U. S. SECURITIES AND EXCHANGE
COMMISSION


WASHINGTON, D.C. 20549





FORM 10-KSB/A


(Amendment
No. 3)




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





For the
fiscal year ended December 31, 2007





o
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
transition period from ___________ to _____________





Commission File Number: 000-19644





CHINA BROADBAND, INC.


(Name of
small business issuer as specified in its charter)




Nevada
            
            20-1778374(State
      or other jurisdiction of
              incorporation
      or organization)
            
            (I.R.S.
      Employer
              Identification
      No.)





1900 Ninth Street, 3rd Floor
      Boulder, Colorado 80302(Address
      of principal executive offices, including zip
  code)





Issuer’s
telephone number, including area code:    ( 303) 449-7733 (U.S. only)





Securities
registered pursuant to Section 12(b) of the Act:None





Securities
registered pursuant to Section 12(g) of the Act: $.001 par value common stock











Check
whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days.   Yes x No o





Check if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not
contained in this form, and no disclosure will be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. o





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


Yes o No x





The
issuer’s revenues for the most recent fiscal year were $3,004,392 .





The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant was approximately $18,080,584 as of April 14,
2008 based upon the $.75 share price at which the common equity was sold.





As of
March 31, 2008, 50,255,599 shares of our common stock were issued and
outstanding.


Documents
Incorporated by Reference: None .


Transitional
Small Business Disclosure Format: No .







Explanatory Note


This
Annual Report on Form 10-KSB/A is being filed as Amendment Number 3
(“Amendment No. 3”) to our Annual Report on Form 10-KSB which was originally
filed with the Securities and Exchange Commission (the ‘‘Commission’’) on April
15, 2008 (the “Original Filing”) and which was amended by the filing of
Amendment No. 1 to the Original Filing on August 18, 2008 (“Amendment No. 1”) so
as to restate our financial statements for the year ending December 31, 2007 and
Amendment No. 2 to the Original Filing on September 30, 2008 (“Amendment No.
2”). The reasons for the previously filed restatement related to the finding of
the board of directors of China Broadband, Inc. (the “Company”) that its
previously issued financial statements for certain periods could no longer be
relied upon because of (i) the Company’s discovery of previously unrecognized
deferred revenues from payments received from customers, and (ii) the incorrect
application of U.S. generally accepted accounting principles (“GAAP”) with
respect to the recognition of revenues from prepaid internet service contracts.
This Amendment No. 3 to the Form 10- KSB only amends and restates
information in “Item 8(A)T Controls and Procedures” found in Part II, so as to
clarify and indicate the findings of the Company’s management with respect to
its internal controls as a result of the previous restatement. The Company’s
management has also updated its certifications filed as exhibits to this Report.
  For
the convenience of the reader, this Form 10-KSB/A sets forth the entire Form
10-KSB which was prepared and relates to the Company as of and for the year
ending December 31, 2007. However, this Form 10-KSB/A only amends and restates
the Item number described above to reflect the effects of the restatement and
revised internal controls findings and no attempt has been made to modify or
update other disclosures presented in the original filing.
  Accordingly,
except for the foregoing amended information, this Form 10-KSB/A continues to
speak as of the date of the Original Filing and does not reflect events
occurring after the Original Filing, and does not modify or update those
disclosures affected by subsequent events.
  Forward
looking statements made in the Original Filing have not been revised to reflect
events, results or developments that have become known to us after the date of
the Original Filing (other than the current restatements described above), and
such forward looking statements should be read in their historical context.
Unless otherwise stated, the information in this Form 10-KSB/A is not affected
by such current restatements is unchanged and reflects the disclosures made at
the time of the Original Filing.







CHINA BROADBAND, INC.


(F/K/A ALPHA NUTRA, INC.)





2007 ANNUAL REPORT OF FORM
10-KSB





TABLE OF CONTENTS





PagePART
      IItem
      1.
            
            Description
      of Business and Risk Factors
            
            1Item
      2.
            
            Description
      of Property
            
            22Item
      3.
            
            Legal
      Proceedings
            
            22Item
      4.
            
            Submission
      of Matters to a Vote of Security Holders
            
            22PART
      II
            
            
            
            23Item
      5.
            
            Market
      for Common Equity and Related Stockholder Matters and Small Business
      Issuer Purchases of Equity Securities
            
            23Item
      6.
            
            Management’s
      Discussion and Analysis or Plan of Operation
            
            25Item
      7.
            
            Financial
      Statements
            
            35Item
      8.
            
            Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
            
            35Item
      8A.
            
            Controls
      and Procedures
            
            35Item
      8B.
            
            Other
      Information
            
            36PART
      III
            
            
            
            37Item
      9.
            
            Directors,
      Executive Officers, Promoters, Control Persons and Corporate Governance;
      Compliance with Section 16(a) of the Exchange Act
            
            37Item
      10.
            
            Executive
      Compensation
            
            41Item
      11.
            
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
            
            43Item
      12.
            
            Certain
      Relationships and Related Transactions, and Director Independence
            
            45Item
      13.
            
            Exhibits
            
            47Item
      14.
            
            Principal
      Accountant Fees and Services
            
            47










PART I





Cautionary Statement Concerning
Forward-Looking Statements





Some of
the statements in this annual report are forward looking statements, which are
subject to risks and uncertainties. These risks relate primarily to our cable
broadband operations in the People’s Republic of China as well as our contract
to enter into a joint venture to acquire a television programming guide
publishing business. These risks and uncertainties could cause actual results to
differ materially from those expressed in forward-looking statements.





Forward Looking Statements





This
Annual Report on Form 10-KSB and other reports filed by China Broadband, Inc.
(the “company” ,“we”, “us” or “our”) contains or may contain forward looking
statements and information that are based upon beliefs of, and information
currently available to, the management of the company as well as estimates and
assumptions made by its management. When used in the filings, the words
“may”, “will”, “should”, “estimates”,  “anticipate”, “believe”,
“estimate”, “expect”, “future”, “intend”, “plan” or the negative of these terms
and similar expressions as they relate to the company or its management,
identify forward looking statements. Such statements reflect the current view of
the company with respect to future events and are subject to risks,
uncertainties, assumptions and other factors relating to the company. Such
forward-looking statements include statements regarding, among other things:


·
              our
      ability to satisfy our obligations under our agreements with respect to
      our acquisition of the cable broadband business of Jian Guangdian Jiahe
      Digital Television Co., Ltd. located in mainland People’s Republic of
      China (the “PRC” or “China”),
  ·
              our
      ability to complete our payments relating to the acquisition of a
      television programming publication company in the PRC,
  ·
              a
      complex and changing regulatory environment in the PRC that limits our
      ability to pay dividends, currently permits only partial foreign ownership
      of certain PRC based businesses and that requires us to negotiate, acquire
      and maintain separate government licenses to operate each internet
      business that we would like to acquire (or any other business we would
      like to acquire in the PRC),
  ·
              our
      ability to obtain government consent to introduce certain new services to
      existing or new customers,
  ·
              our
      ability to implement complex operating and revenue sharing arrangements
      that will enable us to consolidate our financial statements with our
      prospective partially owned PRC based business or joint ventures, and to
      modify and adapt these business arrangements from time to time to satisfy
      United States accounting rules,
  ·
              our
      ability to enter into agreements with and to consummate acquisitions of
      businesses in the PRC in the Shandong region and
  elsewhere,
  ·
              socio-economic
      changes in the regions in the PRC that we intend to operate in that affect
      consumer internet subscriptions,
  ·
              the
      ability of the PRC government to terminate or elect to not renew any of
      our licenses for various reasons or to nationalize our industry, and
  ·
              our
      anticipated needs for working
capital.




Although
we believe that the expectations reflected in the forward looking statements are
reasonable, we cannot guarantee future results, levels of activity,
performance or achievements. Except as required by applicable law, including the
securities laws of the United States, we do not intend to update any of the
forward-looking statements to conform these statements to actual
results.









Item 1. Description of
Business





China
Broadband, Inc., a Nevada corporation, was formed on October 22, 2004 pursuant
to a reorganization of a California entity formed in 1988. We acquired China
Broadband, Ltd., a Cayman Islands company (“China Broadband Cayman”) which had
existing PRC based operations in the cable broadband internet business on
January 23, 2007, and effective May 24, 2007 changed our name from Alpha Nutra,
Inc. to China Broadband, Inc.




We own
and operate, through China Broadband Cayman’s indirect subsidiary in the PRC
which we acquired in 2007, a cable broadband business based in the Jinan region
of China. In early 2008, we executed definitive agreements to acquire and have
tendered our initial required payments for, a newspaper and periodical
television programming guide business in the Shandong region of China which is
described in more detail in the “Recent Developments” subsection at the end of
this “Item 1. Description of Business” section.





All
references herein to the “Company,” “we,” “us” or “our” refers to China
Broadband, Inc., f/k/a Alpha Nutra, Inc. prior to our acquisition of China
Broadband Cayman, and to the Company and the business of China Broadband Cayman
and its indirect operating subsidiaries in the PRC thereafter. See “Risk
Factors” and “Recent Events” below for additional information. All revenue
amounts from revenues in the PRC are stated in U.S. dollars as converted from
PRC Yuan (“RMB”) at average exchange rates of during the years in which
presented for each dollar, rounded to the nearest dollar, unless otherwise
indicated.





Investments
in companies such as US with China based businesses such as ours involves a
significant degree of regulatory risk in that the ownership of private
enterprises in China is heavily regulated and subject to changing rules and
regulations that could prevent us from recognizing revenues in our intended
manner or from operating or controlling businesses in China. China also has the
right, among other things, to de-privatize our current or future business. (see
“Risk Factors” section below).




Corporate History





We are
currently an operator of a PRC based cable broadband business which we acquired
in early 2007 (see “Acquisition of China Broadband Cayman” below) with
approximately 58,000 cable broadband internet subscribers in the Jinan region of
Shandong, China. We acquired and operate this business through our indirect
subsidiaries in the PRC. The Company’s predecessor corporation was organized in
1988 in California under the name “TJB Enterprises, Inc.” as a blind pool/blank
check company formed for the purpose of seeking a merger with a private
operating company. We operated various businesses and underwent various
reorganizations from inception through January of 2003.





Pursuant
to a plan of reorganization approved by a bankruptcy court, TJB Enterprises,
Inc. was ordered to acquire the business of Lets Talk Health (“LTH”) by issuing
3,000,000 shares of common stock to the shareholders of LTH, which was completed
on January 1, 2004 and on October 22, 2004, we reorganized our corporate
structure into a Nevada corporation by merging into a wholly owned subsidiary
created for this purpose, Alpha Nutraceuticals, Inc.




On
January 27, 2005, we changed our name to Alpha Nutra, Inc.





On June
30, 2005, we entered into a Stock and Asset Exchange Agreement with GMGH
International, LLC and Golden Tones International, LLC whereby we sold of our
operating companies to them by exchanging 100% of the Avidia Nutrition interests
and Let’s Talk Health, Inc. shares of common stock held by us for 100% of the
Alpha Nutra, Inc. shares of common stock held by GMGH, Golden Tones and each of
the respective owners of GMGH and Golden Tones, or in aggregate, 10,465,333
shares of our common stock, all of which was retired. Accordingly, following the
exchange, GMGH and Golden Tones owned 100% of Avidia Nutrition and Let’s Talk
Health, Inc., and we had no significant operations until our acquisition of
China Broadband Cayman in January 2007.





Acquisition of China Broadband
Cayman





On
January 23, 2007, pursuant to a Share Exchange Agreement, we acquired all of the
shares of China Broadband Cayman from its four shareholders in exchange for
37,865,506 shares of our common stock, par value $.001 per share, resulting in
such shareholders controlling the Company. At the time of the closing of the
Share Exchange Agreement, China Broadband Cayman was in the process of
acquiring, through its PRC subsidiary (See “Chinese Holding Company Structure”
below) pursuant to a Cooperation Agreement, a 51% controlling interest in an
operating broadband cable internet company based in the city of Jinan in the
Shandong Region of China, which acquisition resulted in the completion of the
transfer of operations and assets to our PRC subsidiary effective on April 1,
2007 (See “Acquisition of Jinan Broadband” in this section, below). The
Cooperation Agreement provides that the operating business’ operations and
pre-tax revenues would be assigned to our 51% owned Jinan Broadband subsidiary
in the PRC for 20 years, effectively providing for an acquisition of the
business. In consideration for this 20 year business and management rights, we
paid approximately $2,572,000 in March 2007 and approximately $3,200,000 in
March 2008. These transactions are described in more detail below and in our
previous reports filed with the Securities and Exchange Commission and exhibits
to such filings. This business is our only operating business as of March of
2008.




1





As part
of the Share Exchange Agreement, we appointed new management and also assumed
the obligations of China Broadband Cayman under $325,000 principal amount of 7%
Convertible Promissory Notes issued by them in late 2006, which were convertible
into 1,300,000 shares of our common stock, as well as other related obligations.





Simultaneously
with the closing of our acquisition of China Broadband Cayman, we consummated a
$4,000,000 equity financing wherein we sold an aggregate of 8,000,000 shares of
our common stock and 4,000,000 warrants to purchase common stock at $2.00 per
share.





Effective
as of the closing date of the Share Exchange Agreement on January 23, 2007, new
members of management were appointed to the Board and as executive officers, and
our officers and directors at the time, Mark L. Baum and James B. Panther, II,
resigned from all officer and director positions with the Company.





The
material terms of the Share Exchange Agreement with China Broadband Cayman and
its shareholders on January 23, 2007, resulting in our becoming an operating
entity, were that:


·
              We
      funded, with the proceeds of our simultaneous $4,000,000 equity financing,
      the first of two payments of the acquisition of the 51% interest in Jinan
      Broadband of approximately $2,572,125 including expenses, the second
      payment of which was made in March 2008,
 
 ·
              We
      assumed liabilities of China Broadband Cayman under the $325,000 principal
      amount of 7% Convertible Promissory Notes issued by them in late 2006,
      which, by their terms, were convertible at $.25 per share of our common
      stock for an aggregate of 1,300,000 shares and to pay interest thereon,
      all of which have since been converted as of February 28, 2007, with
      interest paid in cash through such
date,
 
 ·
              We
      assumed certain obligations of China Broadband Cayman to issue, and have
      so issued, 48,000 shares to WestPark Capital, Inc., as part of the
      consideration for acting as placement agent for China Broadband Cayman in
      connection with placement agent services rendered by it relating to the
      sale of its 7% Convertible Promissory Notes, in
  2006,
 
 ·
              We
      have assumed obligations of China Broadband Cayman under its registration
      rights agreement, to register all shares issued upon conversion of
      the 7% Convertible Promissory Notes and the 48,000 shares issued to
      WestPark Capital, Inc. As these shares were not registered, for the year
      ended December 31, 2007 we were required to issue 170,855 shares as a
      penalty to said shareholders, which were issued in March 2008,
 
 ·
              We
      issued 500,000 warrants to BCGU, LLC, an entity beneficially owned by Mark
      L. Baum, our outgoing director, executive officer and former principal
      shareholder, as consideration for professional and related services
      rendered, which warrants are exercisable at $.60 and expire on March 24,
      2009 (which have subsequently been extended),
 
 ·
              We
      agreed to a “leak out” agreement with respect to the 37,865,506 shares
      issued to the Broadband Shareholders and with respect to shares held
      beneficially by Mr. Baum, our outgoing executive officer and director,
      which leak out agreement has since been terminated so as to facilitate our
      convertible debt and warrant financing in January 2008, (see “Recent
      Developments” below),
 
 ·
              We
      issued 3,974,800 warrants exercisable at $.60 per share with an expiration
      date of March 24, 2009 (which have subsequently been extended) to Maxim
      Financial Corporation as a consulting fee and in exchange for funding
      operating and other business activities of China Broadband Cayman prior to
      the Share Exchange Agreement and in exchange for entering into a pass
      through lease with us and waiving past and future rent through December
      2007 under such lease,
 
 ·
              We
      entered into employment agreements with certain new members of management,
      which employment agreements have since been
  modified.




Additional
information relating to this change of control, the business acquired, and
related financial statements, can be found in our Current Reports on Form 8-K
dated January 23, 2007 and April 1, 2007, each as amended and exhibits
thereto.




Accounting Treatment of Acquisition
of China Broadband Cayman





The
acquisition of China Broadband Cayman (and its PRC based subsidiary) has been
accounted for as a reverse acquisition of Alpha Nutra, Inc. with China Broadband
Cayman as the accounting acquirer, with no adjustment to the historical basis of
the assets and liabilities of China Broadband Cayman, and the operations were
consolidated as though the transactions occurred as of the beginning of the
first accounting period presented in the accompanying consolidated financial
statements.





Simultaneous Closing of $4,000,000
Equity Financing





Simultaneously
with the closing of our acquisition of China Broadband Cayman on January 23,
2007, and as a necessary condition thereto in order to fund our first payment
for the acquisition of the broadband business in China, we conducted the first
closing of our private offering pursuant to which we entered into subscription
agreements with investors for the sale of 6,000,000 shares of common stock and
3,000,000 Redeemable Common Stock Purchase Warrants, exercisable at $2.00 per
share (the “Investors Warrants”). This offering was conducted through WestPark
Capital, Inc. as placement agent, on a “best efforts, $3,000,000 minimum,
$4,000,000 maximum” basis. During the six months ended June 30, 2007 we raised
an additional $1,000,000 such that we sold the aggregate maximum of $4,000,000
in this offering consisting of an aggregate of 8,000,000 shares and 4,000,000
warrants to accredited investors. We granted the investors registration rights
in connection with this offering and compensated WestPark Capital, Inc., our
placement agent, with a placement agent fee consisting of $320,000 plus
expenses, and issued to them 640,000 warrants to purchase common stock at $.60
per share during the year ended December 31, 2007. We also agreed to extend the
expiration date if all of the forgoing warrants pending receipt of certain
releases. (See “Settlement Agreement” below).




2




We used
$2,572,000 of the proceeds of this offering from the first closing (inclusive of
expenses) to pay the first installment of our acquisition of a 51% interest in
the China based cable internet business.





Acquisition of Jinan
Broadband




At the
time of the closing of our acquisition of China Broadband Cayman, it was a
party, through its wholly owned PRC subsidiary, to a Cooperation Agreement (the
“Cooperation Agreement”) with Jian Guangdian Jiahe Digital Television Co., Ltd.
(“Jinan Parent”) to acquire a 51% controlling interest in an operating broadband
cable internet company based in Jinan, China, sometimes referred to herein as
“Jinan Broadband.” The Cooperation Agreement provides that the operating
business’ operations and pre-tax revenues would be assigned to our Jinan
Broadband subsidiary for 20 years, effectively providing for an acquisition of
the business. We have paid $2,572,000 of our net proceeds from the first closing
(inclusive of expenses) of our private equity offering in January 2007, for
payment to Jinan Parent in exchange for ownership by our China based Wholly
Foreign Owned Entity (“WFOE”) of 51% interest in Jinan Broadband and entry into
the Cooperation Agreement and an Exclusive Service Agreement. This acquisition
was completed in late March of 2007 with the completion of the transfer of
assets on April 1, 2007, even though we commenced certain operations of this
entity prior to such time. In consideration for this 20 year business and
management rights, we paid, in addition to the approximately $2,572,000 initial
payment above, an additional approximate 23 million RMB. This final payment was
made in March 2008 in the amount of $3.2 million.





In
addition, we entered into various agreements that relate to our revenue sharing
obligations and management rights of this business. Moreover, Jinan Broadband
entered into an Exclusive Service Agreement with Jinan Radio & Television
Network, the only cable TV operator in Jinan, the capital city of Shandong, and
Jinan Parent. Pursuant to the Exclusive Service Agreement, the parties will
cooperate and provide each other with technical services related to their
respective broadband, cable and internet content-based businesses with the
payment of service fees to each other.




The
general business terms of this acquisition are, in relevant part, as follows:




·
            We
      received a business license from the local Industry and Commerce Bureau,
      that enabled us to complete the acquisition and operate the business of
      Jinan Broadband,




·
            Our
      WFOE in China, which is wholly owned by our China Broadband Cayman
      subsidiary, owns the 51% interest in Jinan Broadband with the seller of
      this business, Jinan Parent, owning the remaining 49% and maintaining
      certain control under the Exclusive Cooperation Agreement,




·
            Jinan
      Parent, Jinan Broadband and Jinan Radio and Television Networks Center,
      entered into the Cooperation Agreement providing for the management terms
      and rights and revenue sharing rights between us and Jinan
      Parent,




·
            Jinan
      Broadband entered into an Exclusive Service Agreement with Jinan Radio and
      Television Network and Jinan Parent pursuant to which the parties will
      cooperate and provide each other with technical services related to their
      respective broadband, cable and Internet content-based
      businesses.




Chinese Holding Company Structure





Our
Company has an offshore holding structure commonly used by non-Chinese investors
that acquire operations in China and make foreign investments of equity, since
Chinese regulations do not readily permit foreign ownership of certain mainland
Chinese businesses such as telecommunications or cable and related value-added
services. Our wholly owned subsidiary, China Broadband Cayman, owns 100% of our
wholly foreign owned entity ( i.e ., the
“WFOE” or “BCB Network”), Beijing China Broadband Network Technology Co., Ltd.,
a Beijing, China corporation. Pursuant to the agreement, our WFOE in turn owns
51% of the operating company, Jinan Broadband, whose other 49% owners are Jian
Guangdian Jia He Digital Television Co., Ltd. ( i.e ., “Jinan
Parent”) and certain of its affiliates. Jinan Parent in turn is owned by Jinan
Radio and Television Networks Center. Through the Exclusive Cooperation
Agreement and one or more similar operating agreements among our WFOE
subsidiary, Jinan Parent and Jinan Broadband, we manage and control the
operations of Jinan Broadband subject to certain oversight provisions, and
receive the economic benefits derived from its operations. Our WOFE has also
recently (early 2008) entered into an agreement to acquire, through a joint
venture enterprise, a Shandong based television programming guide business
described under “Recent Developments” below.




3




The
following chart depicts our corporate structure after the closing of the above
offering and acquisitions:











About Jinan Parent and the
Jinan Broadband Business Acquired





Jinan
Parent, the entity that sold its cable broadband business to us, is an emerging
cable consolidator and operator in China’s cable broadband market. According to
annual research report issued by CNNIC in July 2006, Jinan Parent is one of
China’s top five cable broadband service providers among China’s over 1,000
municipal or county cable TV network operators. Jinan Broadband is, after the
closing of our acquisition, a subsidiary that is 49% owned by Jinan Parent and
51% owned by our WFOE subsidiary, and is operated in accordance with the
Exclusive Cooperation Agreement and one or more operating agreements, including
the Exclusive Service Agreement. Jinan Broadband operates out of its base in
Shandong where it has an exclusive cable broadband deployment partnership and
Exclusive Service Agreement with Jinan Radio & Television Networks Center,
the only cable TV operator in Jinan. Pursuant to the Exclusive Service
Agreement, the parties cooperate and provide each other with technical services
related to their respective broadband, cable and Internet content-based
businesses.




Currently,
the only broadband services available in the Jinan region are through cable and
high speed internet lines. Additionally, satellite internet cable connections
are not currently available in Jinan, China. We believe that China Net Com,
Inc., which provides non-cable broadband internet service, serves 220,000
customers in Jinan. We also believe that we compete on the basis of more
favorable rates and our ability to provide a variety of interactive media
services through a partnership with Jinan Center. Finally, cable enjoys a high
household penetration rate in urban areas and our internet service is
competitively fast and reliable. (See www.jinan.gov.cn ). The
broadband internet business in China has limited competition, since we were
granted an exclusive license and right to do so via cable in the Jinan region.





We also
do not rely on any particular customers for our business.





4




Licenses and Government Permits





At the
cornerstone of Jinan Broadband’s regional rollout strategy is Jinan Radio and
Television Network Centers’ (“Jinan Center”) flagship role in cable broadband
services in Shandong, as well as throughout China. Because of its unique roll as
a subsidiary of a cable network operator, Jinan Parent holds various licenses
and contracts that we will be dependent upon in whole or in part, including,
without limitation:




Description
            
            License/PermitInternet
      Multi-media Content Transmission
            
            License
      No. 1502005;Radio
      & Television Program Transmission & Operation Business
            
            Permit
      Shandong No. 1552013,Radio
      & TV Program Production & Operation License
            
            Shandong
      No. 46,PR
      China Value-added Telecom Service License
            
            Shandong
      No. B2-20050002,PR
      China Value-added Telecom Service License
            
            Shandong
      B2-20051013.





Through
Jinan Broadband’s Exclusive Cooperation Agreement with Jinan Parent and Jinan
Center, the Company enjoys benefits of the above licenses that allow the Company
to roll out cable broadband services as well as to provide value-added services
of radio and TV content in Shandong province.





Business Strategies





Focus on Shandong Region





Based on
information available to us from www.Jinan.gov.cn ,
Shandong had a population of approximately 92 million and had the second highest
gross domestic product (“GDP”) ranking in 2005. Based on information from
Shandong Branch of SARFT (State Administration of Radio Film & Television),
in past, Shandong had a consolidated cable television customer base of
approximately 10 million. Shandong currently has approximately 11 million
households with cable television access, approximately 0.5% of whom subscribe
for cable broadband internet access or broadband services offered by cable
operators. Shandong is served by 17 municipal cable television operators,
including Jinan Parent. With a population of approximately 5.9 million, Jinan
Center serves approximately 1.3 million cable television households and has
approximately 40,000 cable broadband internet users. All population and GDP
statistics in this section are provided by Jinan Municipal Government and can be
viewed without charge at ( www.jinan.gov.cn ).





When we
acquired Jinan Broadband in early 2007, we had approximately 45,000 subscribers
and, through internal growth have expanded our subscriber base to April 58,000
as of December 31, 2007.





We
believe that the Shandong regional market and high cable access rate provides
great market potential for expanding our current and future cable broadband
services especially when Digital TV services and interactive Digital TV services
offered by Jinan Cable operator are picking up more subscribers. We intend to
develop and evolve our market strategy on an ongoing basis based on our results
in the Shandong region.





Bundle with Direct TV Rollout





We
believe that Chinese cable companies are exerting efforts to digitalize cable
networks which we believe will increase the use and availability of digital STB
(Set-top-box) in Shandong province. According to SARFT’s DTV timetable (China
Cable TV Digitization Timetable http://www.sarft.gov.cn/manage/publishfile/24/603.html ), by
2008 certain of China’s coastal areas must deploy all digital cable television
and shut down their analog television services step by step. By 2015, SARFT
intends for the entire country to deploy all digital cable television and cease
providing analog television transmission services. This will require the
conversion of current “analog” cable customers into “digital” or pay television
cable subscribers. Analog cable customers currently pay on average $1.50 per
month for cable television service. Digital cable customers with STB shall pay
$3.50 per month, as a basic fee. We hope to capitalize on the massive
digitalization campaign initiated by SARFT, by bundling cable broadband services
in the digital STB rollout campaign.




One of
the key marketing strategies that we intend to employ is to bundle cable
broadband service offerings within the digitalization campaign in the Jinan
area. The terms of our exclusive service agreement with Jinan Parent and Jinan
Center provide that they will provide us the first right to market and sell
set-top-box bundled services when it is rolled out by them in the Jinan region.
In order to push for digitalization, the cable operators in Shandong are
subsidizing Set-top-boxes to offer them for free to selected high-end cable
television customers. In new territories that do not already have cable, we may
also be required to subsidize Set-top-boxes. Jinan Parent provides subsidies to
plug-in cable broadband features on to the current Set-top-boxes platform. Our
success will be dependent, in part, on our ability to work with Jinan Parent and
Jinan Center to distribute such Set-top-boxes to selected cable television
customers located in more affluent communities. While the cable broadband
feature is offered as optional to digital Set-top-boxes users, with careful
choice of deployment targets, we will attempt to convert as much as 30% of the
digital cable television subscribers to cable broadband customers. 100% of the
revenue of successfully converted cable broadband users goes to Jinan Broadband.
Jinan Parent and Jinan Center enjoy returns through their 49% equity ownership
in Jinan Broadband.




5




Growth through
Acquisitions





To
augment our product offerings and create other revenue sources, we may work with
strategic partners to deploy value-added services to our cable broadband
customers.




We intend
to continue to increase our revenues by increasing our current subscriber base
but, more effectively, by increasing the areas in which we are permitted to
operate and provide cable broadband service and to expand by acquisition of new
regions or business. In order to effectuate this we would have to acquire
additional cable broadband operators in other regions, and will require
additional capital.





In
addition, we intend on acquiring businesses that we believe are synergistic or
complementary to our own, such as the business of Shandong Newspaper, a
television programming guide/periodical business in the Shandon province of
China, described below.




If we are
not able to expand by acquisitions, then we will not be successful. No assurance
can be made that we will be able to identify and complete acquisitions of, new
business targets or that we would be able to fund their acquisition. See “Recent
Developments” below.





Customers





Since
acquiring Jinan Broadband we have increased our subscriber base from
approximately 40,000 monthly subscribers to approximately 58,000 subscribers as
of December 31, 2007. To most cable TV customers, cable broadband offers an
alternative to DSL broadband services provided by local telecom carriers. We
believe that cable operators have the natural advantage of bundling interactive
value-added services like video-on-demand and other interactive content through
its digital TV services. While telecom carriers are positioning themselves to
offer value-added services of content nature to TV screens in the form of
Internet Protocol Television, often referred to as “IPTV”,  management
believes that the high entry barriers on IPTV regulation in China still blocks
the service offerings from telecom carriers. We do not rely on any particular
customers for our business.




Competition





We
believe that local telecom carriers that offer non-cable internet services,
represent our major competitors for our cable broadband service. Telecom
broadband service providers like China Netcom, a telecom carrier in the Shandong
province of China, is a dominant broadband service provider in most of the
Company’s target cities.





While
telecom carriers hold “last mile access” like fixed phone lines to most urban
households, we believe that cable operators enjoy more competitive advantage by
owning last mile connections of a much larger bandwidth. In urban areas that we
target, a large number of households have both fixed phone line and cable
television access. Many of these homes currently have phone line based internet
access.




Cable
operators in China have to purchase internet connections from telecom carriers.
Local telecom carriers that we compete with, however, do not need to pay for
internet connection bandwidth which increases their profit margins in this
sector over broadband service providers.




