception of equity at March 31, 2011 were translated at 6.5701 RMB to 1.00 USD as compared to 6.8259 RMB to 1.00 USD at March 31, 2010. The equity accounts were stated at their historical rate. The average translation rates applied to our income statements for the periods ended March 31, 2011 and 2010 were 6.6286 RMB and 6.8274 RMB, respectively.

31Operation Results for the Six Months Ended March 31, 2011 and 2010

~~SIGNATURES~~Revenues

~~Pursuant~~For to the ~~requirements~~six months ended March 31, 2011, we reported revenues of $25,564,755 as compared to $18,194,550 for the ~~Securities~~six ~~Exchange~~months ~~Act~~ended March 31, 2010, an increase of ~~1934~~$7,368,572, or 40.50%. The increase was attributable to the ~~registrant~~following ~~has~~factors: ~~duly~~(i) ~~caused~~the ~~this~~transition ~~report~~of our major business from equipment sales to beequipment ~~signed~~installation onprojects; ~~its~~and ~~behalf~~(ii) bynew ~~the~~customers ~~undersigned~~brought ~~hereunto~~in ~~duly~~by ~~authorized~~existing customers.

	CHINA ENVIRONMENTAL PROTECTION INC.
Date: August 23, 2010	By: /s/ Boping Li
	Boping Li
	Chief Executive Officer and Chairman
Date: August 23, 2010	By: /s/ Yuqiang Wu
	Yuqiang Wu
	Chief Financial Officer

Revenues from installation projects were $24,850,263 for the six months ended March 31, 2011, an increase of $7,704,892, or 44.94% as compared to $17,145,371 for the comparable period in 2010. The increase was mainly attributable to the factors cited above.

326

Revenues from sales of equipment were $714,492 for the six months ended March 31, 2011, a decrease of $334,687, or 31.90% as compared to $1,049,179 for the comparable period in 2010. The decrease mainly resulted from the transition of our business focus from equipment sales to equipment installation projects.

Cost of Revenue

For the six months ended March 31, 2011, our cost of revenue was $17,752,721 as compared to cost of revenue of $12,462,596 for the six months ended March 31, 2010, an increase of $5,290,125, or 42.43%. The increase in cost of revenue is primarily due to increase in sales.

Gross Profit

For the six months ended March 31, 2011, our gross profit was $7,812,034, an increase of $2,080,080 or 36.29%, as compared to $5,731,954 for the six months ended March 31, 2010. Our overall gross profit as a percentage of revenues was 30.56% for the six months ended March 31, 2011 as compared to 31.48% for the comparable period in 2010. The increase in our gross profit was mainly due to the increase in sales.

Operating Expenses

Our operating expenses, which include selling, general and administrative expenses, totaled $8,321,701 for the six months ended March 31, 2011, as compared to $1,600,054 for the six months ended March 31, 2010. The increase in our operating expense was mainly attributable to the increase in the bad debt expenses. The Company carries accounts receivable at the invoiced amount without bearing interest, less an allowance for doubtful accounts. Allowances for doubtful accounts are recorded as a general and administrative expense. The Company evaluates the adequacy of the allowance for doubtful accounts at least quarterly and computes the allowance for doubtful accounts based on the history of actual write-offs. The Company also performs a subjective review of specific large accounts to determine if an additional reserve is necessary. The formula for calculating the allowance closely parallels the Company’s history of actual write-offs and account adjustments based upon contractual terms. In circumstances in which we receive payment for accounts receivable which have previously been written off, we reverse the allowance and bad debt expenses.

Other Income (Expenses)

Other income (expenses) primarily includes interest income (expenses), bargain purchase gain and other income (expenses). Total net other expenses amounted to $14,301, including interest expense of $20,160, offset by interest income of $216, other income of $1,117 and governmental subsidy of $4,526 for the six months ended March 31, 2011 as compared to other income of $35,908 for the comparable period in 2010, which mostly include gain on bargain purchase of $52,016 offset by interest expenses of $16,208.

Income Taxes

The Company and its subsidiary and affiliated entities, Yixing Dragon Path, Zhenyu, and Jinyu suffered operating losses in the prior years' operations. For the Chinese income tax purpose, these operating losses can be carried forward in in a 5-year period and be available to reduce future years' taxable income. The Management believes that the realization of the deferred tax asset arising from the operating losses of Zhenyu and Jinyu is in the best interest of the Company's business operations. Since there is no certainty that Yixing Dragon Path will generate taxable income in the future, the Management established a 100% valuation allowance for the operation losses carried forward by Yixing Dragon Path and no deferred tax assets have been recorded as a result of these losses. Beginning from October 2010, since there is no certainty that Zhenyu will generate taxable income in the future, the Management established a 100% valuation allowance for the operation losses carried forward by Zhenyu and no deferred tax assets have been recorded as a result of these losses. For the six months ended March 31, 2011 and 2010, we recorded income tax provision of $337,136 and $1,029,072 respectively. The decrease in income tax was mainly due to the decrease in income before income taxes as a result of the substantial increase in bad debt expenses.

