U.
S. SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-K





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




For the
fiscal year
ended                                           December 31, 2008





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 ofincorporation
      or organization)
            
            (I.R.S.
      EmployerIdentification
      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





Indicate
by check mark if the registrant is a well-known seasoned issue, as defined in
Rule 405 of the Securities Act.




o x


Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.


o x


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 large accelerated filer, an
accelerated filer, a non-accelerated filer, or a small reporting
company:





Large
      accelerated filer o
            Accelerated
      filer oNon-accelerated
      filer o
            Smaller
      reporting company x





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


Yes  o No x





As of
June 30, 2008, the aggregate market value of the registrant’s voting and
non-voting common equity held by non-affiliates of the registrant was $9,185,044
based on the closing price of the registrant’s common shares of $0.50, as
reported on the OTC Bulletin Board on that date.





As of
March 20, 2009, the following shares of common stock were issued and
outstanding.





Class
            
            OutstandingCommon
      Stock, $0.001 par value
            
            50,585,455
      shares





Documents
Incorporated by Reference: None.











CHINA
BROADBAND, INC.


2008
ANNUAL REPORT OF FORM 10-K





TABLE
OF CONTENTS




PagePART
      IItem
      1.
            Business
            1Item
      1A.
            Risk
      FactorsItem
      2.
            Properties
            18Item
      3.
            Legal
      Proceedings
            18Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            18PART
      II
            
            19Item
      5.
            Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
            19Item
      6.
            Selected
      Financial Data
            20Item
      7.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            21Item
      7A.
            Quantitative
      and Qualitative Disclosures about Market Risk
            33Item
      8.
            Financial
      Statements and Supplementary Data
            34Item
      9.
            Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosures
            35Item
      9A.
            Controls
      and Procedures
            35PART
      III
            
            37Item
      10.
            Directors,
      Executive Officers and Corporate Governance
            37Item
      11.
            Executive
      Compensation
            41Item
      12.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
            42Item
      13.
            Certain
      Relationships and Related Transactions, and Director
      Independence
            43Item
      14.
            Principal
      Accounting Fees and Services
            45Item
      15.
            Exhibits,
      Financial Statement Schedules
            46









References





Unless
otherwise noted, all monetary figures in this Annual Report are expressed in
U.S. dollars. References to "yuan" or "RMB" are to the Chinese yuan, which is
also known as the renminbi. All amounts from revenues in the PRC are stated in
U.S. dollars as converted from RMB. According to the currency exchange website
www.xe.com, on April 13, 2009, $1.00 was equivalent to approximately 6.836
yuan.





All references herein to the “Company,”
“we,” “us” or “our” refers to China Broadband, Inc., its wholly owned subsidiary
in the Cayman Islands, China Broadband Cayman, Ltd., and Beijing China Broadband
Network Technology, a wholly foreign owned entity formed under the laws of the
PRC, which is commonly referred to herein as our Wholly Foreign Owned Entity
“WFOE”.





References in this Annual Report to the
“PRC” or “China” are to the People’s Republic of China.





Cautionary
Statement Concerning Forward-Looking Statements





This
Annual Report and the documents we incorporate by reference in this Annual
Report contain forward-looking statements, within the meaning of Section 21E of
the Securities Exchange Act of 1934, as amended, and Section 27A of the
Securities Act of 1933, as amended.  Any statement that is not a
statement of historical fact may be deemed a forward-looking
statement.  For example, statements containing the words “believes,”
“anticipates,” “estimates,” “plans,” “expects,” “intends,” “may,” “projects,”
“will,” “would” and similar expressions may be forward-looking statements. Such
statements reflect the current view of the company with respect to the future,
and are subject to risks, uncertainties, assumptions and other factors relating
to the company. Accordingly, we may not actually achieve the plans, intentions
or expectations disclosed in our forward-looking statements, and investors
should not place undue reliance on our forward-looking statements. There are a
number of important factors that could cause our actual results to differ
materially from those indicated by these forward-looking statements, including
the factors discussed in Item 1A Risk Factors, and the following
factors:





·
            our
      ability to complete our payments relating to the acquisition of a
      television programming publication company in the
  PRC,


·
            our
      anticipated needs for working capital and our difficulty in raising
      additional capital given the current credit crises and the current
      economic environment,


·
            our
      ability to expand and make profitable our recently acquired internet café
      content provider and advertising
business,


·
            a
      complex and changing regulatory environment in the PRC that limits our
      ability to pay dividends, currently permits only partial foreign ownership
      of 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 consents 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 businesses (such as, by way of
      example, our pledge agreements with respect to our periodicals business
      and internet café content provider and advertising business), 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 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.