Local
telecom carriers are actively marketing broadband services on national,
provincial, as well as local levels in China. We believe, however, that the
ability for cable operators to bundle cable broadband with digital Set-top box
marketing efforts will help increase penetration of cable broadband service. In
addition, we believe that the quality of cable based broadband services is
higher and more versatile. For example, we also believe that we could easily add
voice over internet protocol telephony service (known as “VOIP”), with limited
added costs to us or the end user. While we do not have current plans to provide
VOIP service in the near future, we anticipate that, should we ever wish to
enter into this business we would do so with a strategic partner (and subsequent
to PRC regulatory approval) and we estimate it would it would take 9 to 12
months from the date we determine to enter into such business.




6




Intellectual Property and Other
Agreements





We are
not a party to any royalty agreements, labor contracts or franchise agreements
and, other than our right to own and operate Jinan Broadband, we do not
currently own any trademarks. We intend to apply for trademarks for the regions
in which we operate, such as with respect to Jinan Broadband.





Development
Activities





Prior to
our acquisition of Jinan Broadband, Jinan Parent spent approximately $500,000
(unaudited) in 2005 and $700,000 (unaudited) in 2006 in the development of new
technologies and the expansion of cable access. We have not invested any funds
into the business of Jinan Broadband and do not foresee expending material sums
on research and development in the near future.





Industry Structure and Government
Regulation




There are
various barriers to entry into the cable or internet service provider business
in China and to expansion of our value added services These barriers stem from
both industry barriers and government regulation. Cable operators in China, such
as our recently acquired Jinan Broadband businesses, are facing many challenges
during the process of its evolution from single-system operators to
multiple-system operators. The rates we charge and services we provide to cable
customers are subject to government regulation and approval.





Industry
Barrier





The radio
and television broadcasting industries are highly regulated in China. Local
broadcasters including national, provincial and municipal radio and television
broadcasters are 100% state-owned assets. SARFT regulates the radio and
television broadcasting industry. In China, the radio and television
broadcasting industries are designed to serve the needs of government
programming first, and to make profits next. The SARFT interest group controls
broadcasting assets and broadcasting contents in China.





MII
(Ministry of Information Industry) on the other hand, regulates the telecom
industry. As China’s telecom industry is much more deregulated than the
broadcasting industry, MII has been always pushing the bottom line of content
control of SARFT by trying to launch more telecom value-added services with
content offering in nature, such as IPTV, broadband TV, etc. While China’s
telecom industry has substantial financial backing, SARFT, and its regulator,
the Propaganda Ministry under China’s Communist Party Central Committee, never
relinquished ultimate regulatory control over content and broadcasting control.





The major
internet regulatory barrier for cable operators to migrate into multiple-system
operators and to be able to offer telecom services is the license barrier. Very
few independent cable operators in China acquired full and proper broadband
connection licenses from MII. The licenses, while awarded by MII, are given on
very-fragmented regional market levels. With cable operators holding the last
mile to access end users, SARFT cable operators pose a competitive threat to
local telecom carriers. While internet connection licenses are deregulated to
even the local private sector, MII still tries to utilize the license barrier to
fence off threats from cable operators that fall under the SARFT interest group.





Our
business is highly regulated and we are required to obtain government approval
from the Ministry of Commerce of the People’s Republic of China, commonly
referred to as MOFCOM, and other government agencies in China that approve
transactions such as our acquisition of Jinan Broadband. Additionally, foreign
ownership of certain businesses and assets in China is not permitted without
specific government approval. For this reason, we acquired only 51% Jinan
Broadband with the remaining 49% owned by the selling agency and revenue sharing
and voting control is governed among the parties based on written agreements
such as our Exercise Service Agreement and the Cooperating Agreement.





We do not
have plans to provide value added services in the near future to our cable
internet users and intend to expand by increasing the number of regions in which
we are licensed to operate.




Lack of Economies of
Scale




Up until
2005, China had over 2,000 independent cable operators on different levels.
While SARFT pushed hard from the national level to call for national
consolidation of cable networks, the consolidation mostly occurs on a provincial
platform. The 30 provinces are highly variable in their consolidation efforts
and processes. For most cable operators in China, on a stand-alone basis, they
still lack the economies of scale to systematically rollout value-added services
that can significantly upgrade ARPU. (See SARFT website, above).





SARFT has
taken various steps to implement a separation scheme to achieve economies of
scale in the value-added service and cable operation sector. First, SARFT has
been separating cable network assets from broadcasting assets and currently
allows state-owned-enterprises to hold up to 49% in the cable network
infrastructure assets. Second, SARFT is separating the value-added services
segment from the network infrastructure which tends to increase private
investments.




7




Lack of Management Expertise





Current
monthly cable sales are low, with small profit margins if any. As a result, we
believe that the cable operators lack management expertise and marketing
expertise to promote and launch more sophisticated forms of value-added services
like cable internet broadband service.





Lack of Strategic
Focus





Due to
its highly-regulated nature, we believe that the radio and broadcasting industry
does not have the same financial resources as the deregulated telecom industry
in China, and that the priorities and goals of this industry are different from
the telecom industry.





We
believe that SARFT and its broadcasters are currently focusing on increasing
subscription revenues by converting average Chinese television viewers from
“analog” customers into “digital” (pay TV) customers. The financial resources
and strategic focus are put on the massive digitalization efforts and on the
set-top-boxes to be given away free of charge within digital television service
bundling in most regions. Due to the lack of financial resources, the rollout of
cable broadband services and other value-added services is moved lower on the
SARFT priority list.





The above
elements highlight the current challenges faced by local cable operators to
rollout cable TV value added services in China.





Employees





As of
December 31, 2007, we had a total of 68 employees at Jinan Broadband, which
include 20 in sales and marketing, 38 in technical staff and 10 in management,
finance and administration. In addition, we have two full time employees in the
United States.




Recent
Developments





Settlement Agreement and Convertible
Note and Warrant Financing





On
January 11, 2008, the Company entered into a Settlement Agreement (the
“Settlement Agreement”) by and among the Company and its subsidiaries, Stephen
P. Cherner, Maxim Financial Corporation, Mark L. Baum, BCGU, LLC, Mark I. Lev,
Wellfleet Partners, Inc., Yue Pu, Clive Ng, Chardan Capital Markets, LLC
(“Chardan Capital”), Jaguar Acquisition Corporation (“Jaguar”), and China
Cablecom Holdings, Ltd (“Cablecom Holdings”).





Simultaneously,
we consummated a private 5% convertible note (the “Notes”) and warrant financing
with gross proceeds of $4,850,000 (the “January 2008 Financing”), through
Chardan Capital acting as Placement Agent and appointed three additional
directors and a new Chief Executive Officer to the Company. The following is a
summary only of the material terms of the Settlement Agreement, Employment
Agreement Amendments and the January 2008 Financing related agreements
(including the note purchase agreement, the form of Notes and form of warrants)
which were filed as exhibits to our Current Report on Form 8-K dated January 11,
2008, the provisions of which are incorporated by reference herein.




Settlement Agreement





The
Settlement Agreement was negotiated by the Company, its advisors and management
and certain shareholders, for purposes of facilitating the Company’s business
plan and expediting and facilitating the Company’s financing activities and
resolving disputes between management and certain investors and consultants
concerning possible claims that such investors suggested might be brought
against Mr. Ng for his activities in forming Cablecom Holdings and its entry
into a Proposed Merger (as defined below and, which has since been completed)
with a subsidiary of Jaguar as violative of his employment agreement with the
Company. The Settlement Agreement provides, subject to the terms thereof, for
general mutual releases of all executives and management and their affiliated
entities and also provides for the modification of employment agreements of both
Mr. Clive Ng and Mr. Pu. The Settlement Agreement also calls for the transfer of
certain securities by Mr. Ng to certain of the Company’s shareholders and
consultants, as elaborated further herein in exchange for releases in favor of
the Company and management and their affiliates, and to investors in the January
2008 Financing.





8




Among
other provisions, pursuant to the Settlement Agreement:




·
            Clive
      Ng, our Chairman, has agreed to transfer, not later than three business
      days after the closing of the proposed merger of a subsidiary of Cablecom
      Holdings, as successor to Jaguar in its proposed redomestication merger
      with and into China Cablecom, Ltd., a private limited liability British
      Virgin Islands company (“China Cablecom”) (the “Proposed Merger”), of
      390,000 shares of common stock of Cablecom Holdings (the “Cablecom
      Holdings Shares”), the resulting surviving parent entity after the
      Proposed Merger. The 390,000 Cablecom Holdings Shares were to only be
      issued in the event of consummation of the Proposed Merger and were to be
      transferred by Mr. Ng on an “as is basis”, except that such shares have
      the same lock-up restrictions, registration or other rights, privileges or
      benefits as Mr. Ng has for all other shares to be issued to him by
      Cablecom Holdings under the Proposed Merger terms. The 390,000 Cablecom
      Holdings Shares will only be issued upon receipt of releases from certain
      parties listed in the Settlement Agreement. These shares are in the
      process of being transferred to us;




·
            Clive
      Ng has agreed to (i) transfer an aggregate of 400,000 shares of the
      Company’s common stock owned by him, to an unaffiliated escrow agent on
      behalf of a consultant that was a party to the Settlement Agreement, in
      accordance with the terms of an escrow agreement which provides, among
      other things, that such shares will only be released from escrow in the
      event that releases are obtained from certain parties listed in the
      Settlement Agreement, and (ii) make a charitable gift of an aggregate
      of 28,444 shares of Common Stock to a charitable organization selected by
      Mr. Lev, upon receipt of releases from certain parties listed in the
      Settlement Agreement;




·
            Each
      of Messrs. Ng and Pu, have agreed to modifications to their employment
      agreements with the Company (the “Employment Agreement
      Amendments”),
      reducing their time commitments to the Company and its subsidiary and
      providing that once replacement executive officers have been hired (and in
      the case of Mr. Ng, assuming Mr. Pu continues in his role as chief
      financial officer, eliminating his executive duties and he will only
      continue as the Chairman and a director of China Broadband and the
      Company), requiring in the case of Mr. Ng that he be subject to an ongoing
      obligation to offer acquisition candidates in the stand-alone, independent
      broadband business to China Broadband in the future (and recognizing that
      acquisition candidates involving acting as a joint venture provider of
      integrated cable television services in the People’s Republic of China and
      related activities, but which does not include the provision of
      Stand-Alone Broadband Services are the business of China Cablecom) and
      allowing them to continue to be involved with certain other activities and
      to continue in their executive capacities with Cablecom Holdings or its
      successor after the Proposed Merger. In addition, Mr. Ng has waived his
      right to receive all accrued salary previously owed to him and to continue
      accruing future salary until a financing
event;




·
            Mr.
      Ng has agreed to assign, and did assign 7,017,814 shares of our common
      stock owned beneficially by him to the investors (other then Chardan
      Capital which did not receive shares from Mr. Ng) in the private January
      2008 Financing as described below, thereby facilitating the January 2008
      Financing while avoiding additional dilution to the Company’s existing
      stock and warrant holders;




·
            Mr.
      Ng has agreed to transfer to certain private investors who acquired shares
      directly from him in July of 2007, an aggregate of 566,790 shares of our
      common stock owned beneficially by him, in exchange for releases and
      representation letters to be executed by such
  persons;




·
            Chardan
      Capital, our placement agent in the private financing and a party to the
      Settlement Agreement, completed the January 2008 Financing concurrently
      upon execution by all related parties of the Settlement
      Agreement;




·
            Mr.
      David Zale, Mr. Jonas Grossman and Mr. James Cassano, an affiliate of
      Jaguar, were appointed as directors joining Messrs. Yue Pu and Clive Ng on
      the board.




·
            The
      Company agreed to extend the expiration dates of 4,000,000 Investors
      Warrants to purchase common stock at an exercise price of $2.00 per share,
      issued in the Company’s private placement of common stock and warrants in
      2007, from March of 2009, through January 11, 2013, upon receipt of
      releases from such Investor Warrant holders. In addition, the Company has
      offered to BCGU, LLC, WestPark Capital, Inc., Maxim Financial Corporation,
      who were issued 500,000, 640,000 and 3,974,800 warrants exercisable at
      $.60 per share in January of 2007, the right, at their discretion, to
      extend the exercisability period of their respective warrants through
      January 11, 2013 or, in the alternative, the right to receive a scrip
      right to execute the unexercised portion of their warrants, at any time
      between the time of expiration date of their unexercised warrants and
      continuing through January 11, 2013.





Simultaneous Closing of $4,971,250
Convertible Note and Warrant Financing; Transfer of Shares by
Ng





Simultaneously
with the entry into the Settlement Agreement on January 11, 2008, and we entered
into and consummated the January 2008 Financing by entering into a subscription
agreement (the “Subscription Agreement”) with ten accredited investors
(inclusive of Chardan Capital) with respect to the issuance of an aggregate of
$4,971,250 principal amount of Notes due January 11, 2013, and Class A Warrants
to purchase an aggregate of 6,628,333 shares of common stock of the Company at
$.60 per share expiring on June 11, 2013.




9




An
aggregate of $4,971,250 principal amount of Notes was issued to ten investors
including Chardan Capital which applied its entire 2.5% cash commission towards
a subscription for Notes and Class A Warrants. Interest on the Notes compound
monthly at the annual rate of five percent (5%) with the maturity date on
January 11, 2013, if not sooner paid. Each holder of a Note can convert all or
any portion of the then aggregate outstanding principal amount of the Note,
together with interest, into shares of Common Stock at a conversion price of
$0.75 per share, for or a total of 6,628,333 shares as of the date of issuance.
The Notes are granted “full ratchet” anti dilution protection for the first
three years, pursuant to which the conversion price of the Notes will be
adjusted downward in the event of the issuance by the Company of common stock or
rights to acquire common stock at prices below $.75 per share (or below such
other conversion price of the Notes as is then in effect) to such lower price.
Thereafter and until repaid, the Notes provide only for weighted average
anti-dilution price protection adjustment. In addition, the Notes are subject to
certain customary anti dilution protections for stock splits, combinations or
similar transactions of the Company.





An
aggregate of 6,628,333 Class A Warrants, exercisable at $0.60 per share and
expiring on June 11, 2013 were issued pursuant to the Subscription Agreement as
part of the January 2008 Financing. The Class A Warrants are exercisable (with
cash or via cashless exercise) commencing one hundred and eighty-one (181) days
after the closing date of the January 2008 Financing until 65 months thereafter,
June 11, 2013. The Class A Warrants are subject to “full ratchet” anti-dilution
protection for the first three years, pursuant to which the exercise price of
the Class A Warrants will be adjusted downward in the event of the issuance by
the Company of Common Stock or rights to acquire Common Stock at prices below
$.60 per share (or below such other exercise price of the Class A Warrants as is
then in effect) to such lower price. Thereafter and until all Class A Warrants
are exercised or expire, the Class A Warrants provide only for weighted average
anti-dilution price protection adjustment. In addition, the Class A Warrants are
subject to certain customary anti-dilution protections for stock splits,
combinations or similar transactions of the Company.





Placement Agent Fee and Warrants to
Chardan Capital Markets, LLC





In
connection with their engagement as a placement agent, Chardan Capital has been
compensated a $10,000 due diligence fee and reimbursement of legal and other
expenses, and a cash placement agent fee of 2.5% based on the total amount sold
to investors, or $121,250 based on $4,850,000 of principal amount of Notes
issued to other investors. Chardan Capital has, pursuant to the terms of their
engagement agreement, agreed to apply their cash compensation of $121,250 into
an investment in a $121,250 Note and 166,667 Class A Warrants at the same terms
as all other investors in the offering. In addition, Chardan Capital was
compensated warrants to acquire 1,131,667 shares of the Company’s Common Stock
at an exercise price of $.50 per share exercisable commencing January 11, 2008
and expiring on June 11, 2013 (the “Broker Warrants”). The Broker Warrants are
identical to the Class A Warrants in all other material respects.





Assignment By Clive Ng of Shares to
Investors; Release of Lock-Up Agreements





To
incentivize the investors in January 2008 Financing and facilitate such
financing, and as contemplated under the terms of the Settlement Agreement, Mr.
Clive Ng assigned an aggregate of 7,017,814 shares of our common stock
beneficially owned by him to the January 2008 Financing investors, other than
Chardan Capital, at a nominal purchase price of $.01 per share.





Prior to
the transfers by Mr. Ng. the Company, 88 Holdings, Inc., China Broadband
Partners, Ltd., BCGU, LLC, MVR Investments, LLC, Stephen P. Cherner and WestPark
Capital, Inc. were each shareholder parties to a Lock-Up Agreement dated as of
January 23, 2007 (the “Lock-Up Agreement”). The Lock-Up Agreement provided, that
each such shareholder shall only be permitted to sell 5% of the shares
originally issued to them as scheduled in the Lock-Up Agreement, during any 30
day period and, that the Company’s management may review the lock up provisions
and increase the number of shares that may be sold provided that, among other
conditions, such modification is made pari pasu among all
shareholders to this Lock-Up Agreement based on their share ownership. As a
condition subsequent to the January 2008 Financing requested by Chardan Capital,
and to remove any contractual restrictions relating to the 7,017,084 shares of
common stock assigned by Mr. Ng to the Note investors to facilitate the
financing, the Company and each of the shareholder parties to the Lock-Up
Agreement agreed to the termination of this Lock-Up Agreement for all parties
effective as of January 13, 2008.





Board of Directors and Employment
Agreement Amendments





Simultaneously
with the closing of the January 2008 Financing and entry into the Settlement
Agreement on January 11, 2008, Messrs. David Zale, James Cassano and Jonas
Grossman were appointed as directors of the Company, joining Messrs. Clive Ng
and Yue Pu. Prior to the appointment of Messrs. Zale, Cassano and Grossman, such
persons had no affiliations or business relationship with the Company, except
that Mr. Grossman was and continues to be, a partner and officer of Chardan
Capital which received a placement agent fee of notes and warrants in connection
with the January 2008 Financing as described above. The board also appointed Mr.
Tom Lee as new Chief Executive Officer and Principal Executive Officer on
January 11, 2008.




10




Additionally,
Messrs. Yue Pu and Clive Ng have each entered into amendments to their
employment agreements which delineate the scope of services required from each
of them for the Company and its subsidiaries, and permits mutual director and
executive affiliations with the Company and Cablecom Holdings. Mr. Ng’s
Employment Agreement Amendment also calls for his work requirements to be
appropriately reduced to a non-executive position, although he remains as
Chairman and director. The Employment Agreement Amendments were approved by the
board and by the disinterested board members, Messrs. Zale and Grossman and was
required as part of the Settlement Agreement.





Shandong Newspaper
Acquisition




On March
7, 2008, through our WFOE in the PRC, we entered into a Cooperation Agreement
(the "Shandong Newspaper Cooperation Agreement") by and among our indirect WFOE
subsidiary, Shandong Broadcast & TV Weekly Press and Modern Movie & TV
Biweekly Press, each PRC companies (collectively "Shandong Newspaper"). The
Shandong Newspaper Cooperation Agreement provided for, among other terms, the
creation of a joint venture entity in the PRC called Shandong Lushi Media Co.,
Ltd. ("Shandong Media") that would own and operate Shandong Newspaper's
television program guide, newspaper and magazine publishing business in the
Shandong region of the PRC (the "Shandong Newspaper Business") which businesses
were previously owned and operated by the Shandong Newspaper entities pursuant
to exclusive licenses.




Under the
terms of the Shandong Newspaper Cooperation Agreement and related transaction
documents, the Shandong Newspaper entities mentioned above will contribute their
entire Shandong Newspaper Business and transfer certain employees, to Shandong
Media in exchange for a 50% stake in Shandong Media, with the other 50% of
Shandong Media to be owned by our WFOE in the PRC. In exchange therefore, the
Shandong Newspaper Cooperation Agreement provides for total initial
consideration from us of approximately $1.5 million (approximately 10 million
RMB based on exchange rates at the time) which shall be contributed to Shandong
Media as working and acquisition capital, of which the Company has already paid
approximately $300,000 (approximately 2 million RMB) in early March 2008 as a
down payment.




In
addition to the initial purchase price of $1.5 million (10 million RMB), the
Shandong Newspaper Cooperation Agreement provides for additional consideration
of approximately US $757,757 and US $3,000,000 (between 5 million RMB and 20
million RMB, respectively, based on exchange rates at the time) to be paid as a
capital contribution to Shandong Media in the event that certain performance
thresholds are met during the first 12 months of operations after closing the
transaction for a total maximum purchase price of approximately $4.06 (30
million RMB based on exchange rates at the time).




In the
event that audited annual net profits during the first year after closing of the
transaction relating to the Shandong Newspaper Cooperation
Agreement:




·
            equals
      or exceeds 16 million RMB, then we will be required to contribute an
      additional 20 million RMB (or, approximately $3,000,000 based on current
      exchange rates) to the Shandong Media joint venture;




·
            equals
      or exceeds 4 million RMB but less than 16 million RMB, then we will be
      required to contribute 125% of such net profits to the Shandong Media
      joint venture, and




·
            is
      less then 4 million RMB, then only an additional 5 million RMB
      (approximately US $757,575 based on current exchange rates).




Description of Shandong Newspaper
Business Being Acquired




The
Shandong Newspaper Business being acquired from Shandong Newspaper by our
Shandong Media joint venture includes the distribution of periodicals, the
publication of advertising, the organization of public relations events, the
provision of information related services, copyright transactions, the
production of audio and video products, the provision of audio value added
communication services. The Shandong Newspaper Cooperation Agreement also
provides that these businesses will be operated primarily by employees
contracted to Shandong Media through secondment by the respective Shandong
Newspaper entities.




In
addition, the Shandong Newspaper entities are required, upon completion of all
closing conditions, to enter into an Exclusive Advertising Agency Agreement and
an Exclusive Consulting Services Agreement with Shandong Media which require
that the Shandong Newspaper entities shall appoint Shandong Media as its
exclusive advertising agent and provider of technical and management support for
a fee.




The
closing of the transaction is dependant upon, among other conditions, the
obtaining of all necessary PRC government consents, payment of the initial
purchase price set forth above, and entry into the Exclusive Advertising Agency
Agreement and Exclusive Consulting Service Agreement.




In
addition to being the exclusive provincial television programming guide
publishing group in one of the PRC’s most populous provinces, and based on our
initial (unaudited) due diligence Shandong Newspaper has:




·
            A
      combined subscription basis of over 200,000 subscribers;




11




·
            Three
      publishing assets clearly focused on different readership segments;





·
            Retail
      and subscription income accounts for more than 75% of total revenue,
      indicating great growth potential for advertising revenue; and




·
            Unique
      publishing titles and exclusive TV Guide copyrights;





The
periodicals published by Shandong Newspaper are summarized below.





Shandong Broadcast & TV Weekly
(Newspaper)





Established
since 1954, Shandong Newspaper is the provincial TV programming guide &
general entertainment newspaper with what management believes is the longest
operating history in the nation. Publishing on weekly basis, it has been
maintaining 80,000 average copy in circulation per week. According to CTR (CCTV
Research Co. Ltd)’s rating report, Shandong Broadcast & TV Weekly Newspaper
enjoys on average half a million readership on weekly basis.





Target
readership of Shandong Broadcast & TV Weekly mostly concentrates in
middle-age to senior readers in Shandong region and is the most welcomed general
entertainment newspaper among this segment of readership in Shandong.





TV Weekly
Magazine





TV Weekly
Magazine is a national PRC magazine title, ranked among China’s top 5 TV Guide
& general entertainment magazines. Publishing on weekly basis, this magazine
reaches average circulation of 40,000 copies in Shandong region. Industry leader
of Shanghai TV Weekly reaches 300,000 copies sales on weekly basis, setting a
bar for regional TV Guide magazine for TV Weekly. The unique national publishing
title encourages TV Weekly to expand it’s target market to neighboring regions
in northern China.





Mordern Movie Times Magazine
(Bi-Weekly)





Modern
Movie Time magazine is published jointly by Shandong TV Drama and Movie
Production Center and Shandong TV Station. Ranked among the top 100 magazine for
5 consecutive years in China, it’s among the most popular fans magazine in north
China region. Modern Movie Time magazine reaches 100,000 copies in circulation
on bi-weekly basis in year 2007.




No
assurance can be made that we will complete this acquisition or that our plan
for an increase in revenues and in turning Shandong Newspaper profitable will be
successful. Our plans and intentions are regularly subject to change, risks and
other uncertainties as outlined herein and in our “Forward Looking Statements”
above and “Risk Factors” below.




12




RISK FACTORS





Our business and financial condition
is subject to numerous and substantial risks including, without limitation,
risks relating to our forward looking statements. A description of theses
forward looking statements is contained in the forepart of this Annual Report
and incorporated by reference herein. These risks include those set forth below
and elsewhere in this Annual Report. Readers are encouraged to review these
risks carefully before making any investment decision.  Additional risks
and uncertainties not presently foreseeable to us may also impair business
operations.   If any of the following risks occur, our business,
financial condition or operating results could be materially and adversely
affected.  In such case, the trading price of our common stock could
decline, and an investor could lose all or part of his investment. Most of the
risks set forth below pertain to the business of our wholly owned
subsidiary,China Broadband Cayman, and its operations in the PRC.





BUSINESS RELATED
RISKS





We are dependant on our ability to
raise additional capital to complete our acquisition
strategy.





We are
dependent upon our ability to raise capital to complete our business plan, which
involves, among other strategies, growth through acquisition. Specifically, and
without limitation, we will need an additional approximate $3,000,000 to satisfy
our second payment for our acquisition of Shandong Newspaper, presuming that its
performance goals are satisfied, and we will need additional capital to acquire
licenses in additional regions. Our ability to raise capital would be greatly
hindered if we are not able to become and remain current with our reporting
obligations. Remaining current will depend on our ability to prepare and
consolidate our financial statements with our Chinese subsidiaries. If we do not
raise capital, or if we are unable to become listed or remain listed on a United
States trading exchange or quotation system, our business will be adversely
affected.





Our auditors have expressed
substantial doubt in their report on our financial statements about our ability
to continue as a going concern.





Our
auditors have included an explanatory paragraph in their report dated as of
April 11, 2008 on our consolidated financial statements for the year ended
December 31, 2007, indicating that there is substantial doubt regarding our
ability to continue as a going concern. The financial statements included
elsewhere in this current report do not include any adjustments to asset values
or recorded liability amounts that might be necessary in the event we are unable
to continue as a going concern. If we are in fact unable to continue as a going
concern, you may lose your entire investment in our company. We will therefore
need immediate additional substantial capital in order to continue to operate.





We are currently in a growth-stage
and may experience setbacks in business development and expansion.





We are
subject to all of the risks inherent in the creation of a new business. As a
growth-stage company, our cash flows may be insufficient to meet expenses
relating to our operations and the growth of our business, and may be
insufficient to allow us to service new and additional contracts.





We may have unknown liabilities that
accrued prior to our merger.





The
Company was formerly known as Alpha Nutra, Inc., and has had to management’s
knowledge, no significant operations since June 2005. Prior to such time, Alpha
Nutra, Inc. was in the vitamins and nutritional supplements business. While we
believe that no preexisting liabilities exist and obtained limited indemnities
from certain members of former management, no assurances can be made that we do
not have any liabilities existing from prior to our share exchange in January of
2007, commitments or restrictions that could result in a financial loss to us
from completing this transaction or its consolidated audited financial
statements.





No assurance can be made that we
will be able to successfully operate Jinan Broadband and/or the broadband cable
business.





The
Broadband cable business of Jinan Broadband is our only initial business. This
company has only approximately 58,000 broadband cable internet users as of
December 2007. Additionally, the broadband cable businesses of other agencies in
China are relatively new with little or no reliable comparable statistical or
historic financial information available. Under our current letters of intent to
enter into new territories, we will be responsible for the initial installation
and roll-out to customers. We therefore have limited experience or know-how with
respect to operating a cable internet business in China and little information
can be obtained. Therefore we cannot assume that we will be able to mange our
business effectively.





13





We do not own Jinan Parent or Jinan
Center and if they or their ultimate shareholders or control persons violate our
contractual arrangements with them, our business could be disrupted, our
reputation may be harmed and we will have only limited rights and ability to
enforce our rights against these parties.





Our
operations are currently dependent upon our contractual relationships with Jinan
Center and Jinan Parent. The terms of these agreements are often statements of
general intent and do not detail the rights and obligations of the parties. Some
of these contracts provide that the parties will enter into further agreements
on the details of the services to be provided. Others contain price and payment
terms that are subject to monthly adjustment. These provisions may be subject to
differing interpretations, particularly on the details of the services to be
provided and on price and payment terms. It may be difficult for us to obtain
remedies or damages from these companies or their ultimate shareholders for
breaching our agreements. Because we rely significantly on these companies for
our business, the realization of any of these risks may disrupt our operations
or cause degradation in the quality and service provided by, or a temporary or
permanent shutdown of, the company.  Our initial Exclusive Cooperation
Agreement that enables us to own and operate our Jinan Broadband business, and
the Exclusive Service Agreement in which the parties will cooperate and provide
each other with technical services related to their respective broadband, cable
and internet content-based businesses, is for a term of ten years and 20 years,
respectively. If we are unable to renew these agreements on favorable terms, or
to enter into similar agreements with other parties, our business may not
expand, and our operating expenses may increase.





Our future revenues depend on our
ability to consistently bid and win new contracts and renew existing contracts
and, therefore, our failure to effectively obtain future contracts could
adversely affect our profitability.





Our
future revenues and overall results of operations require us to successfully bid
on new contracts and renew existing contracts. Contract proposals and
negotiations are complex and frequently involve a lengthy bidding and selection
process, which is affected by a number of factors, such as market conditions,
equipment availability and required governmental approvals. If negative market
conditions arise or if the required governmental approval is not provided we may
not be able to pursue particular projects, which could adversely affect our
profitability.





The success of our business is
dependent on our ability to retain our existing key employees and to add and
retain senior officers to our management.





We depend
on the services of our existing key employees, in particular, Marc Urbach, Clive
Ng and Yue Pu. These persons may also pursue other business opportunities. Our
success will largely depend on our ability to retain these key employees and to
attract and retain qualified senior and middle level managers to our management
team. We also do not have a full time internal Chief Financial Officer or
financial controller for the consolidated companies. We have recruited
executives and management in China to assist in our ability to manage the
business and to recruit and oversee employees. While we believe we offer
compensation packages that are consistent with market practice, we cannot be
certain that we will be able to hire and retain sufficient personnel to support
our cable broadband business. The loss of any of our key employees would
significantly harm our business. We do not maintain key person life insurance on
any of our employees.





Our officers and directors may
allocate their time to other businesses, and are or may be affiliated with
entities that may cause conflicts of interest. In particular, our principal
shareholder and Chairman is subject to potentially conflicting duties to another
company he established to pursue business opportunities in the
PRC.