Net Income

We reported a net loss of $5,386,926, for the six months ended March 31, 2011, as compared to net income of $3,138,514 for the six months ended March 31, 2010. Such decrease in our net income was primarily attributable to loss in connection with a project that was buried in landslides triggered by an earthquake in October 2010. Please see Note 12 Extraordinary Item of the financial statements for more information.

Other Comprehensive Income

We operate exclusively in the PRC and the functional currency of our operating subsidiary is the Chinese Renminbi (”RMB”). The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into USD at the rates used in translation.

For financial reporting purpose, RMB has been translated into USD as the reporting currency in accordance with FASB ASC 830, “Foreign Currency Matters”. The financial information is translated into U.S. dollars at period-end exchange rates as to assets and liabilities and average exchange rates as to revenue and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred. The effects of foreign currency translation adjustments are included as a component of accumulated other comprehensive income in stockholders’ equity.

Translation adjustments resulting from this process amounted to other comprehensive income of $109,757 and other comprehensive expense of $20,388 for the six months ended March 31, 2011 and 2010, respectively. The balance sheet amounts with the exception of equity at March 31, 2011 were translated at 6.5701 RMB to 1.00 USD as compared to 6.82590 RMB to 1.00 USD at March 31, 2010. The equity accounts were stated at their historical rate. The average translation rates applied to the income statements accounts for the periods ended March 31, 2011 and 2010 were 6.62863 RMB and 6.8274 RMB, respectively.

Liquidity and Capital Resources

As of the date of this report, we have financed our operations primarily through cash flows from operations and borrowings from banks in the PRC. As of March 31, 2011, we had negative working capital of $2,945,453. Based on our current operating plan, we believe that our existing resources, including cash generated from operations as well as our bank loans, will be sufficient to meet our working capital requirement for our current operations. To fully implement our business plan and continue our growth, however, we believe we will require additional capital. Total current assets decreased to $8,849,659 as of March 31, 2011 from $18,786,916 as of September 30, 2010. The primary changes in our current assets during this period were from changes in cash, accounts receivables, and inventory.

The increase in our cash and cash equivalents from $1,268,674 at September 30, 2010 to $2,345,963 at March 31, 2011 was due substantially to our withdrawal of restricted cash, which decreased from $5,844,020 at September 30, 2010 to $0 at March 31, 2011. The increase in our accounts receivable from $815,566 at September 30, 2010 to $4,734,036 at March 31, 2011 resulted primarily from increased sales activities related to several equipment-bundled installation projects. The decrease in inventory, primarily in raw materials and finished goods, from $9,045,390 as of September 30, 2010 to $1,725,967 as of March 31, 2011 was due primarily to delivery of several installation projects in the six months ended March 31, 2011 and fewer ongoing installation projects for the six months ended March 31, 2011.

Our total current liabilities as of March 31, 2011 totaled $11,795,112 as compared to $15,837,295 at September 30, 2010. The decrease in current liabilities was primarily due to the decrease in our advance from customers as we delivered several installation projects in the six months ended March 31, 2011.

Discussion of Cash Flow

Comparison of cash flows results for the six months ended March 31, 2011 to the six months ended March 31, 2010, is summarized as follows:

	For the Six Months Ended March 31
	2011			2010
Cash flow from (used) operating activities	$	186,231		$	3,245,520
Cash flow from (used) investing activities		(4,280	)		(375,366	)
Cash flow from (used) financing activities	$	877,145		$	2,112,082

Operating Activities

Cash flows provided by operating activities for the six months ended March 31, 2011 amounted to $186,231, a decrease of $3,059,289, or 94.26% as compared to $3,245,520 for the comparable period in 2010.The decrease was mainly attributable to increase in accounts receivable.

Investing Activities

Net cash used in investing activities amounted to $4,280 for the six months ended March 31, 2011, which represented purchase of property and equipment. Cash flows used in investing activities amounted to $375,366 for the six months ended March 31, 2010.

Financing Activities

Net cash provided by financing activities amounted to $877,145 for the six months ended March 31, 2011, which was the due from CEO. Net cash provided by financing activities for the six months ended March 31, 2010 amounted to $2,112,082 which represented proceeds from bank loans of $439,404 and shareholder capital contribution of $295,000, as well as the due from CEO of $1,377,678.