Investments in China based businesses
involve 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.  This is
especially so in the media businesses in which we operate.   The
PRC government also has the right to de-privatize our current or future
business.





You should consider these factors and
the other cautionary statements or risk factors made in this Annual Report and
in the documents we incorporate by reference as being applicable to all related
forward-looking statements wherever they appear in this Annual Report and in any
documents incorporated by reference.  We do not assume any obligation
to update any such forward-looking statements.









PART
I




Item
1. Business





Overview





We operate media businesses in the PRC
through a holding company structure.  In 2007 we acquired a cable broadband
business (Jinan Broadband) based in the Jinan region of China and, prior to
such time, we were a blank check shell company.  In 2008,
we acquired a 50% interest in a joint venture that operates a
newspaper and periodical television programming guide business (Shandong Media)
in the Shandong region of China.  Most recently, in April of 2009 we
acquired an internet café advertising and content provider business
(AdNet).  These three businesses are described in more detail
below.





Corporate
History





China
Broadband, Inc., a Nevada corporation and our parent holding company, was formed
on October 22, 2004 pursuant to a reorganization of a California entity formed
in 1988.   Prior to January 2007, we were a blank check shell
company.  On January 23, 2007,  pursuant to a Share Exchange
Agreement we acquired China Broadband, Ltd., (“China Broadband Cayman”),
resulting in a change of control of the Company (the “Broadband Acquisition”),
and simultaneously completed the first closing of an equity financing of common
stock and warrants.  At the time of the closing of the Broadband
Acquisition, China Broadband Cayman was in the process of acquiring, 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 transfer of operations and assets to
our PRC subsidiary effective on April 1, 2007.  This business, which
we refer to herein as Jinan Broadband, constitutes our flagship operations and
currently serves approximately 58,000 cable broadband subscribers.





Effective
as of May 4, 2007 and in accordance with the terms of the Broadband Acquisition,
we changed our name from Alpha Nutra, Inc. to China Broadband, Inc.





In 2008
we acquired through a joint venture, a television programming guide business in
the Shandong region of China, which we refer to herein as “Shandong
Newspaper.”





Most
recently, in April of 2009, we completed our acquisition of an internet café
content provider and advertisement business that operates throughout China,
which we refer to herein as “AdNet”.  The specific terms of these
business acquisitions and how we share control with the selling regulatory
parties of these businesses follows.





China
Broadband, Inc. currently serves as a holding company for China Broadband
Cayman, which in turn, operates our PRC businesses, and does not have operations
of its own.





Overview of Operating
Businesses-
Acquisitions Since 2007





The
following is an overview of these three media related businesses, all of which
are in the PRC:





Jinan Broadband - Terms of Cooperation
Agreement





Pursuant to a Cooperation Agreement
(the “Cooperation Agreement”) entered into in 2007 with Jinan Guangdian Jiahe
Digital Television Co., Ltd. (“Jinan Parent”), we acquired and currently own, a
51% controlling interest in an operating broadband cable internet company based
in the City of Jinan in the Shandong Region of China, an entity 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.  In consideration for this 20 year
business and management rights license, we paid approximately $2,572,000,
including expenses in March 2007 and the remaining approximate $3.2 million
(based on 23 million RMB) in March of 2008.  While this acquisition
was completed in late March of 2007 with an effective transfer of assets date of
April 1, 2007, we commenced certain operational oversight of this entity prior
to such time.





The
general business terms of our Jinan Broadband 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, 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;




1


·
            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, the primary cable TV network in China, 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.