Messrs.
Ng and Pu and certain of our other officers and directors (including Mr.
Cassano, a director) have the ability to allocate their time to other businesses
and activities, thereby causing possible conflicts of interest in their
determination as to how much time to devote to the affairs of China Broadband.
The have also recently entered into a settlement agreement with us and revised
their employment agreements limiting their obligations.





These
individuals are engaged in several other business endeavors and will continue to
be so involved from time to time, and are not obligated to devote any specific
number of hours to our affairs. If other business affairs require them to devote
more substantial amounts of time to such affairs, it could limit their ability
to devote time to our affairs and could have a negative impact on our ongoing
business. Certain of our officers and directors are now, and all of them may in
the future become, affiliated with entities engaged in business activities
similar to those intended to be conducted by us or otherwise, and accordingly,
may have conflicts of interest in allocating their time and determining to which
entity a particular investment or business opportunity should be presented.
Moreover, in light of our officers’ and directors’ existing affiliations with
other entities, they may have fiduciary obligations to present potential
investment and business opportunities to those entities in addition to
presenting them to us, which could cause additional conflicts of interest. While
we do not believe that any of our officers or directors has a conflict of
interest in terms of presenting to entities other than our investment and
business opportunities that may be suitable for it, conflicts of interest may
arise in the future in determining to which entity a particular business
opportunity should be presented.




14





We can
not assure you that any conflicts will be resolved in our favor. These possible
conflicts may inhibit the activities of such officers and directors in seeking
acquisition candidates to expand the geographic reach of the Company or broaden
its service offerings. For a complete description of our management’s other
affiliations, see “Directors, Executive Officers, Promoters, Control Persons And
Corporate Governance; Compliance With Section 16(a) Of The Exchange Act.” In any
event, it cannot be predicted with any degree of certainty as to whether or not
Mr. Ng, Mr. Pu or our other officers or directors will have a conflict of
interest with respect to a particular transaction as such determination would be
dependent upon the specific facts and circumstances surrounding such transaction
at the time.




Mr. Ng,
our Chairman, has recently entered into a settlement agreement with us and China
Cablecom, Ltd., another company he organized to pursue cable opportunities in
the PRC, and certain of its affiliated entities, to avoid possible claims that
might be brought by us against him for activities in forming China Cablecom. If
the parties to the settlement agreement fail to observe the terms of the
agreement, we may be involved in burdensome and time-consuming litigation.





In
particular, notwithstanding the terms of the settlement and the amendment to Mr.
Ng’s employment agreement with China Broadband, Ltd., Mr. Ng’s continuing
relationship with China Cablecom could lead to future claims of violation of his
duties in the event future acquisitions in the PRC are offered to China Cablecom
rather than to us, notwithstanding the express terms of the revised employment
agreement and provisions of the settlement agreement. Accordingly, Mr. Ng’s
revised employment agreement with us contains an express provision permitting
Mr. Ng to resign from all positions with the Company in the event an acquisition
arises that involves the business of China Broadband, which is how Mr. Ng
currently intends to handle opportunities in the future that could create a
situation similar to that which led to the settlement agreement.





The
settlement agreement contains a provision recognizing that the provision of
integrated cable television services in the People’s Republic of China and
related activities of China Cablecom do not conflict with our business and that
provision of stand-alone independent broadband services is the business of China
Broadband should not conflict with theirs. However, notwithstanding the terms of
the settlement agreement and the amendment to Mr. Ng’s employment agreement with
us, Mr. Ng’s or Mr. Pu’s continuing relationship with China Cablecom could lead
to future claims of violation of his duties either entity in the event future
acquisitions in the PRC are offered to us rather than to China Cablecom,
notwithstanding his current intention to resign in such circumstances.





Additional
information relating to the settlement agreements and Employment Agreement
Amendments can be found near the “Settlement Agreement” subsection of the
“Recent Developments” section above.




If shareholders sought to sue our
officers or directors, it may be difficult to obtain jurisdiction over the
parties and access to the assets located in the PRC.





It may be
difficult, if not impossible, to acquire jurisdiction over officers and
directors residing outside of the United States in the event a lawsuit is
initiated against such officers and directors by shareholders in the United
States. It also is unclear if extradition treaties now in effect between the
United States and the PRC would permit effective enforcement of criminal
penalties of the federal securities laws. Furthermore, because substantially all
of China Broadband’s assets are located in the PRC, it would also be extremely
difficult to access those assets to satisfy an award entered against us in
United States court. Moreover, the Company is not aware of any treaties between
the PRC and the United States providing for the reciprocal recognition and
enforcement of judgments of courts. As a result, it may not be possible for
investors in the U.S. to enforce their legal rights, to effect service of
process upon our directors or officers or to enforce judgments of U.S. courts
predicated upon civil liabilities and criminal penalties of our directors and
officers under Federal securities laws.





The Chinese government could change
its policies toward, or even nationalize, private enterprise, which could reduce
or eliminate the interests held in China Broadband.




Over the
past several years, the Chinese government has pursued economic reform policies,
including the encouragement of private economic activities and decentralization
of economic regulation. The Chinese government may not continue to pursue these
policies or may significantly alter them to our detriment from time to time
without notice. Changes in policies by the Chinese government that result in a
change of laws, regulations, their interpretation, or the imposition of high
levels of taxation, restrictions on currency conversion or imports and sources
of supply could materially and adversely affect our business and operating
results. The nationalization or other expropriation of private enterprises by
the Chinese government could result in the total loss of our investment in
China.




Failure to achieve and maintain
effective internal controls could have a material adverse effect on the trading
price of our common stock and could prevent us from being listed in the OTC
Bulletin Board or any other exchange or cause our delisting.




We are
subject to the reporting obligations of the United States securities laws. The
Securities and Exchange Commission, as required by the Sarbanes-Oxley Act of
2002, has adopted rules requiring public companies to include a report of
management on such companies’ internal control over financial reporting in its
annual report that contains an assessment by management of the effectiveness of
such company’s internal control over financial reporting. In addition, an
independent registered public accounting firm for a public company must attest
to and report on management’s assessment of the effectiveness of the company’s
internal control over financial reporting.




15




Management
may not conclude that our internal control over our financial reporting is
effective. Because of the complex and changing and regulatory enforcement and
licensing rules in China, and because of our revenues sharing arrangements, it
is possible our internal control will be lacking. If we fail to achieve and
maintain the adequacy of our internal controls, we may not be able to ensure
that we can conclude on an ongoing basis that we have effective internal
controls over financial reporting in accordance with the Sarbanes-Oxley Act. As
a result, any failure to achieve and maintain effective internal controls over
financial reporting could result in the loss of investor confidence in the
reliability of our financial statements, could negatively impact the trading
price of our common stock or cause the delisting of our shares from any trading
market in which they are on.




Risks Related to Doing
Business in China





The Chinese government may
nationalize certain businesses or otherwise alter its policy with respect to
foreign investment in China in a way that would prohibit or greatly hinder our
ability to do business in China.





While the
Chinese government currently advocates foreign investment into China,
socio-political changes, war or economic changes and shifts could result in a
change in China’s policy with respect to investment from non-Chinese businesses.
The government agencies, for example, could prohibit ownership of businesses by
foreigners or revoke licenses granted that we are dependant on, or otherwise
alter our revenue sharing model. While we do not believe that the foregoing is
likely in the near future, no assurance can be made that such events, all of
which would adversely affect us, will not occur.





Since our assets and operating
subsidiaries are located in the PRC, any dividends or proceeds from liquidation
are subject to the approval of the relevant PRC government agencies. We are not
likely to declare dividends in the near future.





We are
dependent on dividends and other distributions from our subsidiaries in order to
recognize revenues. Because our assets are predominantly located inside the PRC,
we will be subject to the law of the PRC in determining dividends. Under the
laws governing foreign invested enterprises in the PRC, dividend distribution
and liquidation are allowed but subject to special procedures under the relevant
laws and rules.  Under current Chinese tax regulations, dividends paid to
us are not subject to Chinese income tax, but tax authorities in China may
require us to amend our contractual arrangements with the WFOE or Jinan
Broadband and their respective shareholders or affiliates, and to enter into
different arrangements with other agencies in a manner that would materially and
adversely affect the ability of our subsidiaries to pay dividends and other
distributions to us or that would prohibit us from forfeiting revenues or
consolidating our financial statements in order to comply with SEC reporting
obligations.





In
addition, Chinese legal restrictions permit payment of dividends only out of net
income as determined in accordance with Chinese accounting standards and
regulations. If we or our subsidiaries incur debt on their own behalf in the
future, the instruments governing the debt may restrict their ability to pay
dividends or make other distributions to us, which in turn would limit our
ability to pay dividends on our common stock.





The uncertain legal environment in
China could limit the legal protections available to us.





The
Chinese legal system is a civil law system based on written statutes. Unlike
common law systems, it is a system in which decided legal cases have little
precedent value. In the late 1970s, the Chinese government began to promulgate a
comprehensive system of laws and regulations governing economic matters. The
overall effect of legislation enacted over the past 20 years has significantly
enhanced the protections afforded to foreign invested enterprises in China.
However, these laws, regulations and legal requirements are relatively recent
and are evolving rapidly, and their interpretation and enforcement involve
uncertainties. These uncertainties could limit the legal protections available
to foreign investors such as us.





Fluctuation in Renminbi exchange
rates could adversely affect the value of our stock and any cash dividend
declared on them.





As our
operations are primarily in China, any significant revaluation of the Chinese
RMB may materially and adversely affect cash flows, revenues and financial
condition.  For example, to the extent that we need to convert United
States dollars into Chinese RMB for operations, appreciation of this currency
against the United States dollar could have a material adverse effect on our
business, financial condition and results of operations.  Conversely, if we
decide to convert Chinese RMB into United States dollars for other business
purposes and the United States dollar appreciates against this currency, the
United States dollar equivalent of the Chinese RMB that we convert would be
reduced.





Our
ability to bid for and acquire businesses in new regions is dependent on
favorable exchange rates between the U.S. dollar and the Chinese Renminbi. The
value of the Renminbi may fluctuate according to a number of factors. Since
1994, the exchange rate for RMB against the United States dollars has remained
relatively stable, most of the time in the region of approximately RMB8.00 to
US$1.00. However, in 2005, the Chinese government announced that would begin
pegging the exchange rate of the Chinese RMB against a number of currencies,
rather than just the U.S. dollar.  Currently, exchange rates are
approximately RMB 7.006 to US$1.00 resulting in the increase in price of Chinese
products to U.S purchasers and increase in our business acquisition costs. On
July 21, 2005, as a result of the Renminbi rates being tied to a basket of
currencies, the Renminbi was revalued and appreciated against the U.S. dollar.
Additionally, global events and expenditures that deflate the value of the U.S.
dollar will result in more expensive purchase prices of China based entities.
There can be no assurance that such exchange rate will continue to remain stable
in the future. Our revenues are primarily denominated in Renminbi, and any
fluctuation in the exchange rate of Renminbi may affect the value of, and
dividends, if any, payable on, our shares in foreign currency terms.




16




Restrictions on currency exchange may limit our
ability to receive and use our revenues effectively.





Because
almost all of our future revenues may be in the form of Renminbi, any future
restrictions on currency exchanges may limit our ability to use revenue
generated in Renminbi to fund our business activities outside China or to make
dividend payments in U.S. dollars. Although the Chinese government introduced
regulations in 1996 to allow greater convertibility of the Renminbi for current
account transactions, significant restrictions still remain. Current account
transactions include payments of dividends and trade and service-related foreign
exchange transactions.





In
contrast, capital account transactions, which include foreign direct investment
and loans, must be approved by the State Administration for Foreign Exchange, or
SAFE. We cannot be certain that the Chinese regulatory authorities will not
impose more stringent restrictions on the convertibility of the Renminbi,
especially with respect to foreign exchange transactions.





Risks Related to the
Telecommunications and Internet


Industries in the People’s
Republic of China





Increased government regulation of
the telecommunications and Internet industries in China may result in the
Chinese government requiring us to obtain additional licenses or other
governmental approvals to conduct our business which, if unattainable, may
restrict our operations.





The
telecommunications industry, including Internet content providers, or ICP, is
highly regulated by the Chinese government, the main relevant government
authority being the Ministry of Information Industry, or MII. Prior to China’s
entry into the World Trade Organization (the “WTO”), the Chinese government
generally prohibited foreign investors from taking any equity ownership in or
operating any telecommunications business. ICP services are classified as
telecommunications value-added services and therefore fell within the scope of
this prohibition. This prohibition was partially lifted following China’s entry
into the WTO allowing foreign investors to own interests in Chinese businesses.
In addition, foreign and foreign invested enterprises are currently not able to
apply for the required licenses for operating cable broadband services in China.





We cannot
be certain that we will be granted any of the appropriate licenses, permits or
clearance that we may need in the future. Moreover, we cannot be certain that
any local or national ICP or telecommunications license requirements will not
conflict with one another or that any given license will be deemed sufficient by
the relevant governmental authorities for the provision of our services.





We rely
exclusively on contractual arrangements with Jinan Parent and its approvals to
operate as internet content providers. We believe that our present operations
are structured to comply with Chinese law. However, many Chinese regulations are
subject to extensive interpretive powers of governmental agencies and
commissions. We cannot be certain that the Chinese government will not take
action to prohibit or restrict our business activities. We are uncertain as to
whether the Chinese government will reclassify our business as a media or retail
company, due to our acceptance of fees for Internet advertising, online games
and wireless value-added and other services as sources of revenues, or as a
result of our current corporate structure. Such reclassification could subject
us to penalties or fines or significant restrictions on our business. Future
changes in Chinese government policies affecting the provision of information
services, including the provision of online services, Internet access,
e-commerce services and online advertising, may impose additional regulatory
requirements on us or our service providers or otherwise harm our business.




We may be unable to compete
successfully against new entrants and established industry competitors.




The
Chinese market for Internet content and services is intensely competitive and
rapidly changing. Barriers to entry are relatively minimal, and current and new
competitors can launch new websites at a relatively low cost. Many companies
offer competitive products or services including Chinese language-based Web
search, retrieval and navigation services, wireless value-added services, online
games and extensive Chinese language content, informational and community
features and e-mail. In addition, as a consequence of China joining the World
Trade Organization, the Chinese government has partially lifted restrictions on
foreign-invested enterprises so that foreign investors may hold in the aggregate
up to approximately 51% of the total equity ownership in any value-added
telecommunications business, including an Internet business, in China.




17




Currently,
our competition comes from standard “telephone” internet providers. Any of our
present or future competitors may offer products and services that provide
significant performance, price, creativity or other advantages over those
offered by us and, therefore, achieve greater market acceptance than ours.





Because
many of our existing competitors, as well as a number of potential competitors,
have longer operating histories in the Internet market, greater name and brand
recognition, better connections with the Chinese government, larger customer
bases and databases and significantly greater financial, technical and marketing
resources than we have, we cannot assure you that we will be able to compete
successfully against our current or future competitors. Any increased
competition could reduce page views, make it difficult for us to attract and
retain users, reduce or eliminate our market share, lower our profit margins and
reduce our revenues.





Unexpected network interruption
caused by system failures may reduce user base and harm our reputation.





Both the
continual and foremost accessibility of internet service websites and the
performance and reliability of our technical infrastructure are critical to our
reputation and the ability of our internet services to attract and retain users
and advertisers. Any system failure or performance inadequacy that causes
interruptions or delays in the availability of our services or increases the
response time of our services could reduce user satisfaction and traffic, which
would reduce the internet service appeal to users of “high speed” internet
usage. As the number of users and traffic increase, we cannot assure you that we
will be able to scale our systems proportionately. In addition, any system
failures and electrical outages could materially and adversely impact our
business.





Computer viruses may cause delays or
interruptions on our systems and may reduce our customer base and harm our
reputation.





Computer
viruses may cause delays or other service interruptions on our systems. In
addition, the inadvertent transmission of computer viruses could expose us to a
material risk of loss or litigation and possible liability. We may be required
to expend significant capital and other resources to protect our internet
service against the threat of such computer viruses and to alleviate any
problems. Moreover, if a computer virus affecting our system is highly
publicized, our reputation could be materially damaged and customers may cancel
our service.





If our providers of bandwidth and
server custody service fail to provide these services, our business could be
materially curtailed.





We rely
on affiliates of Jinan Parent to provide us with bandwidth and server custody
service for Internet users. If Jinan Parent or their affiliates fail to provide
such services or raise prices for their services, we may not be able to find a
reliable and cost-effective substitute provider on a timely basis or at all. If
this happens, our business could be materially curtailed.





Risks Relating to Our
Securities





There are substantial risks of lack
of liquidity and volatility risks.




Our
common stock is quoted in the OTC Bulletin Board market system under the symbol
“CBBD” and is very thinly traded. The liquidity of our common stock is very
affected by its limited trading market. The OTC Bulletin Board market is an
inter-dealer market much less regulated than the major exchanges, and is subject
to abuses and volatilities and shorting. There is currently no broadly followed
and established trading market for our common stock. An established trading
market may never develop or be maintained. Active trading markets generally
result in lower price volatility and more efficient execution of buy and sell
orders.  Absence of an active trading market reduces the liquidity of the
shares traded there.




The
trading volume of our common stock may be limited and sporadic.  As a
result of such trading activity, the quoted price for our common stock on the
OTC Bulletin Board may not necessarily be a reliable indicator of its fair
market value.  In addition, if our shares of common stock cease to be
quoted, holders would find it more difficult to dispose of, or to obtain
accurate quotations as to the market value of, our common stock and as a result,
the market value of our common stock likely would decline.





Many of our securities will become
freely tradable within the next several months.





In
accordance with the terms of the settlement agreement and subsequent note and
warrant financing, our principal, Clive Ng, transferred 7,017,814 shares which
will, after 90 days, no longer be deemed affiliate shares and may be subject to
the newer “relaxed” Rule 144 restricted period provisions. In addition,
investors in our private equity offering between January and May of 2007 are
also able to sell up to 8,000,000 shares of common stock subject to certain
“leak out” provisions and any lock-up relating to shares held by the four
Broadband shareholders and Mr. Baum, our former executive, has been removed.
There is no limit on the amount of restricted securities that may be sold (other
then contractual limits, if any) by a non-affiliate after the restricted
securities have been held by the owner for a period of one year more. A sale
under Rule 144 or under any other exemption from the Securities Act, if
available, or pursuant to subsequent registrations of our shares, may have a
depressive effect upon the price of our shares in any active market that may
develop.




18




Our company is controlled by one of
our principals that holds a majority of our common stock .





One of
our shareholders, Clive Ng indirectly beneficially own over 51% of our common
stock. As a practical matter, Mr. Ng will have control of the Company and all of
our subsidiaries and will be able to assert significant influence over the
election of directors and other matters presented for a vote of stockholders.
Other shareholder will not have a voice in management decisions and will
exercise very little control.




Our board of directors may issue
blank check preferred stock with rights and privileges greater than those of the
Shares.





Our
articles of incorporation authorize the issuance of shares of “blank check”
preferred stock, the rights, preferences, designations and limitations of which
may be set by the board of directors. While no preferred stock is currently
outstanding or subject to be issued, the articles of incorporation have
authorized issuance of up to 5,000,000 shares of preferred stock in the
discretion of the board of directors. Such preferred stock may be issued upon
filing of amended Articles of Incorporation and the payment of required fees; no
further shareholder action is required. If issued, the rights, preferences,
designations and limitations of such preferred stock would be set by the board
of directors and could operate to the disadvantage of the outstanding common
stock. Such terms could include, among others, preferences as to dividends and
distributions on liquidation.




There is no established public
trading market for our securities and one may never develop. This could
adversely affect the ability of investors in our Company to sell their
securities in the public market .




We are
currently listed on the OTC Bulletin Board market system. We cannot predict the
extent to which a trading market will develop or how liquid that market might
become. Accordingly, holders of our common stock may be required to retain their
shares for an indefinite period of time.





The OTCBB
is an inter-dealer, over-the-counter market that provides significantly less
liquidity than stock exchanges. Quotes for stocks included on the OTCBB are not
listed in the financial sections of newspapers, as are those for the exchanges.
Therefore, prices for securities traded solely on the OTCBB may be difficult to
obtain and holders of common stock may be unable to resell their securities at
or near their original acquisition price or at any price. Market prices for our
common stock will be influenced by a number of factors, including:




·
            the
      issuance of new equity securities pursuant to future
    offering;





·
            changes
      in interest rates;




·
            new
      services or significant contracts and
  acquisitions;





·
            variations
      in quarterly operating
results;




·
            change
      in financial estimates by securities
analysts;





·
            the
      depth and liquidity of the market for our common
  stock;




·
            investor
      perceptions of us and of China-based investments and companies generally;
      and





·
            general
      economic and other national and international
  conditions.





Our common stock is considered a
"penny stock" and may be difficult to sell.





Our
common stock is currently quoted on the OTC Bulletin Board, and trades below
$5.00 per share; therefore, our common stock is considered to be a “penny stock”
and, as such, the market for our common stock may be further limited by certain
SEC rules applicable to penny stocks. To the extent the price of our common
stock remains below $5.00 per share or we have net tangible assets of $2,000,000
or less, our common shares will be subject to certain “penny stock” rules
promulgated by the SEC. Those rules impose certain sales practice requirements
on brokers who sell penny stock to persons other than established customers and
accredited investors. For transactions covered by the penny stock rules, the
broker must make a special suitability determination for the purchaser and
receive the purchaser’s written consent to the transaction prior to the sale.
Furthermore, the penny stock rules generally require, among other things, that
brokers engaged in secondary trading of penny stocks provide customers with
written disclosure documents, monthly statements of the market value of penny
stocks, disclosure of the bid and asked prices, disclosure of the compensation
to the brokerage firm and disclosure of the sales person working for the
brokerage firm. These rules and regulations adversely affect the ability of
brokers to sell our common shares and limit the liquidity of our securities.




19




We do not intend to pay dividends in
the near future, if at all .





We do not
intend to pay any dividends and we do not foresee making any cash distributions
in the manner of a dividend or otherwise. If we do want to liquidate or pay
dividends, such liquidation or payment is subject to PRC law. Our board of
directors presently intends to follow a policy of retaining earnings, if any.




20




Item 2. Description of Property.





Through
January 23, 2007, we shared office space with Business Consulting Group
Unlimited, Inc. at 2038 Corte Del Nogal, Suite 110, Carlsbad, California 92011,
an entity owned or controlled by our former principal shareholder, Mark L. Baum,
Esq. Since the completion of the Share Exchange on January 23, 2007, our
principal executive offices in the United States has been and continue to be
located at 1900 Ninth Street, 3rd Floor Boulder, Colorado 80302, under a lease
with Maxim Financial Corporation, a consultant to the Company. This space was
occupied previously by China Broadband Cayman, since its inception in mid 2006.
This lease is for 1,000 square feet of office space and shared administrative
services. The monthly lease rate is $2,000 per month. This lease may be
terminated for any reason by Maxim Financial Corporation on 30 days notice.
Pursuant to our consulting agreement with it, Maxim Financial Corporation has
waived its past fees owed by China Broadband Cayman since July of 2006 and all
future rental fees of the Company through December 31, 2007. In addition, Maxim
Financial Corporation has agreed to defer all monthly rental payments beginning
January 2008 until the Company’s next capital raise subsequent to January 2008.





The
principal address of our operating business of Jinan Broadband is c/o Jinan
Guangdian Jiahe Digital TV Co. Ltd., No. 32, Jing Shi Yi Road, Jinan Shandong
250014, Tel: (86531)-85652255 87077886 Fax: (86531)-82953142. The Company pays
approximately $55,000 (400,000 RMB) annually for rent at its facilities in
Jinan, renewable on an annual basis.





Item 3. Legal Proceedings.





The
Company is not a party to any legal proceedings.





Item 4. Submission of Matters to a
Vote of Security Holders.





No
matters were submitted to a vote of security holders during the fourth quarter
of the year ended December 31, 2007.





21





PART II





Item 5. Market for Common Equity and
Related Stockholder Matters and Small Business Issuer Purchases of Equity
Securities.





Effective
as of October 16, 2007, the symbol for our common stock was changed from “APNA”
to “CBBD” to reflect our name change to China Broadband, Inc. Up until December
20, 2008, we were trading on the Pink Sheets and the letters “.PK” were added to
the end of our four letter identifier. Beginning December 21, 2008 we began
trading on the OTC Bulletin Board and the letters “.OB” (CBBD.OB) are added to
the end of our four letter identifier. Trading in the common stock has been
limited and sporadic due to the limited market following and limited number of
free trading shares, and the quotations set forth below are not necessarily
indicative of actual market conditions. Further, these prices reflect
inter-dealer prices without retail mark-up, mark-down, or commission, and may
not necessarily reflect actual transactions. As of March 24, 2008 the closing
price for our common stock was $1.05. \


Fiscal
Years:


High
            
            Low2007December
      31, 2007
            
            $
            4.50
            
            $
            3.00September
      30, 2007
            
            $
            4.00
            
            $
            4.00June
      30, 2007
            
            $
            4.00
            
            $
            1.75March
      31, 2007
            
            $
            3.00
            
            $
            2.002006December
      31, 2006
            
            $
            2.75
            
            $
            1.50September
      30, 2006
            
            $
            5.00
            
            $
            4.00June
      30, 2006
            
            $
            5.00
            
            $
            4.00March
      31, 2006
            
            $
            5.00
            
            $
            4.00





As of
March 31, 2008 there were 318 record holders of our common stock and 50,255,599
shares of common stock issued and outstanding. The transfer agent of our common
stock is Transfer Online, Inc.





Our
revenues and operating results may fluctuate significantly from quarter to
quarter, which can lead to significant volatility in the price and volume of our
stock. In addition, stock markets have experienced extreme price and volume
volatility in recent years. This volatility has had a substantial effect on the
market prices of securities of many smaller public companies for reasons
unrelated or disproportionate to the operating performance of the specific
companies. These broad market fluctuations may adversely affect the market price
of our common stock.





In
addition, we expect a substantial number of shares to become freely tradable
under Rule 144 during 2008. Shares eligible for future sale could depress the
price of our common stock, thus lowering the value of a buyer’s investment.
Sales of substantial amounts of common stock, or the perception that such sales
could occur, could adversely affect prevailing market prices for shares of our
common stock.





Dividends





We have
not declared or paid dividends to our stockholders during this or our two most
recently completed fiscal years. We do not anticipate that we will pay dividends
any time in the near future and anticipate reinvesting revenues, in the
operations of the Company and in additional acquisitions. In addition, in order
for us to declare and pay dividends, we would be dependant on receiving payments
from our operating subsidiaries in the PRC. As these are PRC companies, we would
be required to obtain various levels of regulatory approval prior to paying such
dividends.





22




EQUITY COMPENSATION PLAN INFORMATION





(c)Plan Category
            
            
            (a)
              Number of securities to be
      issued upon exercise of outstanding options, warrants and
      rights
            
            
            (b)
              Weighted-average exercise price
      of outstanding options, warrants and rights
            
            
            Number of securities remaining
      available for future issuance under equity compensation plans (excluding
      securities reflected in column (a))Equity
      compensation plans approved by security holders (1)
            
            
            -0-
            
            
            n/a
            
            
            -0-Equity
      compensation plans not approved by security holders (2)
            
            
            -0-
            
            
            n/a
            
            
            -0-Total
            
            
            -0-
            
            
            n/a
            
            
            -0-





(1)
  We do not have any equity compensation plans approved by the security
holders.





(2)
  We do not have any equity compensation plans not approved by the security
holders as of December 31, 2007. However, Effective as of the March 13, 2008,
the board of directors of the company approved the China Broadband, Inc. 2008
Stock Incentive Plan (the “Plan”), pursuant to which options or other similar
securities may be granted. Qualified or Non-qualified Options to purchase up to
2,500,000 shares of the Company’s common stock may be issued under the Plan. The
Plan may also be administered by an independent committee of the board of
directors. Currently, only 100,000 options were issued under the Plan which were
issued on March 13, 2008, of which 100,000 were granted to Mr. Urbach,
exercisable at $.99 per share, vesting over four years as per his employment
agreement.





23





Item 6. Management's Discussion and
Analysis and Plan of Operation.




The
following discussion and analysis should be read in conjunction with our audited
financial statements and related notes included in this report and the “Forward
Looking Statements” and “Risk Factors” elsewhere in this report. The statements
contained in this report that are not historic in nature, particularly those
that utilize terminology such as “may,” “will,” “should,” “expects,”
“anticipates,” “estimates,” “believes,” or “plans” or comparable terminology are
forward-looking statements based on current expectations and assumptions. These
statements are based on current information available to
management.




Factors
that could cause actual results to differ from expectations include, but are not
limited to, those set forth under the sections “Forward Looking Statements” in
the forepart of this report and the “Risk Factors” above, all of which should be
read together.




Background




The
Company was organized in California in 1988 under the name “TJB Enterprises,
Inc.” as a blind pool/blank check company formed for the purpose of seeking a
merger with a private operating company. We operated various businesses and
underwent various reorganizations and a bankruptcy from inception through
October of 2004 when we were reorganized into a Nevada corporation. From July 1,
2005 we operated as a blank check company under the name Alpha Nutra, Inc. in
search of a business acquisition. See “Corporate History” subsection of “Item 1.
Description of Business.”




Current Nature of
Operations





On
January 23, 2007, pursuant to the Share Exchange Agreement (the “Share
Exchange”), we acquired all of the shares of China Broadband Cayman from the
four Broadband Shareholders in exchange for 37,865,506 shares (the “Exchange
Shares”) of our common stock, resulting in such shareholders controlling the
Company and assumed obligations of China Broadband Cayman under $325,000
principal amount of 7% Convertible Promissory Notes, which became convertible
into 1,300,000 shares of our common stock and assumed other related obligations.
All of these 7% Convertible Promissory Notes have been converted into our common
stock effective as of February 28, 2007 and all interest has been paid through
such date in cash.





The Share
Exchange has been accounted for as a reverse acquisition of the Company (then
known as “Alpha Nutra, Inc.), with no adjustment to the historical basis of the
assets and liabilities of China Broadband Cayman, and the operations were
consolidated as though the transactions occurred as of the beginning of the
first accounting period presented in the accompanying consolidated financial
statements.