Off Balance Sheet Arrangements

As of the date of this report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have: (i) any obligation arising under a guarantee contract, derivative instrument or variable interest; or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

Critical Accounting Policies

See “Note 2. Summary of Significant Accounting Policies” in “Item 1. Financial Statements” herein for a discussion of the critical accounting pronouncements adopted in this Quarterly Report on Form 10-Q.

Recent Accounting Pronouncements

See“ Note 2. Summary of Significant Accounting Policies” in “Item 1. Financial Statements” herein for a discussion of the new accounting pronouncements adopted in this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosure About Market Risk.

Not applicable.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”). The evaluation of our disclosure controls and procedures included a review of our processes and the effect on the information generated for use in this Quarterly Report on Form 10-Q. In the course of this evaluation, we sought to identify any material weaknesses in our disclosure controls and procedures and to confirm that any necessary corrective action, including process improvements, was taken. The purpose of this evaluation is to determine if, as of the Evaluation Date, our disclosure controls and procedures were operating effectively such that the information, required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) was recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) was accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

As of March 31, 2011, the Company’s Chief Executive Officer and its Chief Financial Officer have concluded that, as of that date, the Company’s controls and procedures were not effective due to some significant deficiencies (as defined in Public Company Accounting Oversight Board Standard No. 2) in the Company’s internal controls over financial reporting. This is due to the fact that the Company lacks sufficient personnel with the appropriate level of knowledge, experience and training in the application of US generally accepted accounting principles (“GAAP”) standards, especially related to complicated accounting issues. This could cause the Company to be unable to fully identify and resolve certain accounting and disclosure issues that could lead to a failure to maintain effective controls over preparation, review and approval of certain significant account reconciliation from Chinese GAAP to US GAAP and necessary journal entries.

The Company has a relatively small number of professionals in bookkeeping and accounting functions, which prevents the Company from appropriately segregating duties within its internal control systems. The inadequate segregation of duties is a weakness because it could lead to the untimely identification and resolution of accounting and disclosure matters or could lead to a failure to perform timely and effective reviews.

Based on the control deficiency identified above, we have designed and plan to implement, or in some cases have already implemented, the specific remediation initiatives described below:

We are evaluating the roles of our existing accounting personnel in an effort to realign the reporting structure of our internal auditing staff in China that will test and monitor the implementation of our accounting and internal control procedures.

We are in the process of completing a review and revision of the documentation of the Company’s internal control procedures and policies.

We will begin implementation an initiative and training in China to ensure the importance of internal controls and compliance with established policies and procedures are fully understood throughout the organization and will provide additional U.S. GAAP training to all employees involved with the performance of or compliance with those procedures and policies.

We will implement a formal financial reporting process that includes review by our Chief Executive Officer and the full Board of Directors of financial statements prior to filing with the SEC.

We have engaged third-party financial consultants to review and analyze our financial statements and assist us in improving our reporting of financial information. Management plans to enlist additional qualified in-house accounting personnel and third-party accounting personnel as required to ensure that management will have adequate resources in order to attain complete reporting of financial information disclosures in a timely matter.

The remedial measures being undertaken may not be fully effectuated or may be insufficient to address the significant deficiencies we identified, and there can be no assurance that significant deficiencies or material weaknesses in our internal control over financial reporting will not be identified or occur in the future. If additional significant deficiencies (or if material weaknesses) in our internal controls are discovered or occur in the future, among other similar or related effects: (i) the Company may fail to meet future reporting obligations on a timely basis, (ii) the Company’s consolidated financial statements may contain material misstatements, and (iii) the Company’s business and operating results may be negatively impacted.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were not operating effectively.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting for the quarter ended March 31, 2011 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

Not applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures

Item 5. Other Information.

None.

Item 6. Exhibits.

No	Description

3.1	Articles of Incorporation as filed with the Secretary of State of Nevada. Incorporated by reference to Exhibit 3.1 to the Registrant’s registration statement on Form SB2 filed on January 30, 2008.

3.2	Certificate of Amendment to Articles of Incorporation

3.3	Bylaws. Incorporated by reference to Exhibit 3.1 to the Registrant’s registration statement on Form SB2 filed on January 30, 2008.

31.1	Certification of Principal Executive Officer Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act Of 1934*

31.2	Certification of Principal Financial Officer Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act Of 1934*

32.1	Certification of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

32.2	Certification of Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

* Filed herewith.

** Furnished herewith.

SIGNATURES

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

	CHINA ENVIRONMENTAL PROTECTION, INC.

Date: October 26, 2012	/s/Boping Li

	Boping Li

	Chief Executive Officer and Chairman

Date: October 26, 2012	/s/Yuqiang Wu

	Yuqiang Wu

	Chief Financial Officer

Filing Compare · China Environmental Protection Inc.