Shandong
Media Joint Venture - Cooperation Agreement and Additional Payments





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 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, Shandong Lushi Media Co., Ltd. (referred to herein as
"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 pledge and trust documents, the
Shandong Newspaper entities mentioned above contributed their entire Shandong
Newspaper Business and transferred 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 the second quarter of 2008 with the joint
venture becoming operational in July of 2008.  In exchange therefore,
the Cooperation Agreement provided for total initial consideration from us of
approximately $1.5 million (approximately 10 million RMB) which was contributed
to Shandong Media as working and acquisition capital.  As part of the
transaction, and to facilitate our subsidiary’s ownership and control over
Shandong Newspaper under PRC law, through our WFOE in the PRC, we loaned
Shandong Media said funds pursuant to a loan agreement and equity option
agreement, and a majority of the shares of Shandong Newspaper are held on our
behalf by Pu Yue, our CFO, as trustee on behalf of the Company pursuant to a
pledge agreement and trustee agreement.  The results of the Shandong
Newspaper Business have been consolidated with the Company’s consolidated
financial statements as of July 1, 2008.






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 $730,000 (as
adjusted for current rates as of March 2009) and US $2,900,000 (between 5
million RMB and 20 million RMB, respectively) 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.




Specifically, in the event that audited
annual net profits during the first fiscal year (i.e. calendar 2009) 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 presuming current
      exchange rates are in effect at such time) 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 we will be required to contribute only an
      additional 5 million RMB (approximately US $730,000 presuming current
      exchange rates are in effect at such
time).





In order to facilitate the transfer of
equitable ownership and control of Shandong Media, this acquisition was
completed in accordance with a pledge and loan agreement, pursuant to which all
of the shares of Shandong Media which we acquired are held in trust on our
behalf by Pu Yue, our CFO as nominee holder, as security for a loan to Shandong
Media’s parent seller.   See below in the “Management Discussion
and Analysis of Financial Condition and Results of Operations” section, for more
information about the individual publications.





2


Recent
Developments





Acquisition
of AdNet





Effective as of April 7, 2009, we
entered into a letter of intent to acquire Wanshi Wangjing Media Technologies
(Beijing) Co., Ltd., (a/k/a AdNet Media Technologies (Beijing) Co., Ltd.)
(herein referred to as “AdNet”), whose primary business is the delivery of
multimedia advertising content to internet cafés  in the
PRC.   Pursuant to the terms of this acquisition, and, among
other things, we issued 11,254,898 shares of our Common Stock to AdNet’s
shareholders in exchange for 100% of AdNet’s equity ownership and $100,000 paid
to us (the “AdNet Acquisition”).  As part of the terms of the AdNet
Acquisition, and to facilitate our subsidiary’s ownership and control over AdNet
under PRC law, we loaned AdNet $100,000 pursuant to a Loan Agreement and Equity
Option Agreement, and all of the shares of AdNet are held by a trustee appointed
by the Company to act as directed by the Company.





AdNet holds an Internet Content
Provider (“ICP”) license
and is in the business of providing delivery of multimedia advertising content
to internet cafés in China.  AdNet currently services over 2,000 cafés
with plans to increase its presence by year end and currently operates and is
licensed to operate in 28 provinces in the PRC with servers in five data centers
including Wuhan, Wenzhou, Yantai, Yunan and with a master distribution server in
Tongshan.  Partnering with a local advertisement agency, AdNet
provides a network for tens of thousands of daily video advertisement insertions
to entertainment content traffic (movies, music, video, and games).





No assurance can be made that the
combined companies will be successful or will have sufficient capital to
grow.  The foregoing description is a summary only of the AdNet
Agreement and is qualified in its entirety by reference to the full AdNet
Agreement filed as an exhibit to this report.









3


Holding Company
Structure





We have 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 after the Broadband Acquisition, China Broadband Cayman, owns
100% of our wholly foreign owned entity, or “WFOE”, Beijing China Broadband
Network Technology Co., Ltd., a Beijing, China corporation.





Pursuant to the Jinan Broadband
Cooperation Agreement and Shandong Newspaper Cooperation Agreement,
respectively, our WFOE in owns 51% of Jinan Broadband and 50% of the Shandong
Media joint venture and controls both entities.





Jinan Broadband’s other 49% owners are
Jinan Guangdian Jia He Digital Television Co., Ltd. (“Jinan Parent”) and certain
of its affiliates.   Shandong  Media’s
other  50% is owned by and among, Shandong Broadcast & TV Weekly
Press and Modern Movie and TV Biweekly Press, each PRC companies (collectively
“Shandong Newspaper”).





Through the Exclusive Cooperation
Agreements and one or more similar operating agreements among the respective
parties, we manage and control the operations of Jinan Broadband and
Shandong Newspaper subject to certain oversight provisions, and receive the
economic benefits derived from their operations.