At the
time of the closing of the Share Exchange Agreement, China Broadband Cayman was
a party to a Cooperation Agreement (the “Cooperation Agreement”) with Jian
Guangdian Jiahe Digital Television Co., Ltd. (“Jinan Parent”) to acquire a 51%
controlling interest in an operating broadband cable internet company based in
the City of Jinan in the Shandong Region of China, sometimes referred to herein
as “Jinan Broadband.” The Cooperation Agreement provided that the operating
business’ operations and pre-tax revenues would be assigned to our Jinan
Broadband subsidiary for 20 years, effectively providing for an acquisition of
the business. The Cooperation Agreement required an initial payment to Jinan
Parent for the closing of the acquisition of this entity in early 2007,
resulting in our China based WFOE owning a controlling 51% interest in Jinan
Broadband and entry into the Exclusive Cooperation Agreement and an Exclusive
Service Agreement. We have paid an aggregate of $5,772,000 for this business, of
which, our initial payment of $2,572,000 was paid from our net proceeds from the
first closing of our private offering in January 2007 and our second payment of
$3,200,000 was completed in March 2008.




We
currently operate through China Broadband Cayman, our wholly-owned subsidiary,
which in turn operates through our WFOE located in China. The WFOE owns a 51%
interest in Jinan Broadband, an operating broadband cable internet company based
in the City of Jinan in the Shandong Region of China, and has entered into an
Exclusive Service Agreement with Jinan Parent that enables us to share revenues.
Through our WFOE, we have also entered into an agreement to create a joint
venture entity that will own the Shandong Newspaper Business. (See “Recent
Developments” above and below.)




A
complete description of the business of Jinan Broadband acquired by us in early
2007, along with an organizational chart and description of the Share Exchange
and related agreements, can be found in the “Item 1. Description of Business”
section of this Annual Report and is incorporated by reference herein.





Simultaneous Closing of 2007 Stock
and Warrant Financing





Simultaneously
with the closing of our acquisition of China Broadband Cayman on January 23,
2007, and in order to fund our first payment for the acquisition of the
broadband business in China, we conducted the first closing of our private
offering pursuant to which we entered into subscription agreements with
investors for the sale of 6,000,000 shares of common stock and 3,000,000
Redeemable Common Stock Purchase Warrants, exercisable at $2.00 per share (the
“Investor Warrants”). During the six months ended December 31, 2007 we raised an
additional $1,000,000 such that we raised the aggregate maximum of $4,000,000 in
this offering consisting of an aggregate of 8,000,000 shares and 4,000,000
warrants to accredited investors.




24




We used
$2,572,125 of the proceeds of this offering from the first closing to pay the
first installment plus expenses of our acquisition of a 51% interest in the
China based broadband cable internet business spun off by Jinan Parent. We
granted the investors registration rights in connection with this offering and
compensated WestPark Capital, Inc., our placement agent, with a placement agent
fee consisting of $320,000 plus expenses, and issued to them 640,000 warrants to
purchase common stock at $.60 per share, paid during the year ended December 31,
2007. In addition we paid approximately $100,000 in other professional expenses
during such time period for this transaction.




Strategy




Our
strategy is to grow our business organically as well as via acquisitions and/or
partnerships in the PRC with companies that are in, or complimentary to, the
broadband arena. We have spent significant amounts of money for professional
services related to this strategy and are not profitable. During 2007 we spent
approximately $628,000 for professional services related to the Share Exchange,
the acquisition of Jinan Broadband and for public company expenses. We expect
that we will continue to incur significant expenses for professional services as
well as other costs during 2008 and may not be profitable as we continue to
implement our strategy.




Our
strategy also includes completion of our acquisition of Shandong Newspaper
(which we believe is imminent) in a joint venture. Shandong Newspaper’s business
includes three main magazines: Shandong Broadcast & TV Weekly (Newspaper),
TV Weekly Magazine and Mordern Movie Times Magazine (Bi-Weekly). We intend to
invest our acquisition cost in this Joint Venture to increase sales and
advertising revenues of its periodicals in order to become profitable. No
assurance can be made that we will complete this acquisition or, if completed,
that our business plan will be successful. Additional information related to our
business and strategy as to the business of Shandong Newspaper is included in
the section of this Annual Report titled “Item 1. Description of Business”
above.




Recent
Developments





Settlement Agreement, Convertible
Note and Warrant Financing, Shandong Newspaper Joint
Venture





On
January 11, 2008, the Company entered into a Settlement Agreement (the
“Settlement Agreement”) by and among the Company and its subsidiaries, Stephen
P. Cherner, Maxim Financial Corporation, Mark L. Baum, BCGU, LLC, Mark I Lev,
Wellfleet Partners, Inc., Yue Pu, Clive Ng, Chardan Capital Markets, LLC
(“Chardan Capital”), Jaguar Acquisition Corporation (“Jaguar”), and China
Cablecom Holdings, Ltd (“Cablecom Holdings”). We also appointed additional
directors at the time of entering into the settlement agreement and revised the
terms of certain affiliates’ employment agreements.





Simultaneously,
we consummated a private, 5% convertible note and warrant financing with gross
proceeds of $4,850,000 (the “January 2008 Financing”), through Chardan Capital
acting as Placement Agent and appointed three additional directors and a new
Chief Executive Officer to the Company.





Additionally,
we entered into an agreement to acquire, through a joint venture, a controlling
interest in Shandong Newspaper, a PRC based television programming guide
business.





Settlement Agreement with Ceratin
Officers and China Cablecom





In
connection with a potential dispute with our investors and with Cablecom
Holdings, another company formed by the principal stockholder of the Company,
Mr. Ng, on January 11, 2008, we entered into a settlement agreement relating to
such matters with Jaguar and certain of our consultants and shareholders. In
addition, we have been obtaining separate releases from various holders of our
common stock. The Settlement Agreement was negotiated by us, our advisors and
management and certain shareholders, for purposes of facilitating our business
plan and expediting and facilitating our financing activities and resolving all
disputes with management, perceived or otherwise, and certain investors and
consultants concerning possible claims that such investors suggested might be
brought against Mr. Ng or the Company for his activities in forming and
providing services for Cablecom Holdings. The Settlement agreement provides,
subject to the terms thereof, for general mutual releases of all executives and
management and their affiliated entities and also provides for the modification
of employment agreements of both Mr. Clive Ng and Mr. Pu. The Settlement
Agreement also calls for the transfer of certain securities by Mr. Ng to the
Company and to certain of the Company’s shareholders and consultants, as
elaborated further herein in exchange for releases in favor of the Company and
management and their affiliates.





Among
other material provisions, pursuant to the Settlement Agreement the following
agreements have been entered into:




·
            Clive
      Ng, our Chairman, has agreed to transfer, not later than three business
      days after the closing of the proposed merger of a subsidiary of Cablecom
      Holdings, as successor to Jaguar Acquisition Corporation, a Delaware
      corporation (“Jaguar”) in its proposed redomestication merger, with and
      into China Cablecom, Ltd., a private limited liability British Virgin
      Islands company (“China Cablecom”) (the “Proposed Merger”), of 390,000
      shares of common stock of Cablecom Holdings (the “Cablecom Holdings
      Shares”), the resulting surviving parent entity after the Proposed Merger.
      The 390,000 Cablecom Holdings Shares will only be issued in the event of
      consummation of the Proposed Merger and is to be transferred by Mr. Ng on
      an “as is basis”, except that such shares have the same lock-up
      restrictions, registration or other rights, privileges or benefits as Mr.
      Ng has for all other shares to be issued to him by Cablecom Holdings under
      the Proposed Merger terms. The 390,000 Cablecom Holdings Shares will only
      be issued upon receipt of releases from certain parties listed in the
      Settlement Agreement;




25




·
            The
      Company and each of Messrs. Ng and Pu, have agreed to modifications to the
      employment agreements of such persons (the “Employment Agreement
      Amendments”), reducing their time commitments to the Company and its
      subsidiary and providing that once replacement executive officers have
      been hired (and in the case of Mr. Ng, assuming Mr. Pu continues in his
      role as chief financial officer, eliminating his executive duties and he
      will only continue as the Chairman and a director of China Broadband and
      the Company), requiring in the case of Mr. Ng that he be subject to an
      ongoing obligation to offer acquisition candidates in the stand-alone,
      independent broadband business to China Broadband in the future (and
      recognizing that acquisition candidates involving acting as a joint
      venture provider of integrated cable television services in the People’s
      Republic of China and related activities, but which does not include the
      provision of Stand-Alone Broadband Services are the business of China
      Cablecom) and allowing them to continue to be involved with certain other
      activities and to continue in their executive capacities with Cablecom
      Holdings or its successor after the Proposed Merger. In addition, Mr. Ng
      has waived his right to receive all accrued salary previously owed to
      him;




·
            The
      Company agreed to extend the expiration dates of 4,000,000 Investor
      Warrants at an exercise price of $2.00 per share, in the Company’s private
      placement of common stock and warrants in 2007, from March of 2009,
      through January 11, 2013, upon receipt of releases from such Investor
      Warrant holders. In addition, the Company has offered to BCGU, LLC,
      WestPark Capital, Inc., Maxim Financial Corporation, who were issued
      500,000, 640,000 and 3,974,800 warrants exercisable at $.60 per share in
      January of 2007, the right, at their discretion, to extend the
      exercisability period of their respective warrants through January 11,
      2013 or, in the alternative, the right to receive a scrip right to execute
      the unexercised portion of their warrants, at any time between the time of
      expiration date of their unexercised warrants and continuing through
      January 11, 2013.




Additional
specific provisions relating to the terms of this Settlement Agreement can be
found under “Item 1. Description of Business” above, and in our





Notwithstanding
the terms of the Settlement Agreement Mr. Ng’s and Mr. Pu’s continuing
relationship with Cablecom Holdings could lead to future claims of violation of
his duties them or us in the event future acquisitions in the PRC are offered to
Cablecom Holdings rather than China Broadband or visa versa, notwithstanding the
express terms of the revised employment agreement and provisions of the
Settlement Agreement. Mr. Ng’s revised employment agreement with China Broadband
contains an express provision permitting Mr. Ng to resign from China Broadband
in the event an acquisition arises that involves the business of China Cablecom,
which is how Mr. Ng currently intends to handle opportunities in the future that
could create a situation similar to that which led to the settlement agreement.





Simultaneous Closing of $4,971,250
Convertible Note and Warrant Financing





Simultaneously
with the entry into the Settlement Agreement on January 11, 2008, and we entered
into and consummated the January 2008 Financing by entering into a subscription
agreement (the “Subscription Agreement”) with ten accredited investors
(inclusive of Chardan Capital) with respect to the issuance of an aggregate of
$4,971,250 principal amount of Notes due January 11, 2013, and Class A Warrants
to purchase an aggregate of 6,628,333 shares of common stock of the Company at
$.60 per share expiring on June 11, 2013.




An
aggregate of $4,971,250 principal amount of Notes was issued to ten investors
including Chardan Capital which applied its 2.5% cash commission towards a
subscription for Notes and Class A Warrants. Interest on the Notes compound
monthly at the annual rate of five percent (5%) with the maturity date on
January 11, 2013, if not sooner paid. Each holder of a Note can convert all or
any portion of the then aggregate outstanding principal amount of the Note,
together with interest, into shares of Common Stock at a conversion price of
$0.75 per share, for or a total of 6,628,333 shares as of the date of issuance.
The Notes are granted “full ratchet” anti dilution protection for the first
three years, pursuant to which the conversion price of the Notes will be
adjusted downward in the event of the issuance by the Company of Common Stock or
rights to acquire common stock at prices below $.75 per share (or below such
other conversion price of the Notes as is then in effect) to such lower price.
Thereafter and until repaid, the Notes provide only for weighted average
anti-dilution price protection adjustment. In addition, the Notes are subject to
certain customary anti dilution protections for stock splits, combinations or
similar transactions of the Company.




26




An
aggregate of 6,628,333 Class A Warrants, exercisable at $0.60 per share and
expiring on June 11, 2013 were issued pursuant to the Subscription Agreement as
part of the January 2008 Financing. The Class A Warrants shall be exercisable
(with cash or via cashless exercise) commencing one hundred and eighty-one (181)
days after the closing date of the January 2008 Financing until 65 months
thereafter, June 11, 2013. The Class A Warrants are subject to “full ratchet”
anti-dilution protection for the first three years, pursuant to which the
exercise price of the Class A Warrants will be adjusted downward in the event of
the issuance by the Company of common stock or rights to acquire Common Stock at
prices below $.60 per share (or below such other exercise price of the Class A
Warrants as is then in effect) to such lower price. Thereafter and until all
Class A Warrants are exercised or expire, the Class A Warrants provide only for
weighted average anti-dilution price protection adjustment. In addition, the
Class A Warrants are subject to certain customary anti-dilution protections for
stock splits, combinations or similar transactions of the Company.





Placement Agent Fee and Warrants to
Chardan Capital Markets, LLC





In
connection with their engagement as a placement agent, Chardan Capital has been
compensated a $10,000 due diligence fee and reimbursement of legal and other
expenses, and a cash placement agent fee of 2.5% based on the total amount sold
to investors, or $121,250 based on $4,850,000 of principal amount of Notes
issued to other investors. Chardan Capital has, pursuant to the terms of their
engagement agreement, agreed to apply their cash compensation of $121,250 into
an investment in a $121,250 Note and 166,667 Class A Warrants at the same terms
as all other investors in the offering. In addition, Chardan Capital was
compensated warrants to acquire 1,131,667 shares of the Company’s Common Stock
at an exercise price of $.50 per share exercisable commencing January 11, 2008
and expiring on June 11, 2013 (the “Broker Warrants”). The Broker Warrants are
identical to the Class A Warrants in all other material respects.





Assignment By Clive Ng of Shares to
Investors; Release of Lock - Up Agreements





To
incentivize the investors in January 2008 Financing and facilitate such
financing, and as contemplated under the terms of the Settlement Agreement, Mr.
Clive Ng assigned an aggregate of 7,017,814 shares of Common Stock beneficially
owned by him to the January 2008 Financing investors, other than Chardan
Capital, at a nominal purchase price of $.01 per share. This reduced the average
purchase price per share to investors (presuming conversion of their notes)
without cost to the Company.





Prior to
the January 2008 Financing, the Company, 88 Holdings, Inc., China Broadband
Partners, Ltd., BCGU, LLC, MVR Investments, LLC, Stephen P. Cherner and WestPark
Capital, Inc. were each shareholder parties to a Lock-Up Agreement dated as of
January 23, 2007 (the “Lock-Up Agreement”) which was entered into in connection
with the Share Exchange. The Lock-Up Agreement provided, that each such
shareholder shall only be permitted to sell 5% of the shares originally issued
to them as scheduled in the Lock-Up Agreement, during any 30 day period and,
that the Company’s management may review the lock up provisions and increase the
number of shares that may be sold provided that, among other conditions, such
modification is made pari pasu among all
shareholders to this Lock-Up Agreement based on their share ownership. As a
condition subsequent to the January 2008 Financing requested by Chardan Capital,
and to remove any contractual restrictions relating to the 7,017,084 shares of
Common Stock assigned by Mr. Ng to the Note investors to facilitate the
financing, the Company and each of the shareholder parties to the Lock-Up
Agreement agreed to the termination of this Lock-Up Agreement for all parties
effective as of January 13, 2008.





Board of Directors and Employment
Agreement Amendments





Simultaneously
with the closing of the January 2008 Financing, and entry into the Settlement
Agreement, Messrs. David Zale, James Cassano and Jonas Grossman were appointed
as directors of the Company, joining Messrs. Clive Ng and Yue Pu. Additional
information relating to these appointments can be found in our “Management”
section below, which is incorporated herein.





Shandong Newspaper Cooperation
Agreement




On March
7, 2008, the Company, through its indirect WFOE subsidiary in the PRC, Ji'Nan
Zhongkuan Dian Guang Information Technology Co. ("Jinan Zhong Kuan"), entered
into a Cooperation Agreement (the "Shandong Newspaper Cooperation Agreement") by
and among itself, Shandong Broadcast & TV Weekly Press and Modern Movie
& TV Biweekly Press, each PRC companies (collectively "Shandong Newspaper").
The Shandong Newspaper Cooperation Agreement provided for, among other terms,
the creation of a joint venture entity in the PRC, Shandong Lushi Media Co.,
Ltd. ("Shandong Media") that would own and operate Shandong Newspaper's
television program guide, newspaper and magazine publishing business in the
Shandong region of the PRC (the "Shandong Newspaper Business") which businesses
were previously owned and operated by the Shandong Newspaper entities pursuant
to exclusive licenses. We believe that this acquisition will be completed soon
and we have begun sending payments for the purchase price of this business
interest.




27




Under the
terms of the Shnadong Newspaper Cooperation Agreement and related transaction
documents, the Shandong Newspaper entities mentioned above will contribute their
entire Shandong Newspaper Business and transfer certain employees, to Shandong
Media in exchange for a 50% stake in Shandong Media, with the other 50% of
Shandong Media to be owned by our Jinan Zhong Kuan operating subsidiary. In
exchange therefore, the Cooperation Agreement provides for total initial
consideration on the part of Jinan Zhong Kuan of approximately $1.5 million
(approximately 10 million RMB based on exchange rates at the time) which shall
be contributed to Shandong Media as working and acquisition capital, of which
the Company has already paid approximately $300,000 (approximately 2 million RMB
) in early March 2008 as a down payment.




In
addition to the initial purchase price of $1.5 million (10 million RMB), the
Shandong Newspaper Cooperation Agreement provides for additional consideration
of approximately US $757,757 and US $3,000,000 (between 5 million RMB and 20
million RMB, respectively, based on exchange rates at the time) to be paid as a
capital contribution to Shandong Media in the event that certain performance
thresholds are met during the first 12 months of operations after closing the
transaction for a total maximum purchase price of approximately $4.06 (30
million RMB based on exchange rates at the time).. Specifically in the event
that audited annual net profits during the first year after closing of the
transaction relating to the Shandong Newspaper Cooperation
Agreement:




·
            equals
      or exceeds 16 million RMB, then we will be required to contribute an
      additional 20 million RMB (or, approximately $3,000,000 based on current
      exchange rates) to the Shandong Media joint venture;




·
            equals
      or exceeds 4 million RMB but less than 16 million RMB, then we will be
      required to contribute 125% of such net profits to the Shandong Media
      joint venture, and




·
            is
      less then 4 million RMB, then only an additional 5 million RMB
      (approximately US $757,575 based on current exchange rates).




The
Shandong Newspaper Business being acquired from Shandong Newspaper by the
Shandong Media joint venture includes the distribution of periodicals, the
publication of advertising, the organization of public relations events, the
provision of information related services, copyright transactions, the
production of audio and video products, the provision of audio value added
communication services. The Shandong Newspaper Cooperation Agreement also
provides that these businesses will be operated primarily by employees
contracted to Shandong Media through secondment by the respective Shandong
Newspaper entities.




In
addition, the Shandong Newspaper entities are required, at closing upon
completion of all closing conditions, to enter into an Exclusive Advertising
Agency Agreement and an Exclusive Consulting Services Agreement with Shandong
Media which require that the Shandong Newspaper entities shall appoint Shandong
Media as its exclusive advertising agent and provider of technical and
management support for a fee.




The
closing of the transaction is dependant upon, among other conditions, the
obtaining of all necessary PRC government consents, payment of the initial
purchase price set forth above, and entry into the Exclusive Advertising Agency
Agreement and Exclusive Consulting Service Agreement.




Additional
information relating to the Shandong Newspaper Business can be found at the end
of the “Recent Developments” subsection of “Item 1. Description of Business”
above.




Results of
Operations




The
Company was a development stage company with no business operations during the
year ended December 31, 2006 (“2006”). Operating activity during 2006 relates to
the formation of our China Broadband Cayman subsidiary, its entry into
agreements to acquire Jinan Broadband and related due diligence, raising capital
for the same, and the interest expense associated with its $325,000 principal
amount of 7% Convertible Promissory Notes issued on September 22, 2006.




Effective
January 23, 2007 we acquired China Broadband Cayman and its operations which was
already a party to a Cooperation Agreement to acquire PRC based Jinan Broadband.
Effective April 1, 2007, China Broadband Cayman, Inc. and our WFOE, completed
the acquisition of the Jinan Broadband subsidiary. During 2006 Jinan Broadband
did not operate as its own separate entity and constituted assets within a
business division that was separated out immediately prior to our acquisition.
Accordingly, increases in revenues, profits and expenses for the year ended
December 31, 2007 were primarily attributable to the commencement of operations
of the newly acquired assets which are operating independently for the first
time. Accordingly, Jinan Broadband results for the year ended December 31, 2006
were not included for comparative purposes as management believes that they are
not meaningful.




Our
revenues are based on the number of paying cable broadband internet customers in
the Shandong province of China. As of December 31, 2007, Jinan Broadband
had approximately 58,000 active paying subscribers for its services in this
region as compared to 45,000 in 2006. The increase is a result of increased
efforts on internal growth by Jinan Broadband after our acquisition of them.
Management believes that there are a total of 1.3 million homes that are
estimated to have cable access in the Jinan region of
Shandong, approximately 80% of which already have cable access and 20%
have internet access in some form. (See, www.jinan.gov.cn).




28




Our gross
revenues are dependent on several factors:




·
            the
      amount that we are permitted to charge for cable broadband internet
      services in the regions we operate
in,





·
            the
      number of subscribers we have in each
region,




·
            advertising
      revenues, and





·
            other
      revenues from other permitted value added services that we
      perform.





We intend
to develop our business by growing internally to increase the subscribers for
our services in the regions we operate and by acquiring licenses to operate the
cable broadband business in other regions.





Our cost
of revenue consists primarily of the costs of products or services sold to
customers and personnel and other direct costs associated with providing
technical services. In the future, we may expand or increase the discounts we
offer to our customers and may otherwise alter our pricing structures and
policies. These changes would negatively reduce our gross margins. In addition
to pricing strategy, our gross margins will fluctuate based on other factors,
including:




·
            the
      cost of our products, including the extent of purchase volume discounts we
      are able to obtain from our
suppliers;





·
            promotions
      or special offers that we offer to attract new customers;
      and




·
            the
      mix of products within each brand category that our customers
      purchase.




Our
selling, general and administrative expenses consist of personnel costs
including taxes and benefits, rent and utilities, contract labor, insurance,
marketing, telecommunication and Internet costs, and other administrative
expenses. We expect selling, general and administrative expenses to increase as
we grow our business .




Year Ended December 31,
2007  Compared to the Year Ended December
31, 2006





Revenues





Revenue
for the year ended December 31, 2007 (“2007”) was $2,839,197 as compared to $0
for the year ended December 31, 2006 (“2006”). During 2006, and prior to our
acquisition of China Broadband Cayman, we had no operations. Revenue during 2007
was attributed to our PRC subsidiary, Jinan Broadband and consisted of sales to
our PRC based Internet consumers, cable modem consumers, business customers and
other internet and cable services. We expect that our revenues will increase as
we continue to grow our business and add new regions.





Gross Profit





Gross
profit for 2007 was $1,181,218 as compared to $0 for 2006. During 2006 we had no
operations. Gross profit as a percentage of revenue was 41.6% for
2007.





Selling, General and Administrative
Expenses





Selling,
general and administrative expenses for 2007 were $954,382 as compared to
$116,073 for 2006. During 2006 we had no operations and all expenses during the
period related to formation costs associated with China Broadband Cayman.
Selling, general and administrative expenses during 2007 included salaries and
personnel costs of approximately $434,000 and travel expenses of approximately
$116,000. We expect that our selling, general and administrative expenses will
increase as we continue to grow our business and add new regions.





Professional Fees





Professional
fees for 2007 were $628,490 as compared to $52,105 for 2006. During 2006 we had
no operations and all expenses during the period related to formation costs
associated with China Broadband Cayman. Professional Fees during 2007 included
legal costs of approximately $156,000, accounting fees of approximately $250,000
and consultant costs of approximately $222,000. These costs were incurred
primarily for services performed relating to the Share Exchange, the acquisition
of Jinan Broadband and for public company reporting and corporate governance
expenses. We expect our costs for professional services to remain significant as
we continue to acquire new entities and implement our strategy as set forth
above and more specficially, as a result of the Settlement Agreement and related
transactions, the January 2008 Financing and the acquisition of Shandong
Newspaper in first quarter of fiscal 2007.




29




Depreciation and
Amortization





Depreciation
expense for 2007 was $1,795,501 as compared to $0 for 2006. During 2006 we had
no operating assets. Depreciation expense during 2007 relates to the
depreciation expense of $1,718,307 on the approximately $10 million of property,
plant and equipment, net at our Jinan broadband subsidiary and the amortization
expense of $ 77,194 related to the service agreement associated with our
acquisition of Jinan Broadband.





Interest and Other Income (Expense),
net





We
incurred an expense of $404,555, in interest and other income (expense), net,
during 2007. This amount consisted primarily of the expense related to our
requirement to issue new shares in the amount of $410,053, as a result of our
not registering the 1,300,000 shares issued upon the conversion of our 7%
Convertible Promissory Notes in the time frame required. This amount was
partially offset by interest income earned on our cash balances.





During
2006 we had no operations and incurred $6,762 in interest expense related to
China Broadband Cayman’s $325,000 principal amount of 7% Convertible Promissory
Notes. All of the 7% Convertible Promissory Notes were converted at the end of
February 2007 with all interest paid thereon.





We expect
to continue to incur interest expenses in connection with our issuance of our
$4,971,250 principal amount of Notes issued in January 2008, which compounds
monthly at the annual rate of five percent (5%) with the maturity date on
January 11, 2013.





Minority Interest





49% of
the operating loss of our Jinan Broadband subsidiary is allocated to Jinan
Parent. During 2007 $439,722 of our operating losses were allocated to Jinan
Parent





Income Tax
Benefit





Our
income tax benefit was $147,955 for 2007. During 2006 we had no
operations.





Liquidity and Capital
Resources





As of
December 31, 2007 we had $472,670 of cash on hand and a working capital deficit
of $4,635,625. As of December 31, 2007, we had total current liabilities of
$5,975,991. Given our current commitments and working capital, we cannot support
our operations for the next 12 months without additional capital.





On
January 23, 2007 we completed the first closing of our private placement
offering and completed our Share Exchange with China Broadband Cayman.





Through
December of 2007 we raised an aggregate of $4,000,000 in the private placement
offering with net proceeds of $3,579,500, including issuance costs, and issued
an aggregate of 8,000,000 shares and 4,000,000 warrants. Total issuance costs
approximated $420,500.





We used
approximately $2,572,125 of the proceeds of the offering towards the cost of our
first half installment payment for the 51% interest in Jinan Broadband in 2007.
We used $10,490 to repay interest accrued through February 28, 2007, on the
$325,000 principal amount of 7% Convertible Promissory Notes issued in September
of 2006 by China Broadband Cayman, the obligations of which were assumed by us.
All of these Convertible Notes have been converted into an aggregate of
1,300,000 shares of common stock as of February 28, 2007, with interest paid
through such date in cash. We have not registered the 1,300,000 shares that were
issued upon conversion of the 7% Convertible Promissory Notes and were required
to pay a penalty of new share issuances to said shareholders at the end of each
month that the shares are not registered beginning August 2007. Through the year
ended December 31, 2007 we were required to issue 170,855 shares as a penalty to
said shareholders and recorded an expense of $410,053 related to this issuance,
all of which were issued during early 2008.




5% Convertible Notes and Class A
Warrants Issued January 11, 2008





On
January 11, 2008 we entered into and consummated a subscription agreement with
ten accredited investors with respect to the issuance of an aggregate of
$4,971,250 principal amount of Notes due January 11, 2013, and Class A Warrants
to purchase an aggregate of 6,628,333 shares of common stock of the Company at
$.60 per share expiring on June 11, 2013. In March 2008 we used approximately
$3.2 million of these proceeds to fund our second payment for our purchase of
Jinan Broadband. In addition, in March 2008 we used $300,000 to fund our down
payment under the Shandong Newspaper Cooperation Agreement to Shandong Media and
expect to utilize an additional $1.2 million to fund the remaining portion of
our required working capital contribution.




30




Cash Flows





Operating
activities for 2007 and 2006, after adding back non-cash items, provided (used)
cash of approximately $72,188 and $(124,940), respectively. During such period
other changes in working capital provided cash of approximately $1,057,306 and
$6,763, respectively, resulting in cash being provided by (used in) operating
activities of $1,129,494 and $(118,177), respectively. During 2006 operating
activities related to the formation of our China Broadband Cayman subsidiary.




Investing
activities for 2007 and 2006 used cash of $2,443,055 and $0, respectively. The
2007 amounts consisted solely of additions to property and equipment.




Financing
activities for 2007 and 2006 provided cash of $1,351,297 and $221,347,
respectively. For 2007, this amount consisted of proceeds from the private
placement of $4,000,000 partially offset by $420,500 of payments related to
issuance costs associated with the private placement offering and our payable to
Jinan Parent of $2,228,203. For 2006 this amount consisted of the issuance of
China Broadband Cayman’s $325,000 principal amount of 7% Convertible Promissory
Notes issued on September 22, 2006 partially offset by $103,653 of payments
related to issuance costs associated with the convertible notes.





Our Jinan
Broadband subsidiary, which is our only operating subsidiary at year end 2007 is
located in China. All of its operations are conducted in its local currency the
Chinese Yuan also known as Renminbi or RMB. The effect of exchange rates on cash
between the Chinese Yuan and the United States dollar, provided cash of $331,764
during 2007.





Need for Additional
Capital





We have
raised approximately $4.8 million (net of cost of capital and expenses) in our
January 2008 Financing in order to fund our second payment for our purchase of
Jinan Broadband, which payment was due in January of 2008 and to acquire
Shandong Newspaper and cover the cost of interim operations. We made the second
and last payment for Jinan Broadband in March of 2008 and incurred no penalty
for making this payment in March. In addition, in March and April 2008 we used
$300,000 to fund our down payment under the Shandong Newspaper Cooperation
Agreement to Shandong Media and expect to utilize an additional $1.2 million to
fund the remaining portion of our required working capital contribution.
Management does believe that the Company has sufficient capital to sustain its
operations without raising additional capital.





We intend
to grow primarily through marketing to increase our subscriber base and through
acquisitions of China based broadband, internet and cable businesses. Our
strategy also includes completion of our acquisition of Shandong Newspaper
(which we believe is imminent) in a Joint Venture. Shandong Newspaper’s business
includes three main magazines: Shandong Broadcast & TV Weekly (Newspaper),
TV Weekly Magazine and Mordern Movie Times Magazine (Bi-Weekly). We intend to
invest our acquisition cost in this Joint Venture to increase sales and
advertising revenues of its periodicals in order to become profitable. No
assurance can be made that we will be able to raise capital if and as needed to
implement this business plan or, if implemented, that it will be successful.