The following chart depicts our
corporate structure as of April 2009, inclusive of our recent acquisition of
AdNet:










The shares of Shandong Newspaper issued
to our WFOE in 2008 and of AdNet issued to China Broadband Cayman in April of
2009 are held in trust pursuant to loan and pledge agreements securing loans
made to facilitate such transactions, and transferring full control over such
entities.  Jinan Broadband, our cable business, is 51% owned by our
WFOE and 49% owned by a subsidiary of Jinan Parent.







4


The
following is a description of our cable broadband business operated by Jinan
Broadband and our television programming guide business operated by Shandong
Newspaper, which businesses constituted our only businesses in
2008.





About  Our Jinan Broadband
Business





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, an indirect 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
Network, 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 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.





About
Our Shandong Publishing Business





The Shandong Publishing business
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 entered into an Exclusive Advertising Agency Agreement and an Exclusive
Consulting Services Agreement with Shandong Media which requires that the
Shandong Newspaper entities shall appoint Shandong Media as its exclusive
advertising agent and provider of technical and management support for a
fee.




No assurance can be made for an
increase in revenues and in turning Shandong Newspaper profitable will be
successful or we will raise the additional capital necessary to make the second
payment.  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.




In addition to being the exclusive
provincial television programming guide publishing group in Shandong province,
Shandong Media has:





·
            A
      Combined subscription basis of approximately 250,000
      subscribers;


·
            Five
      publishing assets 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 copyrights;




Shandong Broadcast and TV Weekly
(Newspaper)Established in 1954, Shandong Newspaper is a provincial TV
programming guide & general entertainment newspaper.  Published on
weekly basis, it has maintained 80,000 average copies in circulation per
week.   Target readership of Shandong Broadcast & TV Weekly
consists primarily of middle-age to senior readers in Shandong
region.





TV Weekly
Magazine.TV Weekly Magazine is a national PRC magazine title,
ranked among China’s top 5 TV Guide & general entertainment
magazines.  Published on a weekly basis, this magazine’s average
circulation is 40,000 copies in Shandong region.  The unique national
publishing title encourages TV Weekly to expand it’s target market to
neighboring regions in northern China.





5


Modern 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 reached 100,000 copies in
circulation on bi-weekly basis in year 2007.





Music Review & Korea
Drama (monthly) are two smaller publications that were acquired in
Q12009.  Circulation in each of these magazines is
small.  They are currently distributed in larger
cities.  The company feels there is good growth potential for both as
we integrate them into our distribution and content channels.











Licenses
and Government Permits





Jinan Broadband





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.





Shandong Newspaper





Description
            
            License/PermitPRC
      Newspaper Publication License for Shandong Broadcast & TV
      Weekly
            
            National
      Unified Publication No: CN 37-0014PRC
      Magazine Publication License for View Weekly
            
            Ruqichu
      Nor:1384PRC
      Magazine Publication License for Modern Movie & TV
      Biweekly
            
            Ruqichu
      No:1318Advertising
      License for Shandong Broadcast & TV Weekly
            
            3700004000093Advertising
      License for View Weekly
              Advertising
      License for Modern Movie & TV Biweekly
            
            3700004000186
              3700004000124





AdNet





Our recently acquired (April 2009)
AdNet division, which operates an internet café advertising and content provider
business, holds an Internet Content Provider license (“ICP”) issued by the
Ministry of Commerce of the PRC.  AdNet is authorized to operate and
provide content and advertising throughout the PRC.





Business
Strategies





Focus on Shandong Region





The Shandong province has a population
of approximately 92 million people with the second highest gross domestic
product (“GDP”) ranking in China. The Shandong province is served by 17
municipal cable television operators, including Jinan Parent, the cable operator
of Jinan and affiliate of Jinan Broadband.  Jinan with a population of
5.9 million is the capital city of the Shandong Province.  The
foregoing population and GDP statistics are provided by Jinan Municipal
Government and can be viewed at (www.jinan.gov.cn).





The Shandong Newspaper division is also
located in Jinan in the Shandong Province.  Currently its primary
distribution is in the Shandong province with approximately 250,000
subscribers.  We continue to believe that the Shandong regional market
provides a potential opportunity for expanding our current and future media
services.  We intend to develop and evolve our market strategy on an
ongoing basis based on our results in the Shandong region.





6


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.   By 2015, the PRC’s State Administration of Radio,
Film, and Television (“SARFT”) intends for the entire country to deploy 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 are projected to pay $3.50
per month, as a basic fee.   We hope to capitalize on the
digitalization campaign initiated by SARFT by bundling cable broadband services
in the digital STB rollout campaign.





One  marketing strategy 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
plan to attempt to convert digital cable television subscribers to cable
broadband customers.





Deployment of Value-added
Services





To augment our product offerings and
create other revenue sources, we work with strategic partners to deploy
value-added services to our cable broadband customers.  Value-added
services, including but not limited to the synergies created by the additions of
our new assets, will become a focus of revenue generation for our
company.





Management believes that its recent
acquisition of AdNet in April of 2009, can further provide a branding vehicle
and value added service in the broadband sector.  AdNet delivers
multimedia advertising content to internet cafes in China.  AdNet
currently operates in 29 provinces within China with servers in five data
centers including Wuhan, Wenzhou, Yantai, Yunan, with a master distribution
server in Tongshan.  AdNet provides a network for daily video ad
insertions to entertainment content traffic (movies, music, video, and
games).  In addition, AdNet’s management team has experience with
value added services for media companies and will focus on this area for both
existing broadband assets.





No assurance can be made that we will
add other value-added services, or if added, that they will
succeed.





Our strategy includes increasing our
current subscriber base, increasing the number of geographical areas in
which we are permitted to operate and provide cable broadband service, and to
seek opportunities to expand by acquisition of new regions or
businesses.





Customers





As of December 31, 2008, Jinan
Broadband has approximately 58,000 cable internet
subscribers.  Shandong Newspaper has, in aggregate amongst its various
titles, a reader base of approximately 250,000 persons.  All of our
customers are in the PRC.





Competition





Jinan Broadband
Competition





We believe that local telecom carriers
that offer non-cable internet services, such as DSL, represent our primary
competition in the PRC.  An example is China Netcom, a telecom carrier
in the Shandong province of China.





Local telecom carriers are actively
marketing broadband services on national, provincial, as well as local levels in
China.  Telecom carriers own “last mile access” to urban households in
the form of fixed phone lines. we believe that cable operators have a
competitive advantage by owning last mile connections in the form of cable lines
that have a larger bandwidth relative to phone lines.  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 telecom
based internet access.





Cable operators in China must purchase
internet connection bandwidth from the local telecom carriers.  Since
the local telecom carriers are not required to pay for internet connection
bandwidth, which increases their profit margins relative to cable broadband
service providers.  This affords them a potential price advantage, but
to date their prices remain in line with our prices.





7


We believe, however, that the ability
for cable operators to bundle cable broadband with digital Set-top boxes
combined with the quality and versatility of cable based broadband services,
provides a competitive advantage.  For example, voice over internet
protocol telephony service (known as “VOIP”) can be provided over cable lines
with limited added costs to us or the end user.  We do not have plans
to provide value added services such as VOIP to our customers in the near
future. Instead, we plan to pursue expansion opportunities by increasing the
number of geographical regions in which we are licensed to operate.




Shandong
Publishing





There are
approximately 17 entertainment newspapers and numerous entertainment magazines
in Shandong province and throughout China.  Competition in this sector
is very strong.  Management hopes to gain a competitive advantage and
additional revenue by focusing on advertising by leveraging our recently
acquired internet café division (Adnet).  We will also attempt to
deliver publication content electronically through our broadband
division.








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.





IndustryStructure and
Government Regulation





There are various barriers to entry
into the cable or internet service provider, or print media businesses in
China.  These barriers stem from both industry barriers and government
regulation.  Cable operators in China, including Jinan Broadband, face
many challenges as the marketplace evolves.  The rates we charge and
services we provide to cable customers are subject to government regulation and
approval.  In addition, print media is subject to government
regulation and censorship.





Industry
Barriers





The radio and television broadcasting
industries and news print media 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)
plays a similar role to SARFT in 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 falls under the
SARFT interest group.