The
amount and timing of our future capital requirements will depend upon many
factors, including the number and size of opportunities available to us, the
level of funding received by us, anticipated private placements of our common
stock, the level of funding obtained through other financing sources, and the
timing of such funding. In the event we are unable to raise additional capital
we will not be able to sustain any growth or continue to operate.




Dividends




We intend
to retain any future earnings to finance the expansion of our business and any
necessary capital expenditures, and for general corporate purposes. Under the
laws governing foreign invested enterprises in the PRC, dividend distribution
and liquidation are allowed but subject to special procedures under the relevant
laws and rules. In addition, Chinese legal restrictions permit payment of
dividends only out of net income as determined in accordance with Chinese
accounting standards and regulations. If we or our PRC subsidiaries incur debt
on their own behalf in the future, the instruments governing the debt may
further restrict their ability to pay dividends or make other distributions to
us, which in turn would limit our ability to pay dividends on our common
stock. Accordingly, even if we are profitable as a result of our PRC based
assets, operations and subsidiaries, PRC regulations prevent the payment by
these PRC entities of dividends absent compliance with certain rules and
obtaining appropriate government consents, which we believe will not happen in
the near future, if ever.





Financial
Commitments




The
Company pays approximately $55,000 (400,000 RMB) annually for rent at its
facilities in Jinan, China, renewable on an annual basis.





The
Company utilizes approximately 1,000 square feet of space from Maxim Financial
Corporation for its corporate headquarters for a monthly rental fee of $2,000.
Maxim Financial Corporation provided consulting services to the Company during
the years ended December 31, 2007 and 2006 and has agreed to discharge all
rental costs under the terms of its consulting agreement with the Company
through December 2007. In addition, Maxim Financial Corporation has agreed to
defer all monthly rental payments beginning January 2008 until the Company’s
next capital raise subsequent to January 2008. We intend to move our United
States corporate offices in mid 2008.




31




Critical Accounting
Policies




Our
discussion and analysis of financial condition and results of operations is
based on our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States. The
preparation of these financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States of America
requires our management to make judgments, assumptions and estimates that affect
the amounts reported in the consolidated financial statements and accompanying
notes. Our management evaluates its estimates on an on-going basis based on
historical experience and on various other assumptions it believes are
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. We acquired our Jinan Subsidiary
effective April 1, 2007 and therefore our historical experience with operations
in China is limited and may change in the future as we continue to operate our
Jinan subsidiary. Actual results may differ from these estimates under different
assumptions or conditions.




We
believe the following critical accounting policies affect our significant
judgments and estimates used in the preparation of its financial statements.




Revenue Recognition




Revenue
is recorded as services are provided to customers. The Company generally
recognizes all revenues in the period in which the service is rendered, provided
that persuasive evidence of an arrangement exists, delivery has occurred, the
sales price is fixed or determinable, and collection is reasonably assured. The
Company records deferred revenue for payments received from customers for the
performance of future services and recognizes the associated revenue in the
period that the services are performed. Provision for discounts and rebates to
customers and other adjustments, if any, are provided for in the same period the
related sales are recorded.




Accounts Receivable




Accounts
receivable are recorded at the invoiced amount after deduction of trade
discounts, business tax and allowances. The Company considers accounts
receivable to be fully collectible; accordingly, no allowance for doubtful
accounts has been established. If
accounts become uncollectible, they will be charged to statements of operations
when that determination is made. Collections on accounts previously written off,
if any, are included in other income as received.




Inventories





Inventories,
consisting of cables, fiber, connecting material, power supplies and spare parts
are stated at the lower of cost or market value. Cost is determined using the
first-in, first-out (FIFO) method.





Property and
Equipment





Property
and equipment are stated at cost less accumulated depreciation. Expenditures for
major renewals and betterments, which extend the original estimated economic
useful lives or applicable assets, are capitalized. Expenditures for normal
repairs and maintenance are charged to expense as incurred. The costs and
related accumulated depreciation of assets sold or retired are removed from the
accounts, any gain or loss thereon is reflected in operations.





Depreciation
is provided for on the straight line basis over the estimated useful lives of
the respective assets over a period of five years.




32




Intangible
Assets





We will
perform indefinite life intangible asset impairment
tests on an annual basis and between annual tests in certain
circumstances. To
determine the fair value of these intangible assets, there are many assumptions
and estimates used that directly impact the results of the testing. In making
these assumptions and estimates, the
Company must make various assumptions regarding estimated future cash flows and
other factors in determining the fair values of the respective assets.
W e will
use set criteria that are reviewed and approved by various levels of management,
and we will estimate the fair value of our reporting units by using discounted
cash flow analyses. If these
estimates or their related assumptions change in the future, the Company may be
required to record impairment charges for these assets in future periods. Any
such resulting impairment charges could be material to the Company’s results of
operations.





Income taxes





Deferred
taxes are recognized for the future tax consequences attributable to temporary
differences between the carrying amounts of assets and liabilities for financial
statement purposes and income tax purposes using enacted rates expected to be in
effect when such amounts are realized or settled. The effect on deferred taxes
of a change in tax rates is recognized in income in the period that includes the
enactment date.





Foreign Currency Translation




The
Company’s Jinan Broadband subsidiary business is currently conducted in and from
China in Renminbi. In this report, all references to “Renminbi” and “RMB” are to
the legal currency of China and all references to U.S. dollars, dollars, $ and
US$ are to the legal currency of the United States. The Company makes no
representation that any Renminbi or U.S. dollar amounts could have been, or
could be, converted into U.S. dollars or Renminbi, as the case may be, at any
particular rate, the rates stated below, or at all. The Chinese government
imposes control over its foreign currency reserves in part through direct
regulation of the conversion of Renminbi into foreign exchange and through
restrictions on foreign trade. The Company uses the U.S. dollar as its reporting
and functional currency. Translation adjustments are reported as other
comprehensive income or expenses and accumulated as other comprehensive income
in the equity section of the balance sheet. Financial information is translated
into U.S. dollars at prevailing or current rates respectively, except for
revenues and expenses which are translated at average current rates during the
reporting period. Exchange gains and losses resulting from retained profits are
reported as a separate component of stockholders’ equity.




Recent Accounting
Pronouncements





In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS
No. 157). The purpose of SFAS No. 157 is to define fair value, establish a
framework for measuring fair value, and enhance disclosures about fair value
measurements. The measurement and disclosure requirements are effective for the
company beginning in the first quarter of fiscal year 2008.





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (SFAS No. 159). SFAS
No. 159 permits companies to choose to measure certain financial
instruments and certain other items at fair value. The standard requires that
unrealized gains and losses on items for which the fair value option has been
elected be reported in earnings. SFAS No. 159 is effective for the company
beginning in the first quarter of fiscal year 2008, although earlier adoption is
permitted.





In
December 2007, the FASB issued SFAS No. 141 (R), “Business
Combinations” (“SFAS 141(R)”) and SFAS No. 160, “Noncontrolling Interests
in Consolidated Financial Statements” (“SFAS 160”). The standards are intended
to improve, simplify, and converge internationally the accounting for business
combinations and the reporting of noncontrolling interests in consolidated
financial statements. SFAS 141(R) requires the acquiring entity in a business
combination to recognize all (and only) the assets acquired and liabilities
assumed in the transaction; establishes the acquisition-date fair value as the
measurement objective for all assets acquired and liabilities assumed; and
requires the acquirer to disclose to investors and other users all of the
information they need to evaluate and understand the nature and financial effect
of the business combination. SFAS 141(R) is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after
December 15, 2008. SFAS 141(R) applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008.
Earlier adoption is prohibited.





SFAS 160
is designed to improve the relevance, comparability, and transparency of
financial information provided to investors by requiring all entities to report
noncontrolling (minority) interests in subsidiaries in the same way—as equity in
the consolidated financial statements. Moreover, SFAS 160 eliminates the
diversity that currently exists in accounting for transactions between an entity
and noncontrolling interests by requiring they be treated as equity
transactions. SFAS 160 is effective for fiscal years, and interim periods within
those fiscal years, beginning on or after December 15, 2008. Earlier
adoption is prohibited. In addition, SFAS 160 shall be applied prospectively as
of the beginning of the fiscal year in which it is initially applied, except for
the presentation and disclosure requirements. The presentation and disclosure
requirements shall be applied retrospectively for all periods presented. The
Company does not have an outstanding noncontrolling interest in one or more
subsidiaries and therefore, SFAS 160 is not applicable to the Company at this
time.





Management
does not believe that any recently issued, but not yet effective, accounting
standards, if currently adopted, would have a material effect on the
accompanying financial statements.





Off-Balance Sheet
Arrangements





We do not
have any off balance sheet arrangements that are reasonably likely to have a
current or future effect on our financial condition, revenues, results of
operations, liquidity or capital expenditures.





33





Item 7. Financial Statements





Please
see the “F” pages at the end of this Annual Report for financial statements for
the calendar years ended December 31, 2007 and 2006.





Item 7A. Quantitative and Qualitative
Disclosures About Market Risk




All of
our foreign operations are conducted in China and the Renminbi is the national
currency in which its operations are conducted. We have not utilized any
derivative financial instruments or any other financial instruments, nor do we
utilize any derivative commodity instruments in its operations, nor any similar
market sensitive instruments.




The
exchange rate between the Renminbi and the U.S. dollar is subject to the PRC
foreign currency conversion policies which may change at any time. The exchange
rate at March 24, 2008 was approximately 7.05 Renminbi to 1 U.S. dollar, and the
exchange rate is currently permitted to float within a very limited range.




We
believe that the weakening US dollar currently exposes us to significant market
risk. We currently raise capital in the US to fund our acquisitions and growth
in China. If the US dollar continues to weaken against the Renminbi we may be
required to raise additional capital not anticipated or we may not be able to
continue to operate, make required payments for agreements entered into or fund
new acquisitions.





The
Company primarily invests its cash in checking, bank money market and savings
accounts. As of March 24, 2008, the Company had not entered into any type of
hedging or interest rate swap transaction.





Item 8. Changes in and Disagreements
with Accountants on Accounting and Financial Disclosure





None.




Item 8A(T)Controls and Procedures





Evaluation of Disclosure Controls
and Procedures




Management
reviewed and evaluated the effectiveness of our "disclosure controls and
procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e)
and 15d-15(e)) as of the end of the period covered by the original report
(December 31, 2007) and concluded that the disclosure controls and
procedures were ineffective to ensure that material information relating to the
Company is recorded, processed, summarized, and reported in a timely manner
within
the time periods specified in the Commissions rules and forms, in that the
Company did not adequately identify and account for revenues from pre-paid
internet subscribers on an amortized basis.  The term “disclosure
controls and procedures” as used herein, includes, without limitation, those
controls and procedures designed to ensure that information required to be
disclosed by an issuer in the reports that it files or submits under the Act is
accumulated and communicated to our management (including our principal
executive and financial officers or persons performing similar functions) as
appropriate to allow timely decisions regarding required
disclosure.




Management
of the Company realizes that the assessment process is an ongoing one.
Subsequent to the conclusion as to the effectiveness of the disclosure controls
and procedures in the original filing, the Company determined that an accounting
principle was incorrectly applied and that its financial statement required
restatement as provided in Amendment No. 1 to Form 10-KSB/A (which,
for avoidance of doubt, was also included in Amendment No. 2 and this Amendment
No. 3). Accordingly,
at the time of the final restatement, the Company's certifying officers reviewed
and evaluated the effectiveness of our disclosure controls and procedures and
concluded that the disclosure controls and procedures were
effective.




Changes in Internal Control Over
Financial Reporting


The
Company has had previous late filings as a result of its PRC based operations
and difficulty in preparation and conversion of PRC financial statements. In
addition, the Company determined that it was required to restate its financial
statements, as previously disclosed, in order to reflect, among other changes,
the amortization of revenues from pre-paid internet subscribers. The Company
hired an outside consulting firm in the PRC to supplement the accounting
personnel at the Company to help address these concerns.


There
have been no other changes in the Company's internal control over financial
reporting during the last quarterly period covered by this report that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.





Management’s Report on Internal
Control Over Financial Reporting





Management
is responsible for establishing and maintaining adequate internal control over
financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the
Securities Exchange Act of 1934, as amended. The Company’s internal control over
financial reporting is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles. The Company’s internal control over financial reporting includes
those policies and procedures that:





(i)
            pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect the transactions and dispositions of the assets of the
      Company;





(ii)
            provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the Company
      are being made only in accordance with authorization of Management;
      and





(iii)
            provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of the Company’s assets that
      could have a material effect on the financial
  statements.





Because
of inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to risk that controls may become
inadequate because of changes in conditions, or the degree of compliance may
deteriorate.




34




Management
assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2007.  In making this assessment,
management used the criteria set forth by the Committee of Sponsoring
Organization of the Treadway Commission (COSO) in Internal Control-Integrated
Framework.  Based on that assessment, Management has concluded that
the Company’s internal control over financial reporting was ineffective as of
December 31, 2007 in that the Company had certain late filings during the 2007
and because revenues from certain subscribers were not
amortized.  Management has since implemented controls that it believes
are effective, namely hiring an outside accounting consulting firm in the PRC to
supplement the Company’s accounting personnel and creating controls so as to
detect and amortize revenues from prepaid subscribers.




This Form
10-KSB does not include an attestation report of the Company's registered public
accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the company's registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange  Commission
that permit the Company to provide only management's report in this annual
report.




Item 8B.Other
Information





Effective
as of the March 13, 2008, the board of directors of the Company approved the
China Broadband, Inc. 2008 Stock Incentive Plan (the “Plan”), pursuant to which
options or other similar securities may be granted. Qualified or Non-qualified
Options to purchase up to 2,500,000 shares of the Company’s common stock may be
issued under the Plan. The Plan may also be administered by an independent
committee of the board of directors. 100,000 options have been granted to Mr.
Urbach pursuant to his employment agreement with the Company (as described
below).




35





PART III





Item 9. Directors, Executive
Officers, Promoters, Control Persons And Corporate Governance; Compliance With
Section 16(a) Of The Exchange Act





Executive Officers and Directors





Prior to
the Share Exchange, our only two directors and officers were Mark L. Baum, Esq.
(our former President and CFO) and James B. Panther, II (our former Secretary)
both of which resigned effective as of the completion of the Share Exchange on
January 23, 2007.





The
officers of the Company immediately after the Share Exchange on January 23, 2007
and as of the date hereof are as set forth
in the below chart.





In
addition, while Mr. Jiang Bing was appointed as a director on January 23, 2007,
he has since resigned as of May 18, 2007 due to personal reasons.





Simultaneously
with the closing of the January 2008 Financing in January of 2008, and entry
into the Settlement Agreement, Messrs. David Zale, James Cassano and Jonas
Grossman were appointed as directors of the Company, joining Messrs. Clive Ng
and Yue Pu. Prior to the appointment of Messrs. Zale, Cassano and Grossman, such
persons had no affiliations or business relationship with the Company, except
that Mr. Grossman was and continues to be, a partner and officer of Chardan
Capital which received a placement agent fee of notes and warrants in connection
with the January 2008 Financing as described above. Additionally, the board
appointed Mr. Tom Lee as new Chief Executive Officer and Principal Executive
Officer on January 11, 2008:





Name
            
            Age
            
            PositionMarc
      Urbach
            
            35
            
            President,
      Principal Executive OfficerTom
      Lee
            
            50
            
            Chief
      Executive Officer (January 11,2008 - April 8, 2008)Clive
      Ng
            
            45
            
            Chairman,
      DirectorYue
      Pu
            
            35
            
            Vice
      Chairman of China Broadband, Ltd. and China Broadband, Inc., and Principal
      Accounting Officer and Principal Financial OfficerJames
      Cassano
            
            61
            
            DirectorDavid
      Zale
            
            54
            
            DirectorJonas
      Grossman
            
            33
            
            Director





Marc Urbach has over
twelve years of accounting, finance, and operations experience in both large and
small companies. He was the Executive Vice President and Chief Financial Officer
of Profile Home Inc., a privately held importer and distributor of home
furnishings from September 2004 until February 2008. He additionally served on
the board and was part owner of Tri-state Trading LLC, a related import company
during that same time period. Mr. Urbach was a Director of Finance at Mercer
Inc., a Marsh & McLennan Company from 2002 to 2004. He was a Finance Manger
at Small World Media from 2000 until 2002 and held a similar position at The
Walt Disney Company from 1998 to 2000. He started his career at Arthur Andersen
LLP as a senior auditor from 1995 to 1998. Mr. Urbach received his Bachelor of
Science in Accounting from Babson College in 1995.





Clive Ng currently a non-executive Chairman and Director of the Company and China
Broadband, Ltd., has been a director and officer of the Company since January of
2007 and of China Broadband, Ltd. since August of 2006. Mr. Ng also currently
serves as a Senior Advisor to Warner Music Group Inc. (NYSE: WMG). Mr. Ng
has served as executive chairman of the board and President of China Cablecom
Ltd. since its inception on October 6, 2006 and as a director,
Executive Chairman and President of China Cablecom Holdings since
October 2007. From 2000 to 2003, he was the Chief Executive Officer of
Pacific Media PMC, a home shopping company. Mr. Ng co-founded TVB
Superchannel Europe in 1992, which has grown to become Europe’s leading Chinese
language broadcaster. He also owned a 50% stake in HongKong SuperNet, the first
Hong Kong based ISP which was then sold to Pacific Internet (NASDAQ:PCNTF). Mr.
Ng was Chairman and founder of Asiacontent (NASDAQ:IASIA), one of the first
Asian internet companies to list in the United States, that has been a joint
venture partner with NBCi, MTVi, C-NET, CBS Sportsline and DoubleClick in Asia.
Mr. Ng was also one of the initial investors and founder of E*TRADE Asia, a
partnership with E*TRADE Financial Corp (NYSE: ET). Mr. Ng was a founding
shareholder of MTV Japan, with H&Q Asia Pacific and MTV Networks
(a division of Viacom Inc).




Yue Pu is and
has been an executive officer of the Company and its operating subsidiary since
January of 2007. Mr. Pu also serves as general manager and Chief Executive
Officer of China Cablecom since its inception in 2006 and Chief Executive
Officer and Acting Chief Financial Officer of China Cablecom Holdings since
October 2007 a cable company that operates in the Jinan region of the Shandong
province of China. Mr. Pu carries with him more than a decade of PRC based media
industry experience spanning across publishing, Internet and TV sectors. From
2005 to 2006, Mr. Pu was with China Media Networks, the TV media arm of HC
International, as BD director, before starting up Jinan Broadband in 2006. From
2003 to 2005, Mr. Pu was with Outlook Weekly of Xinhua News Agency as a
strategic advisor and BD director. From 1999 to 2000, he was a director and a
member of the founding team for Macau 5-Star Satellite TV, a mainland China
satellite TV channel venture. From 1997 to 1999, he joined Economic Daily, and
was head of the Internet arm of one of China's most popular business and
entrepreneur magazines. From 1993 to 1997 , Mr. Pu
was an intelligence officer with China's National Security Service and a
logistics specialist with a joint venture between Crown Cork & Seal and John
Swire & Sons in Beijing. Mr. Pu received an MBA from Jones Graduate School
of Business of Rice University in 2002 and Bachelor in Law from University of
International Relations in China in 1993.




36




James S. Cassano was
appointed as director of the Company effective as of January 11, 2008. Mr.
Cassano has served as executive vice president, chief financial officer,
secretary and director of Jaguar Acquisition Corporation a Delaware corporation
(OTCBB:JGAC), a blank check company, since its formation in June 2005. Mr.
Cassano has served as a managing director of Katalyst LLC, a company which
provides certain administrative services to Jaguar Acquisition Corporation,
since January 2005. From February 2004 to December 2004, Mr. Cassano was an
independent consultant engaged by a number of corporate clients in the area of
corporate organization, corporate development and mergers and acquisitions. In
June 1998, Mr. Cassano founded New Forum Publishers, an electronic publisher of
educational material for secondary schools, and served as its chairman of the
board and chief executive officer until it was sold to Apex Learning, Inc., a
company controlled by Warburg Pincus, in August 2003. He remained with Apex
until November 2003 in transition as vice president business development and
served as a consultant to the company through February 2004. In June 1995, Mr.
Cassano co-founded Advantix, Inc., a high volume electronic ticketing software
and transaction services company which handled event related client and customer
payments, that was re-named Tickets.com and went public through an IPO in 1999.
Mr. Cassano served as its chairman of the board and chief executive officer
until December 1997. From March 1987 to June 1995, Mr. Cassano served as senior
vice president and chief financial officer of the Hill Group, Inc., a
privately-held engineering and consulting organization, where he was responsible
for corporate finance, acquisitions and divestitures as well as all corporate
information technology functions. From February 1986 to March 1987, Mr. Cassano
served as vice president of investments and acquisitions for Safeguard
Scientifics, Inc., a public venture development company, where he was
responsible for analyzing and closing investments in ventures, and providing
management support of companies in which Safeguard had investments. From May
1973 to February 1986, Mr. Cassano served as partner and director of strategic
management services (Europe) for the strategic management group of Hay
Associates, where among other responsibilities, he lead or held management
responsibility for the majority of the firm’s strategic and large scale
organization projects in financial services. Mr. Cassano received a B.S. in
Aeronautics and Astronautics from Purdue University and an M.B.A. from Wharton
Graduate School at the University of Pennsylvania.





David Zale was
appointed as a director of the Company effective as of January 11, 2008. Mr.
Zale founded Zale Capital Management, L.P. in January 2006. Mr. Zale advises
clients on investments in hedge funds and customizes hedge fund-of-funds for
high net worth individuals and institutions. In addition, Mr. Zale advises
clients on their total portfolio, assisting clients in developing Investment
Policy Statements and executing portfolio allocations. Mr. Zale holds the
Chartered Financial Analyst designation and holds a FINRA Series 7 license
through USF Securities, L.P. and his Series 63 and 65 licenses through USF
Advisors, LLC, a registered Investment Advisor and conducts securities
transactions through these entities, both of which are otherwise unaffiliated
with Zale Capital Management, L.P. Mr. Zale has had ten years of financial
services experience. From July, 2003 until December, 2005, Mr. Zale served as
the Managing Director for Inaltra Capital Management, Inc., an Investment
Advisor specializing in hedge fund-of-funds, which he helped to launch. Prior to
that, Mr. Zale held positions with hedge fund-of-funds related investment
advisors. In addition, he has had additional experience on the sell side,
ultimately leading to a position as director of research. Prior to entering the
financial services industry, Mr. Zale spent over eighteen years in the jewelry
industry. He is the chairman of the Investment Committee of the M.B. and Edna
Zale Foundation of Dallas, and a past chairman of the Investment Committee of
Central Synagogue of New York. Mr. Zale is a graduate of the University of
Colorado with a degree in Political Science.





Jonas Grossman was
appointed as a director of the Company effective as of January 11, 2008. Mr.
Grossman has over nine years of experience in the financial services industry.
Mr. Grossman is and has been a Partner and Head of Capital Markets of Chardan
Capital, a FINRA member firm which he joined in January, 2004. In addition, Mr.
Grossman founded Cornix Management LLC, a multi-strategy hedge fund in December,
2006. From April, 2001 until December, 2003, Mr. Grossman was a Vice-President
at Ramius Capital Group, LLC, an international, multi-strategy hedge fund and
FINRA member firm, where he also worked as Head Trader. He was a Senior Trader
at Windsor Capital Advisors, LLC from June, 2000 until March, 2001 and worked as
a trader making markets at Aegis Capital Corp., from February, 1999 until June,
2000. Mr. Grossman received his Bachelor of Arts in Economics from Cornell
University in 1997. He has also studied at the London School of Economics and
the Leonard N. Stern School of Business at New York University.




37




Other Management




Tom Lee was
appointed as Chief Executive Officer effective as of January 11, 2008 through
April 8, 2008 and has since been serving in a non executive capacity as Director
of Business Development for the Company. Mr. Lee has twenty years of successful
business development and management experience in high-tech industry and
extensive hands-on experiences as co-owner and director of business development
in the PRC. Mr. Lee has served as Vice President of Business Development of TiVO
Great China (TGC) Inc. since 2006. Prior to such time and since 2005, Mr. Lee
served as General Manager of Sales and Marketing of DVN Broadband Technologies
Inc. Between 1999 and 2003, Mr. Lee was the VP of Asia Sales and Marketing of
nSTREAMS Technologies Inc., an international provider of Interactive TV and
video server based technologies. Prior to this time and since 1995, he became
the Director of Business Development of Silicon Graphics Inc., Asia-Pacific, a
company which provides high-performance server and storage solutions. Mr Lee was
employed in various capacities for Silicon Graphics, Inc. Mr. Lee served as the
VP of Sales from 1987 to 1988 for Apollo Computer Corporation in Taiwan. From
1985 to 1986, Mr. Lee served as Director of Sales for the Minicomputer System
Division of Systex Corp in Taiwan. Before that, he was the Sales Manager of
Oversea Computer Corp in Taiwan since 1981. Mr. Lee received training at SGI
senior manager training school from 1995 to 1997. He attended the Stanford
University Economic Management program in the summer of 1996. Mr. Lee received
his bachelor’s degree in Industry Management from the National Taiwan Industry
Technology Institute of Taiwan.





Mark L.
Baum, Esq. (our former President and CFO) and James B. Panther, II (our former
Secretary) both of which resigned effective as of the completion of the Share
Exchange on January 23, 2007. In addition, Mr. Jiang Bing





In
addition to the above, Mr. Jiang Bing was appointed as a director on January 23,
2007 in connection with the Share Exchange, however, he has since resigned as of
May 18, 2007 due to personal reasons and not as a result of any disagreements
with the Company on any matters. Directors serve until the next annual meeting
and until their successors are elected and qualified.





Employment Agreement Amendments





Additionally,
in connection with the Settlement Agreement and January 2008 Financing in
January 2008, Messrs. Yue Pu and Clive Ng have each entered into their
Employment Agreement Amendments which delineate the scope of services required
from each of them for the Company and its subsidiaries, and permits mutual
director and executive affiliations with the Company and Cablecom Holdings. The
modifications included reducing their time commitments to the Company and its
subsidiary and providing that once replacement executive officers have been
hired (and in the case of Mr. Ng, assuming Mr. Pu continues in his role as chief
financial officer, eliminating his executive duties and he will only continue as
the Chairman and a director of China Broadband and the Company), requiring in
the case of Mr. Ng that he be subject to an ongoing obligation to offer
acquisition candidates in the stand-alone, independent broadband business to
China Broadband in the future. In addition, Mr. Ng has waived his right to
receive all accrued salary previously owed to him. The Employment Agreement
Amendments were approved by the board and by the disinterested board members,
Messrs. Zale and Grossman and was required as part of the Settlement Agreement.





Additionally,
Mr. Ng waived his right to receive all salary compensation owed to him by the
Company, through January 11, 2008, previously accrued but unpaid.





Family
Relationships





None.





Involvement in Certain Legal
Proceedings .





No
officer or director of the Company has, during the last five years: (i) been
convicted in or is currently subject to a pending a criminal proceeding; (ii)
been a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
or mandating activities subject to any federal or state securities or banking
laws including, without limitation, in any way limiting involvement in any
business activity, or finding any violation with respect to such law, nor (iii)
has any bankruptcy petition been filed by or against the business of which such
person was an executive officer or a general partner, whether at the time of the
bankruptcy of for the two years prior thereto.





Director Independence





While the
Company’s securities are not trading on a national securities exchange or
NASDAQ, the Company’s Board of Directors has determined that David Zale and
James Cassano and Jonas Grossman are independent directors under the rules
of the American Stock Exchange Company Guide (the “AMEX Company Guide”), because
they do not currently own a significant percentage of Company’s shares, are not
currently employed by the Company, have not been actively involved in the
management of the Company and do not fall into any of the enumerated categories
of people who cannot be considered independent directors under the AMEX Company
Guide. The Company does not have an audit committee, nominating committee or
compensation committee and therefore the entire Board of Directors performs
those functions for the Company. Notwithstanding the foregoing and in addition
to the general board approvals obtained, a special board committee comprised of
disinterested board members, Messrs. Zale and Grossman, ratified the Employment
Agreement Amendments of Clive Ng and Yue Pu and the Settlement Agreement.




38




Simultaneously
with the closing of the January 2008 Financing, and entry into the Settlement
Agreement, Messrs. David Zale, James Cassano and Jonas Grossman were appointed
as directors of the Company, joining Messrs. Clive Ng and Yue Pu. Prior to the
appointment of Messrs. Zale, Cassano and Grossman, such persons had no
affiliations or business relationship with the Company, except that Mr. Grossman
was and continues to be, a partner and officer of Chardan Capital which received
a placement agent fee of notes and warrants in connection with the January 2008
Financing as described above. Additionally, the board appointed Mr. Tom Lee as
new Chief Executive Officer and Principal Executive Officer on January 11, 2008.





Prior to
the appointment of Messrs. Zale, Cassano and Grossman, such persons had no
affiliations or business relationship with the Company, except that Mr. Grossman
was and continues to be, a partner and officer of Chardan Capital which received
a placement agent fee of notes and warrants in connection with the January 2008
Financing.





Effective
as of March 13, 2008, the Company appointed Mr. Marc Urbach as President of the
Company and its wholly owned subsidiary, China Broadband, Ltd.





Family Relationships





None.





Involvement in Certain Legal
Proceedings .





No
officer or director of the Company has, during the last five years: (i) been
convicted in or is currently subject to a pending a criminal proceeding; (ii)
been a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
or mandating activities subject to any federal or state securities or banking
laws including, without limitation, in any way limiting involvement in any
business activity, or finding any violation with respect to such law, nor (iii)
has any bankruptcy petition been filed by or against the business of which such
person was an executive officer or a general partner, whether at the time of the
bankruptcy of for the two years prior thereto.





Employment Agreement with Marc
Urbach





The
Company has entered into a formal employment agreement with Mr. Urbach pursuant
to which Mr. Urbach has been appointed as President of the Company and its
wholly owned Cayman Islands subsidiary, China Broadband, Ltd., pursuant to which
the Company has agreed to compensate Mr. Urbach $120,000 per year, for a four
year term, with bonuses and increases reviewed annually. See “Employment
Agreement with Marc Urbach” below.