Our business is highly regulated. 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 business and assets in
China is not permitted without specific government approval.  For this
reason, we acquired only 51% of Jinan Broadband, with the remaining 49% owned by
Jinan Parent and its affiliates.  Similarly, Shandong Newspaper was
acquired through a partly owned joint venture and AdNet and Shandong Newspaper
were both acquired under a trustee relationship.  We use revenue
sharing and voting control agreements among the parties so as to obtain
equitable and legal ownership of our subsidiaries.





8


Economies
of Scale





Until 2005, there were over 2,000
independent cable operators in the PRC.  While SARFT has advocated for
national consolidation of cable networks, the consolidation has primarily
occured at the provincial level.  The 30 provinces are highly variable
in their consolidation efforts and processes.  Many cable operators in
China, on a stand-alone basis, may lack the economies of scale to systematically
introduce 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.





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 Chinese television viewers from “analog” service to “digital” (pay
TV) service.  The digitalization efforts include providing
set-top-boxes free of charge as part of a digital television service bundling
initiative.   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, 2008, Jinan
Broadband had a total of 68 employees, which include 20 in sales and marketing,
38 in technical staff and 10 in management, financial and administration.
 In addition, we have two full time employees in the United
States.  In addition, the Shandong Newspaper Division employs a total
of  89 employees.





9




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 dependent upon 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.
 Specifically, and without limitation, we will need approximately
$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 SEC reporting obligations.  Remaining
current will depend in part, on our ability to prepare and consolidate our
financial statements with those of 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 14, 2009 on our consolidated financial statements for the year ended
December 31, 2008, 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, our shareholders may lose theirentire 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 was in the vitamins and nutritional supplements business. While we
believe that no preexisting liabilities exist and will obtain 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 2008. 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. As we attempt 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.





10





We do not own Jinan Parent or Jinan
Centerwhich are the
minority co-owners of our Jinan Broadband Business, orShandongBroadcast & TV Weekly Press,
which are the minority co-owners of our Shandong Newspaper business,
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 with respect to Jinan Broadband and Shandong Broadcast
& TV Weekly Press with respect to Shandong Newspaper.  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
in the PRC 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 cooperation agreement that enable us to own and operate the 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.  Our ownership interests in
Shandong Newspaper is subject to similar limitations (in addition to the
requirement that additional payments be made if certain revenue thresholds are
met).  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.





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 Pu Yue.  As a result of our recent acquisition of AdNet, we also are
dependant in part on the services of Dr. Lu.  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.  While we have retained an accounting firm to assist us on
consolidation of financial statements for our PRC businesses, we 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.  Moreover, our budget limitations will restrict our ability
to hire qualified personnel.  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 Yue and Dr. Lu,  and certain of our other officers (and all of
our directors) 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.





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.





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 ‘‘Management,
Directors and Executive Officers.’’ In any event, it cannot be predicted with
any degree of certainty as to whether or not Mr. Ng, Mr. Pu or Dr. Lu 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.


11


Mr. Ng,
our Chairman, has 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. Yue’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.





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 operational 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.  In 2008 we were required to restate our
financial statements and we determined that our management controls were not
effective.




12


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 and
recent acquisitions, 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.  Print media is particularly
sensitive to censorship and transfer of ownership regulation.  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, in part, on dividends and other distributions from our subsidiaries
in order to recognize revenues.  We are also dependant on the
repayment by our subsidiaries to us of debt or expenses incurred by us on their
behalf.  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 recognizing revenues or consolidating our financial
statements.





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 6.836 to US$1.00 resulting in the increase in price of Chinese
products to U.S purchasers. 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.





13


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.




The
Recent Economic Downturn May Materially And Adversely Affect Our
Business.





The
Chinese economy has experienced a slowing growth rate due to a number of
factors, including but not limited to instability in the global financial
markets, the appreciation of the RMB, and economic and monetary policies adopted
by the Chinese government aimed at preventing overheating of the Chinese economy
and inflation.





We cannot
predict how long the downturn will last, the timing of any subsequent recovery,
or how much of an impact the downturn will have on our business and operating
results. To the extent that the downturn reduces consumer demand for the
services and products offered by Jinan Broadband and Shandong Newspaper, our
operating results could be materially and adversely affected.