Interested Party Transactions





Mr. Jonas
Grossman is a co-owner and officer of Chardan Capital which acted as placement
agent in connection with the January 2008 Financing, prior to Mr. Grossman’s
appointment to the board of directors of the Company. Chardan Capital was
compensated the amount of $121,250 (which commission was applied by Chardan
Capital to an investment in $121,250 principal amount of Notes and 166,667 Class
A Warrants in the January 2008 Financing), $10,000 cash, and 1,131,667 Broker
Warrants, each as described more fully under the subsection titled “ Placement
Agent Fee to Chardan Capital Markets, LLC” above . Mr. Grossman disclaims
beneficial ownership of all but 22.5% of such securities.





Board of Directors Committees





We do not
currently have a standing audit, nominating or compensation committee of the
Board of Directors, or any committee performing similar functions. We are not an
issuer listed on a national securities exchange or listed in an automated
inter-dealer quotation system of a national securities association and therefore
we are not required to have an audit committee. Although we hope to have an
audit committee established at some time in the near future, we have not done so
yet. Since we have not established such a committee, we have not identified any
member of such a committee as a financial expert.





Advisory Board





We do not
currently have an Advisory Board.




39





Meetings of our Board of Directors





Our Board
of Directors took action by written consent in lieu of meeting three times
during the 2007 fiscal year and did not hold regular meetings.





Compliance with Section 16(a) of the
Exchange Act





Section 16(a)
of the Securities Exchange Act of 1934, as amended, requires our directors,
executive officers, and stockholders holding more than 10% of our outstanding
common stock, to file with the Securities and Exchange Commission initial
reports of ownership and reports of changes in beneficial ownership of our
common stock. Executive officers, directors and greater-than-10% stockholders
are required by SEC regulations to furnish us with copies of all
Section 16(a) reports they file. To our knowledge, based solely on review
of the copies of such reports furnished to us for the period ended December 31,
2007, the Section 16(a) reports required to be filed by our executive
officers, directors and greater-than-10% stockholders were filed on a timely
basis, other than Messrs . Ng, Bing and Pu and Grossman, which have all filed a
Form 3 late.





Code of Ethics





To date,
we have not adopted a Code of Ethics as described in Item 406 of Regulation S-B.
Given our recent acquisition, we have not yet had the opportunity to adopt a
code of ethics. However, we intend to adopt a code of ethics as soon as
practicable.





Item 10. Executive Compensation





SUMMARY COMPENSATION TABLE





The
following table sets forth information concerning the total compensation that we
have paid or that has accrued on behalf of our chief executive officer and other
executive officers with annual compensation exceeding $100,000 during the years
ended December 31, 2007 and 2006.




Name & Principal
      Position
            
            
            Year
            
            
            Salary
            
            
            
            
            
            Bonus
            
            
            Stock
    Awards
            
            
            Option Awards
            
            
            Non-Equity Incentive Plan
      Compensation
            
            
            Change in Pension Value and
      Non-Qualified Deferred Compensation Earnings
            
            
            All Other Compensation
            
            
            Total($)
            
            
            
            
            
            ($)
            
            
            ($)
            
            
            ($)
            
            
            ($)
            
            
            ($)
            
            
            ($)
            
            
            ($)Clive
      Ng, Chairman
            
            
            2007
            
            
            212,054
            
            
            (1)2006
            
            
            0Yue
      Pu, Vice Chairman
            
            
            2007
            
            
            101,786
            
            
            (2)2006Mark
      L. Baum, Former President, CFO and Director
            
            
            2007
            
            
            0
            
            
            (3)
            
            
            0
            
            
            —
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            02006
            
            
            0
            
            
            
            
            
            0
            
            
            —
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0James
      Panther, II, former Director and Secretary
            
            
            2007
            
            
            0
            
            
            (3)
            
            
            0
            
            
            —
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            02006
            
            
            0
            
            
            
            
            
            0
            
            
            —
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0




(1) Mr.
Ng became an executive and director of the Company, simultaneously with the
closing of our Share Exchange Agreement on January 23, 2007. Mr. Ng’s salary was
accrued in 2007 and not paid in accordance with his employment agreement which
provided that such salary would be paid upon a subsequent financing. Pursuant to
the Settlement Agreement in January 2008, Mr. Ng discharged and waived all
accrued salary owed to him by the Company, and agreed to accrue future salary
until a financing.




40




(2) Mr.
Pu became an executive and director of the Company, simultaneously with the
closing of our Share Exchange Agreement on January 23, 2007. Mr. Pu’s salary was
accrued in 2007 and not paid in accordance with his employment agreement and was
to be paid upon a subsequent financing.




(3)
Messers. Baum and Panther, our former director and officers, resigned from all
positions with the Company simultaneously with the closing of our Share Exchange
Agreement on January 23, 2007.





Option Grants and Exercises





OUTSTANDING EQUITY AWARDS AT FISCAL
YEAR-END TABLE





The
following table sets forth information with respect to grants of options to
purchase our common stock to the named executive officers during the fiscal year
ended December 31, 2007.




Option Awards
            
            Stock AwardsName
            
            
            Number
              of
              Securities
              Underlying
              Unexercised
              Options
              (#)
              Exercisable
            
            
            Number
              of
              Securities
              Underlying
              Unexercised
              Options
              (#)
              Unexercisable
            
            
            Equity
              Incentive
              Plan
              Awards:
              Number
              of
              Securities
      Underlying
              Unexercised
              Unearned
              Options
              (#)
            
            
            Option
              Exercise
              Price
              ($)
            
            
            Option
              Expiration
              Date
            
            
            Number
              of Shares
              or Units
              of Stock
              That Have
              Not
              Vested
              (#)
            
            
            Market
              Value of
              Shares or
              Units of
              Stock
              That Have
              Not
              Vested
              ($)
            
            
            Equity
              Incentive
              Plan
Awards:
              Number
              of
              Unearned
              Shares,
              Units or
              Other
Rights
              That Have
              Not
              Vested
              (#)
            
            
            Equity
      Incentive
              Plan
Awards:
              Market or
      Payout
              Value
              of
              Unearned
              Shares,
              Units or
              Other
              Rights
              That Have
              Not
              Vested
              ($)Mark
      L. Baum, Esq.
            
            
            (1
            )
            
            0
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            0
            
            
            —
            
            
            0





(1)
2,000,000 shares of common stock were issued in November of 2006, in exchange
for previous services rendered and a full release. In addition, 500,000 options
to purchase our common stock at $.60 per share were issued to BCGU, LLC, an
entity owned and controlled by both Mr. Baum and Mr. Panther, our former
executive officers and directors prior to the Share Exchange, after December 31,
2006.





There
were no other option grants or exercises by any of the executive officers named
in the Summary Compensation Table above during 2007.





2007 Director
Compensation




We
currently do not compensate our directors.





Employment and Consultant Agreements





There
were no employment agreements or consulting agreements entered into in 2005 or
2006. The Company entered into a consulting agreement with Maxim Financial
Corporation on January 23, 2007, the provisions of which are described below.
Additionally, in connection with the Share Exchange and acquisition of the
business acquisition, the Company entered into the employment agreements set
forth below with Messrs. Ng and Yue, which were amended on January 11, 2008 in
connection with the Settlement Agreement and related financing.





Employment Agreement with Marc
Urbach





On March
13, 2008, the Company entered into a formal employment agreement with Mr. Urbach
pursuant to which Mr. Urbach has been appointed as President of the Company and
its wholly owned Cayman Islands subsidiary, China Broadband, Ltd., pursuant to
which the Company has agreed to compensate Mr. Urbach $120,000 per year, for a
four year term, with bonuses and increases reviewed annually. In addition, the
Company granted Mr. Urbach options to purchase 100,000 shares common stock of
the Company, exercisable in four equal annual installments commencing on the
date of hire and on each of the first 3 anniversaries thereafter, at an exercise
price equal to market value at the time of issuance. The employment agreement
also provides for a discretionary bonuses and a vehicle and travel allowance and
similar benefits as an executive.




41




Consulting Agreement with Maxim
Financial Corporation





Consulting Agreement and Lease of
Office Space in Boulder Colorado





We
entered into a year to year lease to rent office space and facilities in Boulder
Colorado from Maxim. This lease covers 1,000 square feet of office space and
related services, which we primarily use as our United States corporate offices.
The monthly lease rate is $2,000 per month. This lease may be terminated for any
reason by Maxim Financial Corporation on 30 days notice. Pursuant to our
consulting agreement with them, Maxim Financial Corporation has waived its past
fees which have accrued to China Broadband Cayman since July of 2006 and all
future rental fees through December 31, 2007. In addition, Maxim Financial
Corporation has agreed to defer all monthly rental payments beginning January
2008 until the Company’s next capital raise subsequent to January
2008.




Item 11. Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder
Matters





The
following table sets forth certain information regarding our common stock
beneficially owned as of March 31, 2008 for (i) each shareholder we know to be
the beneficial owner of 5% or more of our outstanding common stock, (ii) each of
our executive officers and directors, and (iii) all executive officers and
directors as a group. In general, a person is deemed to be a "beneficial owner"
of a security if that person has or shares the power to vote or direct the
voting of such security, or the power to dispose or to direct the disposition of
such security. A person is also deemed to be a beneficial owner of any
securities of which the person has the right to acquire beneficial ownership
within 60 days. To the best of our knowledge, subject to community and martial
property laws, all persons named have sole voting and investment power with
respect to such shares, except as otherwise noted. At March 31, 2008, we had
50,255,599 shares of common stock outstanding.




Amount
of
            
            
            Percent
    ofBeneficial
            
            
            BeneficialName of Beneficial
      Owner
            
            
            Ownership(1)
            
            
            
            Ownership(1)Clive
      Ng (2)
            
            
            26,002,915
            
            (3)
            
            51.9
            %Marc
      Urbach (4)
            
            
            25,000
            
            (4)
            
            *
            %Pu
      Yue (5)
            
            
            -0-
            
            
            
            —David
      Zale (6)
            
            
            75,000
            
            (6)
            
            *James
      Cassano (7)
            
            
            -0-
            
            
            
            —Jonas
      Grossman (8)
            
            
            327,375
            
            (9)
            
            *
            %OTHER
      PERSONS (Non Executives etc.)Mark
      L. Baum, Esq. (10)
            
            
            3,000,000
            
            (10)
            
            5.9
            %Oliveira
      Capital, LLC
            
            
            2,893,944
            
            (11)
            
            5.8All directors and executive
      officers
            
            
            26,430,290
            
            
            
            52.7
            %




*  Indicates
less than 1%.




(1)  Indicates
shares and percentages held as of March 31, 2008, based on 50,255,599 shares
outstanding, as calculated in accordance with the above formula.





(2)  The
address of Clive Ng is c/o China Broadband Ltd., 1900 Ninth Street, 3 rd Floor,
Boulder, Colorado 80302.




(3)  Includes
3,582,753 shares held by 88 Holdings, Inc., 3,250,000 held by Beeteebee Nominees
and 19,170,162 shares and held by China Broadband Partners, Ltd. Mr. Ng controls
and owns 100% beneficial ownership over these entities.




(4)  Includes
shares issuable upon exercise of options to purchase 25,000 shares which
are exercisable within 60 days at $.99 per share, but not options to
purchase an additional 75,000 shares at $.99 which are not yet exercisable. All
of the options were issued under the Plan.





(5)  The
address of Pu Yue is Apartment 2001, Bld. 2 , No. 1 Xiangheyman Road, Dongcheng
District, Beijing, China 100028.





(6)  The
address for Mr. Zale is 825 Third Avenue, Suite 244, New York, New York 10022.
Share amounts include 50,000 shares of common stock and 25,000 Investor Warrants
to purchase common stock at $2.00 acquired in our January 2007 private offering.





(7)  The
address for Mr. Cassano is 117 Graham Way, Devon, Pennsylvania,
19333.




42




(8)  The
address for Mr. Jonas Grossman is 17 State Street, Suite 1600, New York, New
York 10004.





(9)  Mr.
Grossman is an officer and part owner of Chardan Capital Markets, LLC (“Chardan
Capital”), which received Broker Warrants in connection with its services as
placement agent in connection with our January 2008 Financing of Notes and
Class A Warrants and which also invested its fee into Notes and Class A
Warrants. Mr. Grossman has shared voting and dispositive control over securities
owned by Chardan Capital but not over securities owned by other principals of
Chardan Capital. Chardan Capital or its principals own in aggregate (i) $121,250
principal amount of Note, convertible into an aggregate of 161,667 shares, of
which, Mr. Grossman disclaims beneficial ownership of $93,969 of principal
amount of Note and 125,292 shares issuable upon conversion thereof, (ii)
1,131,666 shares underlying Broker’s Warrants, of which, Mr. Grossman disclaims
beneficial ownership of 877,041 shares issuable upon exercise thereof and, (iii)
161,667 shares of Class A Warrants, of which Mr. Grossman disclaims beneficial
ownership of 125,292 shares issuable upon exercise thereof.





(10)  Indicates
shares held by BCGU, LLC which is owned and controlled by Mr. Baum and partly
owned by Mr. Panther, our former directors and executive officers, before the
closing of the Share Exchange. The address of Mark Baum is c/o 2038 Corte Del
Nogal, Suite 110, Carlsbad, California 92011. Share amounts include warrants to
purchase 500,000 shares exercisable at $.60 per share issued at the closing of
the November 2006 offering, all of which are exercisable within 60 days of the
date of the first closing of the offering.





(11)  Indicates
shares acquired from China Broadband Partners, Ltd., an entity controlled by
Clive Ng, in accordance with the terms of our January 2008 Financing.




43




Item 12. Certain Relationships and
Related Transactions, and Director Independence.





Related Transactions





Settlement Agreement with
Management





In
January of 2008, and to avoid potential disputes with management, we entered
into a Settlement Agreement with Mr. Clive Ng and Pu Yue and amended their
employment agreements. These agreements were ratified by our entire board and by
a special independent committee comprised of Mr. David Zale and Mr. Jonas
Grossman after their appointment. Additional specific information relating to
this Settlement Agreement and the related employment agreements are provided in
the “Recent Developments” section of “Item 1. Description of Business.” above,
and in the “Risk Factors” and other sections above and “Conflicts of Interest”
in this section below, the provisions of which are incorporated by reference
herein.





Share Exchange Agreement with
Broadband Shareholders





In
October of 2006 we entered into a letter of intent to acquire all of the shares
of China Broadband Cayman. Prior to such time none of the Broadband
Shareholders, as principals of China Broadband Cayman, had any affiliation with
the Company.





Pursuant
to the foregoing agreement, we have acquired China Broadband Cayman pursuant to
the Share Exchange January 23, 2007 in exchange for assumption by us of $325,000
7% Convertible Promissory Notes which were convertible to 2.6% of the
outstanding common stock of the Company (currently estimated at 1,300,0000,
based on 50,000,000 shares outstanding), the issuance of 3,582,753 shares of
common stock to 88 Holdings, Inc., and 31,000,000 shares of common stock to
China Broadband Partners, both of which are entities owned or controlled by Mr.
Clive Ng, 1,900,000 shares of common stock to Stephen P. Cherner and 1,382,753
shares of common stock to MVR Investment, LLC. In addition, 2,000,000 shares
were to be issued pursuant to the Share Exchange Agreement pro rata to said
shareholders, subject to cancellation on a share by share basis to the extent
that greater than 6,000,000 shares were sold in our private offering. As a
result of the Company closing on the maximum offering amount of 8,000,000
shares, none of these shares will be issued. Additionally and pursuant to a
separate transaction, Maxim Financial has also acquired 300,000 shares of common
stock from an entity owned by our director and shareholder prior to the Share
Exchange, Mark L. Baum.





Our
acquisition of China Broadband Cayman was negotiated on an arms length basis
between the principals of China Broadband Cayman and our former principal
officer and director, Mr. Baum. There was no relationship between the parties
prior to such transaction. Additional specific details relating to these
transactions is provided in the “Item 1. Description of Business.” and
“Management Discussion and Plan of Operations” sections above.





Consulting Agreement with Maxim
Financial Corporation





Prior to
our acquisition of China Broadband Cayman, its formation and operations,
including the expenses relating to our acquisition in China, was funded by Maxim
which is one of the principal Broadband Shareholders prior to the Share
Exchange. Maxim Financial and its principals own an aggregate of 2,200,000
shares of common stock of which 1,900,000 were received as a result of the Share
Exchange, and 200,000 shares and 100,000 warrants were acquired in the November
2006 offering at the same price and terms as provided to all other investors.
Since July of 2006 and through the closing date, Maxim Financial Corporation has
paid the following expenses on our behalf:





·
            Maxim
      has covered the costs for two employees for purposes of providing
      administrative and accounting services for China Broadband Cayman,





·
            Maxim
      has provided lease space, for 1,000 square feet of office and related
      space at cost, the cost of which will was discharged under the terms of
      the consulting agreement with Maxim, and which space is still occupied by
      us, and




·
            Maxim
      loaned approximately $50,000 to cover legal, travel and other expenses
      relating to the acquisition and related
  transactions.





We have
also entered into a consulting agreement with Maxim effective as of January 24 th , 2007,
pursuant to which, among other things:





·
            Maxim
      agreed to discharge all of China Broadband Cayman’s debt obligations to it
      under the office lease since July of 2006 and to enter into a sublease for
      such space, at cost, rent under which will be waived through December 31,
      2007,





·
            Maxim
      agreed to provide consulting and office related services through December
      31, 2007,




·
            We
      agreed to reimburse Maxim for all past out of pocket, legal, travel and
      other expenses relating to the Acquisition, and





·
            We
      issued to Maxim 3,974,800 warrants, exercisable at $.60 per share, which
      expire on March 24, 2009, and agreed to reimburse Maxim Financial for all
      travel, legal, administrative and related costs relating to our
      acquisition and financial restructuring
  activities.




44




We
believe that the entry into the office lease with Maxim and all transactions
entered into with Maxim were at terms no less favorable to us than as otherwise
available to us in arm’s length transactions with third parties.





Conflicts of Interest





Certain
potential conflicts of interest are inherent in the relationships between our
officers and directors of and us.





Conflicts Relating to Officers and
Directors





A
controlling majority of our shares are owned directly or indirectly by Clive Ng,
our Chairman and President. As such, Mr. Ng will have the ability to control our
business decisions and appointment or removal of all officers and directors. We
have entered into a Settlement Agreement with Mr. Ng and Mr. Pu are certain of
their affiliate entities, the provisions of which can be found under the “Recent
Developments” subsection of “Item 1. Description of Business” above and in our
“Item 11. Management Discussion and Analysis and Plan of Options”
above.





From time
to time, one or more of our affiliates may form or hold an ownership interest in
and/or manage other businesses both related and unrelated to the type of
business that we own and operate. These persons expect to continue to form, hold
an ownership interest in and/or manage additional other businesses which may
compete with ours with respect to operations, including financing and marketing,
management time and services and potential customers. These activities may give
rise to conflicts between or among the interests of ours and our subsidiaries
and Jinan Parent and our and other businesses with which our affiliates are
associated. Our affiliates are in no way prohibited from undertaking such
activities, and neither we nor our shareholders will have any right to require
participation in such other activities.





Further,
because we intend to transact business with some of our officers, directors and
affiliates, as well as with firms in which some of our officers, directors or
affiliates have a material interest, potential conflicts may arise between the
respective interests of the Company and China Broadband and these related
persons or entities. We believe that such transactions will be effected on terms
at least as favorable to us as those available from unrelated third parties.





With
respect to transactions involving real or apparent conflicts of interest, we
have adopted policies and procedures which require that: (i) the fact of the
relationship or interest giving rise to the potential conflict be disclosed or
known to the directors who authorize or approve the transaction prior to such
authorization or approval, (ii) the transaction be approved by a majority of our
disinterested outside directors, and (iii) the transaction be fair and
reasonable to us at the time it is authorized or approved by our directors.





Our Subsidiaries .





As of
January 23, 2007, our only subsidiary is China Broadband, Ltd, a Cayman Islands
company. China Broadband, Ltd., in turn, owns and operates our PRC based
operating company and its subsidiaries. A complete organizational chart of the
Corporation and its divisions can be found above under the “Chinese Holding
Company Structure” subsection of “Item 1. Description of Business,”
above.




45




Item 13. Exhibits.





Exhibit
            
            Description2.1
            
            Share
      Exchange Agreement dated as of January 23, 2007 by and among the Company,
      China Broadband, Ltd. and its shareholders. Incorporated by reference from
      Exhibit 2.1 of our Annual Report on Form 10-KSB for the year ended
      December 31, 2006 (“2006 Annual Report”)).3.1
            
            Articles
      of Incorporation filed as an exhibit to our Current Report on Form 8-K
      filed with the Commission on January 16, 2004 and incorporated herein by
      reference.3.2
            
            Articles
      of Amendment to Articles of Incorporation filed as an exhibit to our
      Quarterly Report on Form 10-QSB filed with the Commission on September 18,
      2006 and incorporated herein by reference.3.3
            
            Articles
      of Amendment to Articles of Incorporation changing name to “China
      Broadband, Inc.” as filed with the State of Nevada as of May 4, 2007.
      (Incorporated by reference from our Definitive Information Statement on
      Schedule 14C filed with the Commission on April 12, 2007).3.4
            
            Bylaws
      filed as an exhibit to Amendment No. 2 to our Registration Statement on
      Form 10 filed with the SEC on April 6, 1992.4.1
            
            Subscription
      Agreement, dated as of January 11, 2008, between China Broadband, Inc.,
      and various subscribers, with respect to private issuance of aggregate of
      $4,971,250 principal amount of 5% Convertible Promissory Notes and
      6,628,333 Class A Warrants. (Incorporated by reference from Current Report
      on Form 8-K, dated January 11, 2008)4.2
            
            Form
      of 5% Convertible Promissory Note issued to investors, convertible at $.75
      per share and payable on January 11, 2013. (Incorporated by reference from
      Current Report on Form 8-K, dated January 11, 2008)4.3
            
            Form
      of 5% Convertible Promissory Note issued to investors, convertible at $.75
      per share and payable on January 11, 2013. (Incorporated by reference from
      Current Report on Form 8-K, dated January 11, 2008)10.1
            
            Form
      of Subscription Agreement by and among the Company and the investors named
      on the signature pages thereto. (Incorporated by reference from the
      Corporation’s Current Report on Form 8-K, dated January 23, 2007).10.2
            
            Form
      of Registration Rights Agreement dated as of January 23, 2007, as amended,
      by and among the Company and the investors named on the signature pages
      thereto. (Incorporated by reference from the Corporation’s Current Report
      on Form 8-K, dated January 23, 2007).10.3
            
            Form
      of 7% Convertible Promissory Note issued by China Broadband, Ltd. and
      assumed by the Company. (Incorporated by reference from the Corporation’s
      Current Report on Form 8-K, dated January 23, 2007).10.4
            
            Form
      of Warrant dated as of January 23, 2007, exercisable at $2.00 per share,
      issued by the Company to investors. (Incorporated by reference from the
      Corporation’s Current Report on Form 8-K, dated January 23, 2007).10.5
            
            Form
      of Consulting Warrant issued to issued by the Company to Maxim Financial
      Corporation, exercisable at $.60 per share. (Incorporated by reference
      from the Corporation’s Current Report on Form 8-K, dated January 23,
      2007).10.6
            
            Cooperation
      Agreement dated as of December 26, 2006 by and between China Broadband,
      Ltd. and Jianan Guangdian Jiahe Digital Television Co., Ltd. (Incorporated
      by reference from the Corporation’s Current Report on Form 8-K, dated
      January 23, 2007).10.7
            
            Employment
      Agreement dated as of January 24, 2007 by and between the Company and
      Clive Ng. (Incorporated by reference from the Corporation’s Current Report
      on Form 8-K, dated January 23, 2007).10.8
            
            Employment
      Agreement dated as of January 24, 2007 by and between the Company and
      Jiang Bing. (Incorporated by reference from the Corporation’s Current
      Report on Form 8-K, dated January 23, 2007).10.9
            
            Employment
      Agreement dated as of January 24, 2007 by and between the Company and Yue
      Pu. (Incorporated by regerence from the Corporation’s Current Report on
      Form 8-K, dated January 23, 2007).




46




10.10
            
            Form
      of Common Stock Purchase Warrant exercisable at $0.60 issued by the
      Company to BCGU, LLC in connection with Share Exchange, incorporated from
      the Corporation’s Current.* (Incorporated by reference from the
      Corporation’s 2006 Annual Report).10.11
            
            Consulting
      Assessment, between the Company and Maxim Financial Corporation, dated
      January 24, 2007. (Incorporated by reference from the Corporation’s
      Current Report on Form 8-k/A dated January 23, 2007, as filed June 4,
      2007).10.12
            
            Exclusive
      Service Agreement dated December 2006. (Incorporated by reference from the
      Corporation’s Current Report on Form 8-K, dated April 1,
      2007).10.13
            
            Settlement
      Agreement dated January 11, 2008, by and among China Broadband, Inc.,
      China Broadband Ltd., Stephen Cherner, Maxim Financial Corporation, Mark
      L. Baum, BCGU, LLC, Mark I. Lev, Wellfleet Partners, Inc., Yue Pu, Clive
      Ng, Chardan Capital Markets, LLC, Jaguar Acquisition Corporation, and
      China Cablecom Holdings, Ltd. (Incorporated by reference from the
      Corporation’s Current Report on Form 8-K, dated January 11, 2008)10.14
            
            Employment
      Agreement Amendment, dated Janaury 11, 2008, amending employment agreement
      of Clive Ng. (Incorporated by reference from the Corporation’s Current
      Report on Form 8-K, dated January 11, 2008)10.15
            
            Employment
      Agreement Amendment, dated Janaury 11, 2008, amending employment agreement
      of Yue Pu. (Incorporated by reference from the Corporation’s Current
      Report on Form 8-K, dated January 11, 2008)10.16
            
            Funds
      Escrow Agreement by and among the Company, Grushko and Mittman, P.C., and
      investors. (Incorporated by reference from the Corporation’s Current
      Report on Form 8-K, dated January 11, 2008)10.17
            
            Form
      of Class A Warrants issued to investors, exercisable at $.60 per share and
      expiring on June 11, 2013. (Incorporated by reference from the
      Corporation’s Current Report on Form 8-K, dated January 11, 2008)10.18
            
            Broker
      Warrant issued to Chardan Capital Markets, LLC, to purchase 1,131,667
      shares of Common Stock, at an exercise price of $.50 per share, expiring
      on June 11, 2013. (Incorporated by reference from the Corporation’s
      Current Report on Form 8-K, dated January 11, 2008)10.19
            
            Cooperation
      Agreement, dated March 7, 2008, by and among Ji’Nan Zhongkuan Dian Guang
      Information Technology Co., Shandong Broadcast & TV Weekly Press and
      Modern Movie & TV Biweekly Press. (Incorporated by reference from the
      Corporation’s Current Report on Form 8-K, dated March 7, 2008)10.20
            
            Employment
      Agreement, dated as of March 13, 2008, between China Broadband, Inc. and
      Marc Urbach. (Incorporated by reference from the Corporation’s Current
      Report on Form 8-K, dated March 7, 2008)31.1
            
            Certification
      by Chief Executive Officer and Principal Executive Officer pursuant to
      Sarbanes Oxley Section 302.*31.2
            
            Certification
      by Chief Financial Officer and Principal Accountant Officer/Principal
      Financial Officer pursuant to Sarbanes Oxley Section
  302.*32.1
            
            Certification
      by Chief Executive Officer and Interim Chief Financial Officer pursuant to
      18 U.S.C. Section 1350.*32.2
            
            Certification
      by Chief Financial Officer and Principal Accountant Officer/Principal
      Financial Officer pursuant to 18 U.S.C. Section 1350.*99.1
            
            China
      Broadband, Inc. 2008 Stock Incentive Plan. (Incorporated by reference from
      the Corporation’s Current Report on Form 8-K, dated March 7,
      2008)





* Filed
herewith.





Item 14. Principal Accountant Fees
and Services.





Appointment of Auditors





Our Board
of Directors selected UHY, LLP as our auditors for the year ended December 31,
2007.




47




Audit Fees





UHY, LLP
Certified Public Accountants, billed us $165,000 in fees for our annual audit
for the year ended December 31, 2007. Change G Park, our previous auditors
billed $6,000.00 for audit fee.





Audit-Related Fees





We did
not pay any fees to UHY, LLP for assurance and related services that are not
reported under Audit Fees above, during our fiscal years ending December 31,
2007 and December 31, 2006.





Tax and All Other Fees





We did
not pay any fees to UHY, LLP Certified Public Accountants, for tax compliance,
tax advice, tax planning or other work during our fiscal years ending December
31, 2007 and December 31, 2006.





Pre-Approval Policies and Procedures





We have
implemented pre-approval policies and procedures related to the provision of
audit and non-audit services. Under these procedures, our board of directors
pre-approves all services to be provided by UHY, LLP Certified Public
Accountants and the estimated fees related to these services.





With
respect to the audit of our financial statements as of December 31, 2007, and
for the year then ended, none of the hours expended on UHY, LLP Certified Public
Accountants, engagement to audit those financial statements were attributed to
work by persons other than UHY, LLP Certified Public Accountants, full-time,
permanent employees.





48




SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned on
February 10, 2009, thereunto duly authorized.


CHINA BROADBAND, INCBy:
            /s/
      Marc UrbachName: Marc UrbachTitle:
      President (Principal Executive Officer)





Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated.





Signatures
            
            Title
            
            Date/s/ Marc Urbach
            
            President
      (Principal Executive Officer)
            
            February
      10, 2009Marc
      Urbach/s/ Yue Pu
            
            Vice
      Chairman of China Broadband, Ltd.
            
            February
      10, 2009Yue
      Pu
            
            and
      China Broadband, Inc., and Principal Accounting Officer and Principal
      Financial Officer and Director/s/ Clive Ng
            
            Chairman,
      Director
            
            February
      10, 2009Clive
      Ng/s/ James
      Cassano
            
            Director
            
            February
      10, 2009James
      Cassano/s/ David Zale
            
            Director
            
            January
      10, 2009David
      ZaleDirector
            
            February
      10, 2009Jonas
      Grossman




49




CHINA BROADBAND,
INC.





INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS




PageReport
      of Independent Registered Public Accounting Firm
            
            F-1Consolidated
      Financial Statements:Balance
      Sheets as of December 31, 2007 and 2006
            
            F-2Statements
      of Operations for the years ended December 31, 2007 and
    2006
            
            F-3Statements
      of Shareholders’ Equity for the years ended December 31, 2007 and
      2006
            
            F-4Statements
      of Cash Flows for the years ended December 31, 2007 and
    2006
            
            F-5Notes
      to Consolidated Financial Statements
            
            F-6-F-17




50




REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM




To the
Board of Directors and Shareholders of China Broadband, Inc.




We have
audited the accompanying consolidated balance sheets of China Broadband, Inc.
and subsidiary (the Company) as of December 31, 2007 and 2006, and the related
consolidated statements of operations and changes in shareholders’ equity and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.




We
conducted our audits in accordance with the auditing standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits include consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal controls over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.




In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of China Broadband, Inc. and
subsidiary as of December 31, 2007 and 2006, and the results of their operations
and their cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.




The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 3 to the
financial statements, in 2007 the Company suffered a significant net loss,
generated negative cash flows from operations and is dependent upon obtaining
additional financing to meet its obligations. These factors raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 3. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.


As
discussed in Note 2, the 2007 financial statements have been restated to give
effect to adjustments related to the recording of deferred
revenue.




/s/UHY
      LLPUHY
      LLPAugust
      19, 2008
              Albany,
      NY




F -
1





CHINA BROADBAND, INC.


CONSOLIDATED BALANCE
SHEETS


December 31, 2007 and
2006


2007
              
              2006(Restated)AssetsCurrent
      assets:Cash
              
              $
              472,670
              
              $
              103,170Accounts
      receivable
              
              
              136,655
              
              
              -Inventory
              
              
              642,313
              
              
              -Prepaid
      expenses
              
              
              14,781
              
              
              -Other
      current assets
              
              
              73,947
              
              
              -Total
      current assets
              
              
              1,340,366
              
              
              103,170Property
      and equipment, net
              
              
              10,333,105
              
              
              -Intangible
      asset and other
              
              
              1,981,307
              
              
              103,652Total
      assets
              
              $
              13,654,778
              
              $
              206,822Liabilities and Shareholders'
      EquityCurrent
      liabilities:Accounts
      payable
              
              $
              835,257
              
              $
              -Accrued
      expenses
              
              
              554,073
              
              
              6,762Convertible
      notes payable
              
              
              -
              
              
              325,000Payable
      to Jinan Parent
              
              
              3,308,443
              
              
              -Deferred
      revenue
              
              
              1,252,313
              
              
              -Other
      current liabilities
              
              
              25,905
              
              
              -Total
      current liabilities
              
              
              5,975,991
              
              
              331,762Deferred
      tax liability
              
              
              366,672
              
              
              -Total
      liabilities
              
              
              6,342,663
              
              
              331,762Minority
      interest in Jinan Broadband
              
              
              4,879,802
              
              
              -Common
      shares to be issued
              
              
              410,053
              
              
              -Commitments
      and contingenciesShareholders'
      equity:Preferred
      stock $.001 par value; 5,000,000 shares authorized,no
      shares issued and outstanding
              
              
              -
              
              
              -Common
      stock $.001 par value; 95,000,000 shares authorized,50,048,000
      and 534,494 issued and outstanding
              
              
              50,048
              
              
              535Additional
      paid-in capital
              
              
              10,485,874
              
              
              6,705,918Accumulated
      deficit
              
              
              (8,845,426
              )
              
              (6,831,393Accumulated
      other comprehensive income
              
              
              331,764
              
              
              -Total
      shareholders' equity
              
              
              2,022,260
              
              
              (124,940
              )Total
      liabilities and shareholders' equity
              
              $
              13,654,778
              
              $
              206,822





See notes
to consolidated financial statements.





F -
2




CHINA BROADBAND,
INC.


CONSOLIDATED STATEMENTS OF
OPERATIONS


Years Ended December 31, 2007 and
2006




2007
              
              2006(Restated)Revenue
              
              $
              2,839,197
              
              $
              -Cost
      of revenue
              
              
              1,657,979
              
              
              -Gross
      profit
              
              
              1,181,218
              
              
              -Selling,
      general and administrative expenses
              
              
              954,382
              
              
              116,073Professional
      Fees
              
              
              628,490
              
              
              52,105Depreciation
              
              
              1,795,501
              
              
              -Loss
      from operations
              
              
              (2,197,155
              )
              
              (168,178
              )Interest
      and other income (expense), net
              
              
              (404,555
              )
              
              (6,762
              )Loss
      before minority interest
              
              
              (2,601,710
              )
              
              (174,940
              )Minority
      interest loss in Jinan Broadband
              
              
              439,722
              
              
              -Loss
      before income taxes
              
              
              (2,161,988
              )
              
              (174,940
              )Income
      tax benefit
              
              
              (147,955
              )
              
              -Net
      loss
              
              $
              (2,014,033
              )
              $
              (174,940
              )Net
      loss per share:Basic
              
              $
              (0.04
              )
              $
              (0.30
              )Diluted
              
              $
              (0.04
              )
              $
              (0.30
              )Weighted
      average shares outstandingBasic
              
              
              46,504,812
              
              
              584,494Diluted
              
              
              46,504,812
              
              
              584,494




See notes
to consolidated financial statements.





F -
3





CHINA BROADBAND,
INC.


CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS’ EQUITY


Years Ended December 31, 2007 and
2006


Additional
              
              OtherCommon
              
              Par
              
              Paid-in
              
              Accumulated
              
              Comprehensive
              
              ComprehensiveShares
              
              Value
              
              Capital
              
              Deficit
              
              Income
      (loss)
              
              Income
      (loss)
              
              Total(Restated)
              
              (Restated)
              
              (Restated)
              
              (Restated)Balance
      December 31, 2005
              
              
              534,494
              
              $
              535
              
              $
              6,705,918
              
              $
              (6,706,453
              )
              $
              -
              
              $
              -
              
              $
              -Subsidiary
      shares issued for services
              
              
              
              
              
              
              
              
              
              
              
              50,000
              
              
              
              
              
              
              
              
              50,000Net
      loss
              
              
              
              
              
              
              
              
              
              
              
              (174,940
              )
              
              
              
              
              
              
              
              (174,940
              )Balance
      December 31, 2006
              
              
              534,494
              
              
              535
              
              
              6,705,918
              
              
              (6,831,393
              )
              
              -
              
              
              -
              
              
              (124,940
              )Shares
      issued for services
              
              
              2,300,000
              
              
              2,300
              
              
              26,321
              
              
              
              
              
              
              
              
              
              
              
              28,621Shares
      issued for share exchange
              
              
              37,865,506
              
              
              37,865
              
              
              (37,865
              )
              
              
              
              
              
              
              
              
              
              
              -Shares
      issued upon conversion of Convertible Promissory
Notes
              
              
              1,348,000
              
              
              1,348
              
              
              227,200
              
              
              
              
              
              
              
              
              
              
              
              228,548Shares
      issued in private placement offering
              
              
              8,000,000
              
              
              8,000
              
              
              3,992,000
              
              
              
              
              
              
              
              
              
              
              
              4,000,000Debt
      issuance cost associated with private placement offering and conversion of
      Convertible Promissory Notes
              
              
              
              
              
              
              
              
              (427,700
              )
              
              
              
              
              
              
              
              
              
              
              (427,700
              )Net
      loss
              
              
              
              
              
              
              
              
              
              
              
              (2,014,033
              )
              
              
              
              
              (2,014,033
              )
              
              (2,014,033
              )Translation
      adjustment
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              331,764
              
              
              331,764
              
              
              331,764Comprehensive
      loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              (1,682,269
              )Balance
      December 31, 2007
              
              
              50,048,000
              
              $
              50,048
              
              $
              10,485,874
              
              $
              (8,845,426
              )
              $
              331,764
              
              
              
              
              $
              2,022,260




See notes
to consolidated financial statements.




F -
4




CHINA BROADBAND,
INC.


CONSOLIDATED STATEMENTS OF CASH
FLOWS


Years Ended December 31, 2007 and
2006


2007
              
              2006(Restated)Cash
      flows from operating activities:Net
      loss
              
              $
              (2,014,033
              )
              $
              (174,940
              )Adjustments
      to reconcile net loss to netcash
      provided by operating activities:Stock
      compensation expense
              
              
              438,674
              
              
              50,000Depreciation
      and amortization
              
              
              1,795,501
              
              
              -Deferred
      income tax (benefit)
              
              
              (147,954
              )
              
              -Change
      in assets and liabilities, net ofeffects
      of Jinan Broadband acquisition:Accounts
      receivable
              
              
              442,640
              
              
              -Inventory
              
              
              667,357
              
              
              -Prepaid
      expenses and other assets
              
              
              (88,728
              )
              
              -Accounts
      payable and accrued expenses
              
              
              247,454
              
              
              6,763Deferred
      revenue
              
              
              230,889
              
              
              -Other
              
              
              (442,306
              )
              
              -Net
      cash provided by (used in) operating activities
              
              
              1,129,494
              
              
              (118,177
              )Cash
      flows from investing activities:Acquisition
      of property and equipment
              
              
              (2,443,055
              )
              
              -Net
      cash used in investing activities
              
              
              (2,443,055
              )
              
              -Cash
      flows from financing activities:Proceeds
      from convertible notes payable
              
              
              -
              
              
              325,000Proceeds
      from private placement offering
              
              
              4,000,000
              
              
              -Issuance
      costs associated with privateplacement
      and convertible notes
              
              
              (420,500
              )
              
              -Payable
      to Jinan Parent
              
              
              (2,228,203
              )
              
              (103,653
              )Net
      cash provided by financing activities
              
              
              1,351,297
              
              
              221,347Effect
      of exchange rates changes on cash
              
              
              331,764
              
              
              -Net
      increase in cash
              
              
              369,500
              
              
              103,170Cash
      at beginning of period
              
              
              103,170
              
              
              -Cash
      at end of period
              
              $
              472,670
              
              $
              103,170Supplemental
      Cash Flow Information:Cash
      paid for interest
              
              $
              10,490
              
              $
              -Notes
      payable converted to common stock
              
              $
              325,000
              
              $
              -Ordinary
      shares issued in exchange for formationcosts
      by founding shareholders
              
              $
              -
              
              $
              50,000Acquisition
      of Jinan Broadband:Fair
      value of assets acquired
              
              $
              11,497,317
              
              $
              -Liabilities
      assumed
              
              $
              2,186,360
              
              $
              -Consideration
      paid:Cash
      paid
              
              $
              2,572,125
              
              $
              -Cash
      amount owed
              
              $
              3,200,000
              
              $
              -Minority
      interest
              
              $
              5,319,524
              
              $
              -


See notes
to consolidated financial statements.





F -
5




CHINA BROADBAND, INC. AND
SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


1.
              Organization, Description of
      Business and Basis of
Presentation




General





China
Broadband, Inc., a Nevada corporation, was formed on October 22, 2004 pursuant
to a reorganization of a California entity formed in 1988. We acquired China
Broadband, Ltd., a Cayman Islands company (“China Broadband Cayman”) which had
existing PRC based operations in the cable broadband internet business on
January 23, 2007, and effective May 24, 2007 changed our name from Alpha Nutra,
Inc. to China Broadband, Inc.





We own
and operate, through our indirect subsidiary in the PRC, a cable broadband
business based in the Jinan region of China. In early 2008, we executed
definitive agreements to acquire and have tendered our initial required payments
for, a newspaper and periodical television programming guide business in the
Shandong region of China (See Note 11).




The
Company was organized in 1988 under the name “TJB Enterprises, Inc.” as a blind
pool/blank check company formed for the purpose of seeking a merger with a
private operating company. We operated various businesses and underwent various
reorganizations and bankruptcy from inception through June of 2005. From July 1,
2005 we operated as a blank check company under the name Alpha Nutra, Inc. in
search of a business acquisition.





Share Exchange





Acquisition of China Broadband
Cayman





On
January 23, 2007, pursuant to the terms of the Share Exchange Agreement, we
acquired 100% of the outstanding capital stock of China Broadband Cayman from
it’s four shareholders in exchange for 37,865,506 shares of common stock,
appointed new management and assumed the obligations of China Broadband Cayman
under $325,000 principal amount of 7% Convertible Promissory Notes, which were
convertible into 1,300,000 shares of our common stock, as well as other related
obligations. At the time of this transaction, China Broadband Cayman was a party
to a Cooperation Agreement to acquire our existing business, a Jinan based cable
internet provider. (See “Acquisition of Jinan Broadband” in this section,
below)





Simultaneously
with the closing of our acquisition of China Broadband Cayman, we consummated a
financing of $4,000,000 of Units consisting of an aggregate of 8,000,000 shares
of common stock and 4,000,000 warrants to purchase common stock.





Effective
as of the closing date of the Share Exchange on January 23, 2007, new members of
management were appointed to the Board and as executive officers, and our then
existing officers and directors, Mark L. Baum and James B. Panther, II, resigned
from all officer and director positions with the Company.


The
material terms of the Share Exchange Agreement with China Broadband Cayman and
its shareholders are:





·
            We
      acquired all of the shares of China Broadband Cayman from its four
      shareholders (the “Broadband Shareholders”) in exchange for 37,865,506
      shares of our common stock, resulting in China Broadband Cayman becoming
      our wholly owned subsidiary and its Broadband Shareholders owning over 78%
      of our common stock,





·
            We
      funded, with the proceeds of our simultaneous equity offering, the first
      of two payments of the acquisition of the 51% interest in Jinan Broadband
      of approximately $2,572,125 including expenses, the second payment of
      which was made in March 2008,





·
            We
      ssumed liabilities of China Broadband Cayman under the $325,000 principal
      amount of 7% Convertible Promissory Notes, which were convertible at $.25
      per share of our common stock for an aggregate of 1,300,000 shares and to
      pay interest thereon, all of which have since been converted as of
      February 28, 2007, with interest paid in cash through such
      date,





·
            We
      assumed certain obligations of China Broadband Cayman to issue, and have
      so issued, 48,000 shares to WestPark Capital, Inc., which acted as
      placement agent for China Broadband Cayman in connection with placement
      agent services rendered by it relating to the sale of its 7% Convertible
      Promissory Notes, in 2006,





·
            We
      agreed to assume obligations of China Broadband Cayman under its
      registration rights agreement, to register all shares issued upon
      conversion of the 7% Convertible Promissory Notes and the 48,000
      shares issued to WestPark Capital, Inc. As these shares were not
      registered, we were required to issue 170,855 shares as a penalty to said
      shareholders and recorded an expense of $410,053 related to this issuance
      during 2007. These shares are classified as Common shares to be issued on
      the accompanying Balance Sheet and were issued in March
    2008.




F -
6




·
            We
      issued 500,000 warrants to BCGU, LLC, an entity beneficially owned by Mark
      L. Baum, our outgoing director, executive officer and former principal
      shareholder, as consideration for professional and related services
      rendered, which warrants are exercisable at $.60 and expire on March 24,
      2009 (which has been extended after December 31, 2007),




·
            We
      agreed to a “leak out” agreement with respect to the Exchange Shares and
      with respect to shares held beneficially by Mr. Baum, our outgoing
      executive officer and director and the four Broadband Shareholders, which
      leak out agreement has since been terminated so as to facilitate our
      convertible debt financing in January 2008,





·
            We
      issued 3,974,800 warrants exercisable at $.60 per share with an expiration
      date of March 24, 2009 (which has been extended after December 31, 2007)
      to Maxim Financial Corporation as a consulting fee and in exchange for
      funding operating and other business activities of China Broadband Cayman
      prior to the Share Exchange and in exchange for entering into a pass
      through lease with us and waiving past and future rent through December
      2007 under such lease,





·
            We
      entered into employment agreements with certain new members of management
      in connection with our operations in China, which employment agreements
      have since been modified.




Simultaneous Closing of Equity
Financing





Simultaneously
with the closing of our acquisition of China Broadband Cayman, and as a
necessary condition thereto in order to fund our first payment for the
acquisition of the broadband business in China, we conducted the first closing
of our private offering pursuant to which we entered into subscription
agreements with investors for the sale of 6,000,000 shares of common stock and
3,000,000 Redeemable Common Stock Purchase Warrants, exercisable at $2.00 per
share (the “Investor Warrants”). This offering was conducted through WestPark
Capital, Inc. as placement agent, on a “best efforts, $3,000,000 minimum,
$4,000,000 maximum” basis. During the six months ended June 30, 2007 we raised
an additional $1,000,000 such that we sold the aggregate maximum of $4,000,000
in this offering consisting of an aggregate of 8,000,000 shares and 4,000,000
warrants to accredited investors. Placement fees and expenses paid during the
year ended December 31, 2007 in connection with the offering were approximately
$420,500.





We used
$2,572,125 of the proceeds of this offering from the first closing to pay the
first installment plus expenses of our acquisition of a 51% interest in the
China based broadband cable internet business spun off by Jinan Parent. This
business acquisition is our only operating business as of December 31, 2007. We
granted the investors registration rights in connection with this offering and
compensated WestPark Capital, Inc., our placement agent, with a placement agent
fee consisting of $320,000 plus expenses, and issued to them 640,000 warrants to
purchase common stock at $.60 per share.





Acquisition of Jinan
Broadband





At the
time of the closing of the Share Exchange Agreement, China Broadband Cayman was
a party to a Cooperation Agreement (the “Cooperation Agreement”) with Jian
Guangdian Jiahe Digital Television Co., Ltd. (“Jinan Parent”) to acquire a 51%
controlling interest in an operating broadband cable internet company based in
the City of Jinan in the Shandong Region of China, sometimes referred to herein
as “Jinan Broadband.” The Cooperation Agreement provides that the operating
business’ operations and pre-tax revenues would be assigned to our Jinan
Broadband subsidiary for 20 years, effectively providing for an acquisition of
the business. We paid $2,550,000 from proceeds of the first closing of our
private offering in January 2007 for payment to Jinan Parent in exchange for
ownership by our China based Wholly Foreign Owned Entity (“WFOE”) of 51%
interest in Jinan Broadband and entry into the Exclusive Cooperation Agreement
and an Exclusive Service Agreement. This acquisition was completed in late March
of 2007 with an effective transfer of assets date of April 1, 2007, even though
we commenced certain operations of this entity prior to such time. In
consideration for this 20 year business and management rights we paid
approximately $2,572,000, including expenses, in March 2007 and were required to
pay an additional approximate 23 million RMB. This payment was made in March
2008 in the amount of $3.2 million.





In
addition, we entered into various agreements that relate to our revenue sharing
obligations and management rights of this business. Moreover, Jinan Broadband
entered into an Exclusive Service Agreement with Jinan Radio & Television
Network, the only cable TV operator in Jinan, the capital city of Shandong, and
Jinan Parent. Pursuant to the Exclusive Service Agreement, the parties will
cooperate and provide each other with technical services related to their
respective broadband, cable and internet content-based businesses with the
payment of service fees to each other. This business is our only operating
business since April of 2007.




In
addition, we entered into various agreements that relate to our revenue sharing
obligations and management rights of this business. Moreover, Jinan Broadband
entered into an Exclusive Service Agreement with Jinan Radio & Television
Network, the only cable TV operator in Jinan, the capital city of Shandong, and
Jinan Parent. Pursuant to the Exclusive Service Agreement, the parties will
cooperate and provide each other with technical services related to their
respective broadband, cable and internet content-based businesses with the
payment of service fees to each other. This business is our only operating
business since April, 2007.


The
general business terms of this acquisition are, in relevant part, as follows:




·
            We
      received a business license from the local Industry and Commerce Bureau,
      that enabled us to complete the acquisition and operate the business of
      Jinan Broadband,




F -
7




·
            Our
      WFOE, which is wholly owned by our China Broadband Cayman subsidiary, owns
      the 51% interest in Jinan Broadband with the seller of this business,
      Jinan Parent, owning the remaining 49% and maintaining certain control
      under the Exclusive Cooperation Agreement,




·
            Jinan
      Parent, Jinan Broadband and Jinan Radio and Television Networks Center,
      entered into the Cooperation Agreement providing for the management terms
      and rights and revenue sharing rights between us and Jinan
      Parent,




·
            Jinan
      Broadband entered into an Exclusive Service Agreement with Jinan Radio and
      Television Network and Jinan Parent pursuant to which the parties will
      cooperate and provide each other with technical services related to their
      respective broadband, cable and Internet content-based businesses with the
      payment of service fees to each
  other.




Pursuant
to the acquisition agreement, the fair value of Jinan Broadband was determined
on the effective date of April 1, 2007 to be approximately $10.9 million
(approximately 83.9 million RMB based on exchange rates at the time). Jinan
Parent contributed its operating assets to Jinan Broadband and we contributed
our 51% ownership interest of the approximate $10.9 million (83.9 million RMB)
equity value or approximately $5.5 million (approximately 42.8 million RMB based
on exchange rates at the time). The total value of the net assets contributed by
Jinan Parent totaled approximately $9.3 million resulting in a long term
intangible asset of approximately $1.5 million.





The
following table provides the details of the net assets contributed by Jinan
Parent and the calculation of the pre-tax intangible asset.





Total
      contribution, as per the Cooperation Agreement
            
            $
            10,856,000Fair
      value of net assets contributed by Jinan Parent:Accounts
      receivable
            
            
            579,000Inventory
            
            
            1,310,000Property,
      plant and equipment, net
            
            
            9,610,000Accounts
      payable and accrued expenses
            
            
            (1,165,000
            )Deferred
      revenue
            
            
            (1,021,000
            )Fair
      Value of net assets contributed
            
            
            9,313,000Excess
      of contribution over fair value of net assets
            
            $
            1,543,000





As of
December 31, 2007, we contributed approximately $2.6 million (19.8 million RMB
based on exchange rates at the time) to Jinan Broadband. We were required to
make a second payment of approximately $3.2 million (approximately 23 million
RMB based on current exchange rates) by January 2008. We made the second and
last payment for Jinan Broadband in March of 2008 and incurred no penalty for
making this payment in March.





On the
effective date Jinan Parent maintained approximately $2.6 million (19.8 million
RMB based on exchange rates at the time) contributed by us resulting in a
payable of approximately $5.5 million (42.8 million RMB based on exchange rates
at the time) due to Jinan Parent. During the year ended December 31, 2007, Jinan
Broadband paid approximately $2.8 million (approximately 18.6 million RMB based
on exchange rates at the times) to Jinan Parent resulting in a net payable due
Jinan Parent of approximately $3.3 million (approximately 24.2 million RMB) as
of December 31, 2007.




Restrictions on Dividends from PRC
Subsidiaries





We have
not declared or paid dividends to our stockholders during this or our two most
recently completed fiscal years. All of our operating assets and businesses are
incorporated under the laws of the PRC and do business in the PRC. Under the
laws governing foreign invested enterprises in the PRC, dividend distribution
and liquidation are only allowed subject to special procedures under the
relevant laws and rules which require PRC regulatory approval. In addition,
Chinese legal restrictions permit payment of dividends only out of net income as
determined in accordance with Chinese accounting standards and regulations.
Additionally, any debt instruments of the Company’s PRC based subsidiaries may
further restrict the ability to pay dividends or make other distributions to the
Company, which in turn would limit our ability to pay dividends on our common
stock.  Accordingly, even if we are profitable as a result of our PRC based
assets, operations and subsidiaries, PRC regulations prevent the payment by
these PRC entities of dividends absent compliance with certain rules and
obtaining appropriate government consents, which we believe will not happen in
the near future, if ever. Additionally, if dividends are declared and able to be
paid, we intend to retain any future earnings to finance the expansion of our
business and any necessary capital expenditures, and for general corporate
purposes.




Basis of
Presentation





China
Broadband, Inc. and its subsidiaries (“China Broadband, Inc.”, “we,” “us,” or
“the Company”) operate in a single segment. The principal activities of the
Company are to provide cable and wireless broadband services, principally
internet services, Internet Protocol Point wholesale services, related network
equipment rental and sales, and fiber network construction and maintenance.




The
transactions relating to our acquisition of China Broadband Cayman (and its PRC
based subsidiary) has been accounted for as a reverse acquisition of Alpha
Nutra, Inc. with China Broadband Cayman as the accounting acquirer, with no
adjustment to the historical basis of the assets and liabilities of China
Broadband Cayman, and the operations were consolidated as though the
transactions occurred as of the beginning of the first accounting period
presented in the accompanying consolidated financial statements.


2.
              Summary of Significant
      Accounting Policies





a)
            Principles
      of Consolidation





The
consolidated financial statements include the accounts of the China Broadband,
Inc. and its wholly-owned subsidiary, China Broadband Cayman, and its PRC based
subsidiary(i.e. our WOFE) which owns Jinan Broadband. All material intercompany
transactions and balances are eliminated in consolidation.





b)
            Accounting
      Method





The
Company's policy is to use the accrual method of accounting to prepare and
present financial statements, which conform to generally accepted accounting
principles in the United States.





c)
            Estimates





The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.




F - 8





d)
            Accounts
      Receivable




Accounts
receivable are recorded at the invoiced amount after deduction of trade
discounts, business tax and allowance. The Company considers accounts receivable
to be fully collectible; accordingly, no allowance for doubtful accounts has
been established. If
accounts become uncollectible, they will be charged to statements of operations
when that determination is made. Collections on accounts previously written off,
if any, are included in other income as received.





e)
            Inventory





Inventories,
consisting of cables, fiber, connecting material, power supplies and spare parts
are stated at the lower of cost or market value. Cost is determined using the
first-in, first-out (FIFO) method. Inventory of $642,313 and $0 as of December
31, 2007 and 2006, respectively, consisted of raw material, parts and
accessories.




f)
            Property
      and Equipment





Property
and equipment are stated at cost less accumulated depreciation. Expenditures for
major renewals and betterments, which extend the original estimated economic
useful lives or applicable assets, are capitalized. Expenditures for normal
repairs and maintenance are charged to expense as incurred. The costs and
related accumulated depreciation of assets sold or retired are removed from the
accounts, any gain or loss thereon is reflected in operations.





Depreciation
is provided for on the straight line basis over the estimated useful lives of
the respective assets over a period of five years. Depreciation expense amounted
to $1,718,307 and $0, during the years ended December 31, 2007 and 2006,
respectively.





g)
            Impairment
      of Long-Lived Assets





Long-lived
assets, including property and equipment, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of 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 asset. If the carrying amount
of an asset exceeds its estimated 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.





Assets to
be disposed of are separately presented in the balance sheet and reported at the
lower of the carrying amount or fair value less costs to sell, and are no longer
depreciated. The assets and liabilities of a disposed group classified as held
for sale are presented separately in the appropriate asset and liability
sections of the balance sheet.





h)
            Intangible
      Asset





In July
2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 142,
“Goodwill and Other Intangible Assets” (“SFAS No. 142”). SFAS No. 142 requires
that goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead be tested for impairment at least annually. This
pronouncement also requires that intangible assets with estimable useful lives
be amortized over their respective estimated useful lives and reviewed for
impairment in accordance with SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets.”





In
accordance with SFAS No. 142, goodwill is allocated to reporting units, which
are either the operating segment or one reporting level below the operating
segment. We have determined that our reporting unit for purposes of applying the
provisions of SFAS No. 142 is our operating subsidiary Jinan Broadband.





On an
annual basis, we test goodwill and other indefinite life intangible assets for
impairment. To determine the fair value of these intangible assets, there are
many assumptions and estimates used that directly impact the results of the
testing. In making these assumptions and estimates, we will use set criteria
that are reviewed and approved by various levels of management, and we will
estimate the fair value of our reporting units by using discounted cash flow
analyses.





As of
December 31, 2007 we had no goodwill and our only intangible asset relates to
the fair value of the service agreement from our Jinan Broadband subsidiary
acquisition. In accordance with SFAS No. 142, the Company is amortizing this
service agreement over the 20 year term of this agreement, resulting in a
recorded amortization expense of $77,194 during the year ended December 31,
2007.





The
following table outlines the amortization expense for the next five years and
thereafter:





2008
            
            $
            102,9252009
            
            
            102,9252010
            
            
            102,9252011
            
            
            102,9252012
            
            
            102,925Thereafter
            
            
            1,466,682Total
            
            $
            1,981,307





F - 9




i)
            Income
      Taxes





In June
2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income
Taxes - an Interpretation of FASB Statement No. 109 (FIN
48). FIN 48 is intended to clarify the accounting for uncertainty in income
taxes recognized in a company’s financial statements and prescribes the
recognition and measurement of a tax position taken or expected to be taken in a
tax return. FIN 48 also provides guidance on de-recognition, classification,
interest and penalties, accounting in interim periods, disclosure and
transition.





Under FIN
48, evaluation of a tax position is a two-step process. The first step is to
determine whether it is more-likely-than-not that a tax position will be
sustained upon examination, including the resolution of any related appeals or
litigation based on the technical merits of that position. The second step is to
measure a tax position that meets the more-likely-than-not threshold to
determine the amount of benefit to be recognized in the financial statements. A
tax position is measured at the largest amount of benefit that is greater than
50% likely of being realized upon ultimate settlement.





Tax
positions that previously failed to meet the more-likely-than-not recognition
threshold should be recognized in the first subsequent period in which the
threshold is met. Previously recognized tax positions that no longer meet the
more-likely-than-not criteria should be de-recognized in the first subsequent
financial reporting period in which the threshold is no longer met.





The
adoption of FIN 48 during the year ended December 31, 2007 did not have a
material effect on the Company’s financial position





The
Company is subject to a 5% business tax on the business income of our Jinan
Broadband subsidiary.





Deferred
taxes are recognized for the future tax consequences attributable to temporary
differences between the carrying amounts of assets and liabilities for financial
statement purposes and income tax purposes using enacted rates expected to be in
effect when such amounts are realized or settled. The effect on deferred taxes
of a change in tax rates is recognized in income in the period that includes the
enactment date.





j)
            Revenue
      Recognition





Revenue
is recorded as services are provided to customers. The Company generally
recognizes all revenues in the period in which the service is rendered, provided
that persuasive evidence of an arrangement exists, delivery has occurred, the
sales price is fixed or determinable, and collection is reasonably assured. The
Company records deferred revenue for payments received from customers for the
performance of future services and recognizes the associated revenue in the
period that the services are performed. Provision for discounts and rebates to
customers and other adjustments, if any, are provided for in the same period the
related sales are recorded.





k)
            Net
      Loss Per Share





Basic and
diluted net loss per share have been computed by dividing the net loss by the
weighted average number of common shares outstanding. The assumed exercise of
dilutive warrants, less the number of treasury shares assumed to be purchased
from the proceeds of such exercises using the average market price of the
Company’s common stock during each respective period, have been excluded from
the calculation of diluted net loss per share as their effect would be
antidilutive.





l)
            Foreign
      Currency Translation





The
Company’s Jinan Broadband subsidiary located in China uses its local currency
(RMB) as its functional currency. Translation adjustments are reported as other
comprehensive income or expenses and accumulated as other comprehensive income
in the equity section of the balance sheet. The financial information is
translated into U.S. Dollars at prevailing or current rates respectively, except
for revenue and expenses which are translated at average current rates during
the reporting period.





Exchange
gains and losses resulting from accumulated losses are reported as a separate
component of stockholders’ equity and are included in Comprehensive Loss. The
currency translation adjustment increased equity by $298,684 for the period
ended December 31, 2007.





m)
            Concentrations
      of Credit Risk





Financial
instruments that potentially subject the Company to concentrations of credit
risk consist principally of accounts receivable.





The
Company generally requires advance payments on the provision of internet
services. Other concentrations of credit risk are limited due to the large
customer base in Jinan, a sub-provincial city of Shandong province in the
People’s Republic of China.




F - 10





n)
            Fair
      value of Financial Instruments





The fair
values of accounts receivable, prepaid expenses and accounts payable and
accrued expenses are estimated to approximate the carrying values at December
31, 2007 due to the short maturities of such instruments.





o)
            Reclassifications





Certain
prior year amounts have been reclassified to conform to the manner of
presentation in the current year.


p)
              Restatement
 During
2008, the Company discovered an error in the recognition of revenues relating to
prepaid internet service contracts. Additionally, the Company discovered that it
assumed additional obligations relating to prepaid service contracts in the
acquisition of Jinan Broadband. Prior to the discovery, revenue from internet
service contracts was recorded in the period received. The Company has restated
it financial statements to:
  ·
                Recognize
      deferred revenue assumed in the Jinan Broadband acquisition as of April 1,
      2007,
 ·
                Recognize
      revenue under internet service contracts during the period that service is
      provided,
 ·
                Recognize
      additional purchase price due to the deferred revenue assumed in the Jinan
      acquisition, and
 ·
                Recognize
      additional amortization expense related to the Service Agreement,
      allocation to minority interest and income tax effect of the revenue and
      amortization adjustments.
 The
effect of the restatement is as follows:
  Balance sheet
      amounts
                  
                  As
      Previously
                    Reported
                  
                  Adjustments
                  
                  As
      RestatedIntangible
      assets
                  
                  $
                  670,478
                  
                  $
                  1,310,829
                  
                  $
                  1,981,307Total
      assets
                  
                  $
                  12,343,949
                  
                  $
                  1,310,829
                  
                  $
                  13,654,778Total
      current liabilities
                  
                  $
                  4,723,678
                  
                  $
                  1,252,313
                  
                  $
                  5,975,991Deferred
      tax liability
                  
                  $
                  124,082
                  
                  $
                  242,590
                  
                  $
                  366,672Minority
      interest in Jinan Broadband
                  
                  $
                  4,960,601
                  
                  $
                  (80,799
                  )
                  $
                  4,879,802Accumulated
      deficit
                  
                  $
                  8,808,146
                  
                  $
                  37,280
                  
                  $
                  8,845,426Statement of operations
      amountsRevenue
                  
                  $
                  3,004,092
                  
                  $
                  (164,895
                  )
                  $
                  2,839,197Depreciation
      and amortization
                  
                  $
                  1,718,307
                  
                  $
                  77,194
                  
                  $
                  1,795,501Minority
      interest loss in Jinan Broadband
                  
                  $
                  358,923
                  
                  $
                  80,799
                  
                  $
                  439,722Income
      tax benefit
                  
                  $
                  50,068
                  
                  $
                  97,887
                  
                  $
                  147,955Net
      loss
                  
                  $
                  1,976,753
                  
                  $
                  37,280
                  
                  $
                  2,014,033


3.
              Going
      Concern





The
accompanying financial statements are presented on a going concern basis. The
Company generated a net loss of $2,014,033 during the year ended December 31,
2007. This condition raises substantial doubt about the Company’s ability to
continue as a going concern. The Company's continuation as a going concern is
dependent on its ability to meet its obligations, to obtain additional financing
as may be required and ultimately to attain profitability. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.





Management
plans to raise additional funds through debt or equity offerings or to seek
merger opportunities with other companies. Management has yet to decide what
type of offering the Company will use, how much capital the Company will raise
or which companies it may seek merger opportunities with. There is no guarantee
that the Company will be able to raise any capital through any type of offerings
or merge with any other company.


4.
              Property and
      Equipment





Property
and equipment at December 31, 2007 and 2006 consist of the
following:


2007
              
              2006Furniture,
      fixtures and electrical appliances
              
              $
              631,774
              
              $
              -Headend
      facilities and fiber infrastructure
              
              
              11,479,029
              
              
              -12,110,803
              
              
              -Less
      accumulated depreciation
              
              
              (1,777,698
              )
              
              -$
              10,333,105
              
              $
              -


Depreciation
expense amounted to $1,718,307, and $0, for the years ended December 31, 2007
and 2006, respectively.


5.
              Accrued
      Expenses





Accrued
expenses at December 31, 2007 and 2006 consist of the following:


2007
              
              2006Accrued
      expenses
              
              $
              253,713
              
              $
              6,762Accrued
      payroll
              
              
              300,360
              
              
              -$
              554,073
              
              $
              6,762


6.
              Accumulated Other Comprehensive
      Income




Accumulated
other comprehensive income at December 31, 2007 and 2006 amounted to $331,764
and $0, respectively. This amount consisted of the currency translation
adjustment from the Renminbi to the US dollar.


7.
              Warrants





In
connection with the Company’s Share Exchange and capital raising efforts the
Company has issued the Investor Warrants to investors and service providers to
purchase shares of the Company at a fixed exercise price and for a specified
period of time. The following table outlines the Investor Warrants outstanding
as of December 31, 2007:





Number
ofWarrants
            
            Exercise
            
            ExpirationName
            
            Issued
            
            Price
            
            DateMaxim
      Financial Corporation
            
            
            3,974,800
            
            $
            0.60
            
            
            3/24/2009WestPark
      Capital, Inc.
            
            
            640,000
            
            $
            0.60
            
            
            3/24/2009BCGU
      LLC
            
            
            500,000
            
            $
            0.60
            
            
            3/24/2009Other
      Investors
            
            
            4,000,000
            
            $
            2.00
            
            
            3/24/20099,114,800





On
January 11, 2008, as part of the Settlement Agreement described below, the
Company agreed to extend the expiration date of all warrants until June 11,
2013, pending receipt of certain releases from these investors.




F - 11


8.
              Income Taxes





The
Company’s current management does not believe that China Broadband, Inc. has
filed United States corporate income tax returns for several years prior to the
January 23, 2007 merger transaction and accompanying change in management.
Management is investigating and intends to file appropriate tax returns to bring
the Company into compliance. Management believes that because of the lack of
taxable income there will be no material penalties resulting from any previous
non-compliance.





Management
believes that it has $6,706,453 of pre-exchange transaction net operating loss
carryovers that expire in various years through 2025. It is reasonably possible,
that in the course of bringing the Company’s U.S. income tax filings up to date,
a different net operating loss carryover will be determined. Furthermore, the
future use of any pre-exchange transaction net operating loss carryovers will be
significantly limited under section 382 of the internal revenue code because of
the change of control in January 2007 as well as by previous changes in the
control of the Corporate entity. The extent of these limitations has not yet
been determined.





During
the year ended December 31, 2007 the Company generated an additional U.S. net
operating loss carryover of $1,023,487 which expires in 2027. Jinan Broadband
has generated a Chinese net operating loss carryover of $732,498 (of which the
Company’s 51% share is $373,574) which expires in 2012. The estimation of the
income tax effect of any future repatriation of the Company’s 51% share of Jinan
Broadband’s profits is not practicable. This is because it may involve
additional Chinese taxation the distributions, or sale proceeds, to the extent
that they are in excess of the investments made, but with credits for some or
all of the Chinese taxes against U.S. taxes, plus the utilization of operating
losses of the WFOE. All of the foregoing would be subject to various
tax-planning strategies.





China
Broadband Ltd. is not subject to Cayman Islands taxation.





The
Company has not recognized deferred tax assets relating to the excess of its
income tax bases in its non-U.S. subsidiaries over their financial statement
carrying value because the Company expects to hold the investments and reinvest
future earnings indefinitely. Such excess tax basis is approximately $741,000 at
December 31, 2007.





The
Company’s income tax benefit for the year ended December 31, 2007 consisted
entirely of foreign deferred taxes arising from an operating loss
carryforward.





The
Company’s deferred tax assets and liabilities at December 31, 2007 consisted
of:





2007Deferred
      tax assets:U.S.
      NOL - pre-stock exchange transaction
            
            $
            2,280,194U.S.
      NOL - subsequent to stock exchange transaction
            
            
            347,986Foreign
      NOL
            
            
            93,393Accrued
      payroll
            
            
            72,098Total
      deferred tax assets
            
            
            2,793,671Less:
      valuation allowance
            
            
            (2,750,133
            )Deferred
      tax liability - intangible assets
            
            
            (410,210
            )Net
      deferred tax liability
            
            $
            (366,672
            )




F - 12




The
deferred tax valuation allowance increased $2,750,133 during the year ended
December 31, 2007. $2,280,194 of this amount was acquired in the stock exchange
transaction and the remaining $469,939 by the companies operations.





The
Company had no deferred tax assets or liabilities at December 31,
2006.





A
reconciliation of the expected income tax derived by the application of the 34%
U.S. corporate income tax rate to the Company’s loss before income tax benefit
is as follows:





2007Net
      loss before income taxes
            
            $
            (2,161,988
            )Expected
      income tax benefit at 34%
            
            
            (735,076
            )Nondeductible
      expenses
            
            
            43,662Rate-differential
      on foreign income invested indefintiely
            
            
            110,848WFOE
      NOL not recognized for indefinite reversal
            
            
            14,601Increase
      in valuation allowance
            
            
            418,010Income
      tax benefit recognized
            
            $
            (147,955
            )


9.
              Commitments and Contingencies





Leases





The
Company pays approximately $55,000 (400,000 RMB) annually for rent at its
facilities in Jinan, China, renewable on an annual basis.





The
company utilizes approximately 1,000 square feet of space from Maxim Financial
Corporation for its corporate headquarters for a monthly rental fee of $2,000.
Maxim Financial Corporation provided consulting services to the Company during
the years ended December 31, 2007 and 2006 and has agreed to discharge all
rental costs under the terms of its consulting agreement with the Company
through December 2007. In addition, Maxim Financial Corporation has agreed to
defer all monthly rental payments beginning January 2008 until the Company’s
next capital raise subsequent to January 2008.





Litigation





The
Company is not a party to any legal proceedings.


10.
              Recent Accounting
      Pronouncements




In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS
No. 157). The purpose of SFAS No. 157 is to define fair value, establish a
framework for measuring fair value, and enhance disclosures about fair value
measurements. The measurement and disclosure requirements are effective for the
company beginning in the first quarter of fiscal year 2008.





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (SFAS No. 159). SFAS
No. 159 permits companies to choose to measure certain financial
instruments and certain other items at fair value. The standard requires that
unrealized gains and losses on items for which the fair value option has been
elected be reported in earnings. SFAS No. 159 is effective for the company
beginning in the first quarter of fiscal year 2008, although earlier adoption is
permitted.





In
December 2007, the FASB issued SFAS No. 141 (R), “Business
Combinations” (“SFAS 141(R)”) and SFAS No. 160, “Noncontrolling Interests
in Consolidated Financial Statements” (“SFAS 160”). The standards are intended
to improve, simplify, and converge internationally the accounting for business
combinations and the reporting of noncontrolling interests in consolidated
financial statements. SFAS 141(R) requires the acquiring entity in a business
combination to recognize all (and only) the assets acquired and liabilities
assumed in the transaction; establishes the acquisition-date fair value as the
measurement objective for all assets acquired and liabilities assumed; and
requires the acquirer to disclose to investors and other users all of the
information they need to evaluate and understand the nature and financial effect
of the business combination. SFAS 141(R) is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after
December 15, 2008. SFAS 141(R) applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008.
Earlier adoption is prohibited.




F - 13




SFAS 160
is designed to improve the relevance, comparability, and transparency of
financial information provided to investors by requiring all entities to report
noncontrolling (minority) interests in subsidiaries in the same way—as equity in
the consolidated financial statements. Moreover, SFAS 160 eliminates the
diversity that currently exists in accounting for transactions between an entity
and noncontrolling interests by requiring they be treated as equity
transactions. SFAS 160 is effective for fiscal years, and interim periods within
those fiscal years, beginning on or after December 15, 2008. Earlier
adoption is prohibited. In addition, SFAS 160 shall be applied prospectively as
of the beginning of the fiscal year in which it is initially applied, except for
the presentation and disclosure requirements. The presentation and disclosure
requirements shall be applied retrospectively for all periods presented. The
Company does not have an outstanding noncontrolling interest in one or more
subsidiaries and therefore, SFAS 160 is not applicable to the Company at this
time.





Management
does not believe that any recently issued, but not yet effective, accounting
standards, if currently adopted, would have a material effect on the
accompanying financial statements.


11.
              Subsequent Events





Settlement Agreement and Convertible
Note and Warrant Financing





On
January 11, 2008, the Company entered into a Settlement Agreement (the
“Settlement Agreement”) by and among the Company and its subsidiaries, Stephen
P. Cherner, Maxim Financial Corporation, Mark L. Baum, BCGU, LLC, Mark I Lev,
Wellfleet Partners, Inc., Yue Pu, Clive Ng, Chardan Capital Markets, LLC
(“Chardan Capital”), Jaguar Acquisition Corporation (“Jaguar”), and China
Cablecom Holdings, Ltd (“Cablecom Holdings”).





Simultaneously,
the Company consummated a private convertible note and warrant financing with
gross proceeds of $4,850,000 (the “January 2008 Financing”), through Chardan
Capital acting as Placement Agent and appointed three additional directors and a
new Chief Executive Officer to the Company. The following is a summary only of
the material terms of the Settlement Agreement, Employment Agreement Amendments
and the January 2008 Financing related agreements (including the note purchase
agreement, the form of Notes and form of warrants) which were filed as exhibits
to our Current Report on Form 8-K dated January 11, 2008, the provisions of
which are incorporated by reference herein.





Settlement Agreement





The
Settlement Agreement was negotiated by the Company, its advisors and management
and certain shareholders, for purposes of facilitating the Company’s business
plan and expediting and facilitating the Company’s financing activities and
resolving all disputes with management and certain investors and consultants
concerning possible claims that such investors suggested might be brought
against Mr. Ng for his activities in forming China Cablecom and its entry into a
Proposed Merger (as defined below) with a subsidiary of Jaguar (as defined
below) as violative of his employment agreement with the Company. The Settlement
Agreement provides, subject to the terms thereof, for general mutual releases of
all executives and management and their affiliated entities and also provides
for the modification of employment agreements of both Mr. Clive Ng and Mr. Pu.
The Settlement Agreement also calls for the transfer of certain securities by
Mr. Ng to the Company and to certain of the Company’s shareholders and
consultants, as elaborated further herein in exchange for releases in favor of
the Company and management and their affiliates.




Among
other provisions, pursuant to the Settlement Agreement:




·
            Clive
      Ng has agreed to transfer, not later than three business days after the
      closing of the proposed merger of a subsidiary of Cablecom Holdings, as
      successor to Jaguar Acquisition Corporation, a Delaware corporation
      (“Jaguar”) in its proposed redomestication merger , with and into China
      Cablecom, Ltd., a private limited liability British Virgin Islands company
      (“China Cablecom”) (the “Proposed Merger”), of 390,000 shares of common
      stock of Cablecom Holdings (the “Cablecom Holdings Shares”), the resulting
      surviving parent entity after the Proposed Merger. The 390,000 Cablecom
      Holdings Shares will only be issued in the event of consummation of the
      Proposed Merger and is to be transferred by Mr. Ng on an “as is basis”,
      except that such shares have the same lock-up restrictions, registration
      or other rights, privileges or benefits as Mr. Ng has for all other shares
      to be issued to him by Cablecom Holdings under the Proposed Merger terms.
      The 390,000 Cablecom Holdings Shares will only be issued upon receipt of
      releases from certain parties listed in the Settlement
      Agreement;




·
            Clive
      Ng has agreed to (i) transfer an aggregate of 400,000 shares of the
      Company’s common stock (the “Common Stock”) owned by him, to an
      unaffiliated escrow agent on behalf of a consultant that was a party to
      the Settlement Agreement, in accordance with the terms of an escrow
      agreement which provides, among other things, that such shares will only
      be released from escrow in the event that releases are obtained from
      certain parties listed in the Settlement Agreement, and (ii) make a
      charitable gift of an aggregate of 28,444 shares of Common Stock to a
      charitable organization selected by Mr. Lev, upon receipt of releases from
      certain parties listed in the Settlement
  Agreement;




F - 14




·
            The
      Company and each of Messrs. Ng and Pu, have agreed to modifications to the
      employment agreements of such persons (the “Employment Agreement
      Amendments”), reducing their time commitments to the Company and its
      subsidiary and providing that once replacement executive officers have
      been hired (and in the case of Mr. Ng, assuming Mr. Pu continues in his
      role as chief financial officer, eliminating his executive duties and he
      will only continue as the Chairman and a director of China Broadband and
      the Company) , requiring in the case of Mr. Ng that he be subject to an
      ongoing obligation to offer acquisition candidates in the stand-alone,
      independent broadband business to China Broadband in the future (and
      recognizing that acquisition candidates involving acting as a joint
      venture provider of integrated cable television services in the People’s
      Republic of China and related activities, but which does not include the
      provision of Stand-Alone Broadband Services are the business of China
      Cablecom) and allowing them to continue to be involved with certain other
      activities and to continue in their executive capacities with Cablecom
      Holdings or its successor after the Proposed Merger. In addition, Mr. Ng
      has waived his right to receive all accrued salary previously owed to
      him;




·
            The
      Company and each of Messrs. Ng and Pu, have agreed to modifications to the
      employment agreements of such persons (the “Employment Agreement
      Amendments”), reducing their time commitments to the Company and its
      subsidiary and providing that once replacement executive officers have
      been hired (and in the case of Mr. Ng, assuming Mr. Pu continues in his
      role as chief financial officer, eliminating his executive duties and he
      will only continue as the Chairman and a director of China Broadband and
      the Company) , requiring in the case of Mr. Ng that he be subject to an
      ongoing obligation to offer acquisition candidates in the stand-alone,
      independent broadband business to China Broadband in the future (and
      recognizing that acquisition candidates involving acting as a joint
      venture provider of integrated cable television services in the People’s
      Republic of China and related activities, but which does not include the
      provision of Stand-Alone Broadband Services are the business of China
      Cablecom) and allowing them to continue to be involved with certain other
      activities and to continue in their executive capacities with Cablecom
      Holdings or its successor after the Proposed Merger. In addition, Mr. Ng
      has waived his right to receive all accrued salary previously owed to
      him;




·
            Mr.
      Ng has agreed to assign, and did assign 7,017,814 shares of Common Stock
      owned beneficially by him to the investors (other then Chardan Capital
      which did not receive shares from Mr. Ng) in the private January 2008
      Financing as described below, thereby facilitating the January 2008
      Financing while avoiding additional dilution to the Company’s current
      stock and warrant holders;




·
            Mr.
      Ng has agreed to transfer to certain private investors who acquired shares
      directly from him in July of 2007, an aggregate of 566,790 shares of
      Common Stock owned beneficially by him, in exchange for releases and
      representation letters to be executed by such
  persons;




·
            Chardan
      Capital, our placement agent in the private financing and a party to the
      Settlement Agreement, completed the January 2008 Financing concurrently
      upon execution by all related parties of the Settlement
      Agreement;




·
            Mr.
      David Zale and Mr. Jonas Grossman were appointed as directors joining
      Messrs. Yue Pu and Clive Ng on the board. Additionally, as a condition to
      Closing of the January 2008 Financing, Mr. James Cassano was appointed to
      the Board.




·
            The
      Company agreed to extend the expiration dates of 4,000,000 warrants to
      purchase Common Stock at an exercise price of $2.00 per share, issued to
      certain private placement investors (“Investor Warrants”) in the Company’s
      private placement of common stock and warrants in 2007, from March of
      2009, through January 11, 2013, upon receipt of releases from such
      Investor Warrant holders. In addition, the Company has offered to BCGU,
      LLC, WestPark Capital, Inc., Maxim Financial Corporation, who were issued
      500,000, 640,000 and 3,974,800 warrants exercisable at $.60 per share in
      January of 2007, the right, at their discretion, to extend the
      exercisability period of their respective warrants through January 11,
      2013 or, in the alternative, the right to receive a scrip right to execute
      the unexercised portion of their warrants, at any time between the time of
      expiration date of their unexercised warrants and continuing through
      January 11, 2013.





Additional
specific provisions relating to the terms of this Settlement Agreement can be
found under the “Settlement Agreement” subsection of “Item 1. Description of
Business” above, an in our “Risk Factors” subsection above.





Simultaneous Closing of $4,971,250
Convertible Note and Warrant Financing, issuance of Shares and
Warrants





On
January 11, 2008, and simultaneously with the entry into the Settlement
Agreement and in continuation with competion of the January 2008 Financing, we
entered into and consummated a subscription agreement (the “Subscription
Agreement”) with ten accredited investors (inclusive of Chardan Capital) with
respect to the issuance of an aggregate of $4,971,250 principal amount of Notes
due January 11, 2013, and Class A Warrants to purchase an aggregate of 6,628,333
shares of common stock of the Company at $.60 per share expiring on June 11,
2013.





An
aggregate of $4,971,250 principal amount of Notes was issued to ten investors
including Chardan Capital which applied its 2.5% cash commission towards a
subscription for Notes and Class A Warrants. Interest on the Notes compound
monthly at the annual rate of five percent (5%) with the maturity date on
January 11, 2013, if not sooner paid. Each holder of a Note can convert all or
any portion of the then aggregate outstanding principal amount of the Note,
together with interest, into shares of Common Stock at a conversion price of
$0.75 per share, for or a total of 6,628,333 shares as of the date of issuance.
The Notes are granted “full ratchet” anti dilution protection for the first
three years, pursuant to which the conversion price of the Notes will be
adjusted downward in the event of the issuance by the Company of Common Stock or
rights to acquire Common Stock at prices below $.75 per share (or below such
other conversion price of the Notes as is then in effect) to such lower price.
Thereafter and until repaid, the Notes provide only for weighted average
anti-dilution price protection adjustment. In addition, the Notes are subject to
certain customary anti dilution protections for stock splits, combinations or
similar transactions of the Company.




F - 15




An
aggregate of 6,628,333 Class A Warrants, exercisable at $0.60 per share and
expiring on June 11, 2013 were issued pursuant to the Subscription Agreement as
part of the January 2008 Financing. The Class A Warrants shall be exercisable
(with cash or via cashless exercise) commencing one hundred and eighty-one (181)
days after the closing date of the January 2008 Financing until 65 months
thereafter, June 11, 2013. The Class A Warrants are subject to “full ratchet”
anti-dilution protection for the first three years, pursuant to which the
exercise price of the Class A Warrants will be adjusted downward in the event of
the issuance by the Company of Common Stock or rights to acquire Common Stock at
prices below $.60 per share (or below such other exercise price of the Class A
Warrants as is then in effect) to such lower price. Thereafter and until all
Class A Warrants are exercised or expire, the Class A Warrants provide only for
weighted average anti-dilution price protection adjustment. In addition, the
Class A Warrants are subject to certain customary anti-dilution protections for
stock splits, combinations or similar transactions of the Company.





Placement Agent Fee to Chardan
Capital Markets, LLC





In
connection with their engagement as a placement agent, Chardan Capital has been
compensated a $10,000 due diligence fee and reimbursement of legal and other
expenses, and a cash placement agent fee of 2.5% based on the total amount sold
to investors, or $121,250 based on $4,850,000 of principal amount of Notes
issued to other investors. Chardan Capital has, pursuant to the terms of their
engagement agreement, agreed to apply their cash compensation of $121,250 into
an investment in a $121,250 Note and 166,667 Class A Warrants at the same terms
as all other investors in the offering. In addition, Chardan Capital was
compensated warrants to acquire 1,131,667 shares of the Company’s Common Stock
at an exercise price of $.50 per share exercisable commencing January 11, 2008
and expiring on June 11, 2013 (the “Broker Warrants”). The Broker Warrants are
identical to the Class A Warrants in all other material respects.





Assignment By Clive Ng of Shares to
Investors





To
incentivize the investors in January 2008 Financing and facilitate such
financing, and as contemplated under the terms of the Settlement Agreement, Mr.
Clive Ng assigned an aggregate of 7,017,814 shares of Common Stock beneficially
owned by him to the January 2008 Financing investors, other than Chardan
Capital, at a nominal purchase price of $.01 per share.





Release of Lock - Up Agreements





Prior to
the assignment of the above shares to the January 2008 Financing investors,The
Company, 88 Holdings, Inc., China Broadband Partners, Ltd., BCGU, LLC, MVR
Investments, LLC, Stephen P. Cherner and WestPark Capital, Inc. were each
shareholder parties to a Lock-Up Agreement dated as of January 23, 2007 (the
“Lock-Up Agreement”). The Lock-Up Agreement provided, that each such shareholder
shall only be permitted to sell 5% of the shares originally issued to them as
scheduled in the Lock-Up Agreement, during any 30 day period and, that the
Company’s management may review the lock up provisions and increase the number
of shares that may be sold provided that, among other conditions, such
modification is made pari pasu among all
shareholders to this Lock-Up Agreement based on their share ownership. As a
condition subsequent to the January 2008 Financing requested by Chardan Capital,
and to remove any contractual restrictions relating to the 7,017,084 shares of
Common Stock assigned by Mr. Ng to the Note investors to facilitate the
financing, the Company and each of the shareholder parties to the Lock-Up
Agreement agreed to the termination of this Lock-Up Agreement for all parties
effective as of January 13, 2008.




Board of Directors and Employment
Agreement Amendments





Simultaneously
with the closing of the January 2008 Financing, and entry into the Settlement
Agreement, Messrs. David Zale, James Cassano and Jonas Grossman were appointed
as directors of the Company, joining Messrs. Clive Ng and Yue Pu. Prior to the
appointment of Messrs. Zale, Cassano and Grossman, such persons had no
affiliations or business relationship with the Company, except that Mr. Grossman
was and continues to be, a partner and officer of Chardan Capital which received
a placement agent fee of notes and warrants in connection with the January 2008
Financing as described above. Additionally, the board appointed Mr. Tom Lee as
new Chief Executive Officer and Principal Executive Officer on January 11,
2008





Additionally,
Messrs. Yue Pu and Clive Ng have each entered into amendments to their
employment agreements which delineate the scope of services required from each
of them for the Company and its subsidiaries, and permits mutual director and
executive affiliations with the Company and Cablecom Holdings. Mr. Ng’s
Employment Agreement Amendment also calls for his work requirements to be
appropriately reduced to a non-executive position, although he remains as
Chairman and director. The Employment Agreement Amendments were approved by the
board and by the disinterested board members, Messrs. Zale and Grossman and was
required as part of the Settlement Agreement.





Shandong Newspaper Cooperation
Agreement




On March
7, 2008, through our indirect WFOE subsidiary in the PRC, we entered into a
Cooperation Agreement (the "Shandong Newspaper Cooperation Agreement") by and
among, Shandong Broadcast & TV Weekly Press and Modern Movie & TV
Biweekly Press, each PRC companies (collectively "Shandong Newspaper"). The
Shandong Newspaper Cooperation Agreement provided for, among other terms, the
creation of a joint venture entity in the PRC, Shandong Lushi Media Co., Ltd.
("Shandong Media") that would own and operate Shandong Newspaper's television
program guide, newspaper and magazine publishing business in the Shandong region
of the PRC (the "Shandong Newspaper Business") which businesses were previously
owned and operated by the Shandong Newspaper entities pursuant to exclusive
licenses.




F - 16




Under the
terms of the Shandong Newspaper Cooperation Agreement and related transaction
documents, the Shandong Newspaper entities mentioned above will contribute their
entire Shandong Newspaper Business and transfer certain employees, to Shandong
Media in exchange for a 50% stake in Shandong Media, with the other 50% of
Shandong Media to be owned by our PRC based operating subsidiary. In exchange
therefore, the Cooperation Agreement provides for total initial consideration
from of approximately $1.5 million (approximately 10 million RMB based on
exchange rates at the time) which shall be contributed to Shandong Media as
working and acquisition capital, of which the Company has already paid
approximately $300,000 (approximately 2 million RMB) in early March 2008 as a
down payment.




In
addition to the initial purchase price of $1.5 million (10 million RMB), the
Shandong Newspaper Cooperation Agreement provides for additional consideration
of approximately US $757,757 and US $3,000,000 (between 5 million RMB and 20
million RMB, respectively, based on exchange rates at the time) to be paid as a
capital contribution to Shandong Media in the event that certain performance
thresholds are met during the first 12 months of operations after closing the
transaction for a total maximum purchase price of approximately $4.5 (30 million
RMB based on exchange rates at the time).




In the
event that audited annual net profits during the first year after closing of the
transaction relating to the Shandong Newspaper Cooperation
Agreement:




·
            equals
      or exceeds 16 million RMB, then we will be required to contribute an
      additional 20 million RMB (or, approximately $3,000,000 based on current
      exchange rates) to the Shandong Media joint venture;




·
            equals
      or exceeds 4 million RMB but less than 16 million RMB, then we will be
      required to contribute 125% of such net profits to the Shandong Media
      joint venture, and




·
            is
      less then 4 million RMB, then only an additional 5 million RMB
      (approximately US $757,575 based on current exchange rates).




Description of Shandong Newspaper
Business Being Acquired




The
Shandong Newspaper Business being acquired from Shandong Newspaper by the
Shandong Media joint venture includes the distribution of periodicals, the
publication of advertising, the organization of public relations events, the
provision of information related services, copyright transactions, the
production of audio and video products, the provision of audio value added
communication services. The Shandong Newspaper Cooperation Agreement also
provides that these businesses will be operated primarily by employees
contracted to Shandong Media through secondment by the respective Shandong
Newspaper entities.




In
addition, the Shandong Newspaper entities are required, at closing upon
completion of all closing conditions, to enter into an Exclusive Advertising
Agency Agreement and an Exclusive Consulting Services Agreement with Shandong
Media which require that the Shandong Newspaper entities shall appoint Shandong
Media as its exclusive advertising agent and provider of technical and
management support for a fee.





The
closing of the transaction is dependant upon, among other conditions, the
obtaining of all necessary PRC government consents, payment of the initial
purchase price set forth above, and entry into the Exclusive Advertising Agency
Agreement and Exclusive Consulting Service Agreement. The Company expects to
close this transaction during the second quarter of 2008.




F - 17