The
economic downturn and financial market instability have generally made the
business climate more volatile and more costly. One result of the
deterioration in the global equity and credit markets is that obtaining any
additional debt or equity financing has become more difficult, more costly, and
more potentially dilutive to our existing investors. Failure to secure any
necessary financing in a timely manner and on favorable terms could have a
material adverse effect on our growth strategy and on our ability to pay off our
existing debt obligations, and could require us to delay or abandon our
expansion plans.





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 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.





14


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.





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 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.





15


Many
of our securities are freely tradable, and 11,254,898 additional shares issued
to AdNet shareholders will become freely tradable in October.  If any
of these shares are sold from time to time,  our common stock would
suffer a significant decline in stock price and illiquidity.





In
accordance with the terms of the settlement agreement and subsequent note and
warrant financing, our principal, Clive Ng, transferred approximately 8,000,000
shares which are no longer be deemed affiliate shares to the extent not held by
affiliates and eligible for resale under 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 shares of common
stock subject to certain “leak out” provisions which have generally
lapsed.   Additionally, the 11,254,898 shares issued to AdNet
(plus any additional shares issued, if any) in April 2009 will begin to become
eligible for re-sale in October 2009.  A significant number of
additional shares may be sold upon cashless exercise of options or conversion of
notes.  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 six months
(presuming that the Company is current with its SEC financial reporting
obligations).  A sale under Rule 144 or under any other exemption from the
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.





Holders
of our restricted shares that have not yet sold pursuant to Rule 144 (or their
assignees) will not be able to sell their shares in the event that the Company
becomes delinquent with its SEC reporting obligations, until the company becomes
current.





The
Company was previously a blank check shell company.   The
exemptions provided under Rule 144 are not available in the event that a company
that was once a blank check shell company becomes delinquent with its SEC
reporting obligations, until such time as the company becomes fully
current.  In addition, if the company misses any filings, it could
result in the delisting of its securities from the OTC BB market
system.





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 owns over 42% 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 shareholders will not have a voice in management
decisions and will exercise very little control.





Dilutive effects of issuing
additional common stock.





There are
additional authorized but unissued shares of common stock and “blank check”
preferred stock of the Company that may be later issued by our management for
any purpose without the consent or vote of the stockholders. Shareholders may be
further diluted in their percentage ownership in the Company on an as-converted
basis in the event additional shares are issued by China Broadband in the
future.





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 (“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.
 
 16





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.





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.





Shares
issuable upon conversion of convertible promissory notes, warrants or otherwise
issued to investors are eligible for re-sale under Rule 144 in
2008.  If these shares are  sold it would exert downward
pressure on the price of our stock.





As a
result of the January 2007 equity financing, the Share Exchange and the transfer
of over 7,000,000 shares by Mr. Ng to certain unaffiliated investors in our
January 2008 convertible note offering, a substantial number of shares may
become eligible for resale pursuant to Rule 144 of the Securities
Act.  The sale of these securities may have an adverse effect on our
stock price.





17


Item 2. Properties.




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.   We have not paid any rents to Maxim Financial Corporation
in 2008, but have accrued $24,000 related to this agreement.





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 paid approximately $73,000 (500,000 RMB) for rent at its facilities
in Jinan in 2008.




The
principal address of our Shandong Media operating business is Qing Nian Dong Lu
No. 26, Lixia District, Jinan City. The Company paid approximately $47,000
for six months rent in 2008.





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, 2008.







18


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 to “CBBD” to reflect our name change to
China Broadband, Inc.  Prior to such time the symbol for our common
stock was “APNA”.  Up until December 20, 2007, we were trading on the
Pink Sheets and the letters “.PK” were added to the end of our four letter
identifier.  Beginning December 21, 2007 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, limited market following and general market illiquidity resulting from
the economic downturn.  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 20, 2009 the closing price for our common stock as quoted on the OTC
Bulletin Board was $0.15.




Fiscal
      Years:2008
            
            High
            
            
            LowDecember
      31, 2008
            
            $
            0.02
            
            
            $
            .0.02September
      30, 2008
            
            $
            0.10
            
            
            $
            .0.10June
      30, 2008
            
            $
            0.50
            
            
            $
            0.50March
      31, 2008
            
            $
            1.15
            
            
            $
            0.512007December
      31, 2007
            
            $
            4.50
            
            
            $
            3.00September
      30, 2007
            
            $
            4.00
            
            
            $
            4.00June
      30, 2007
            
            $
            4.00
            
            
            $
            1.75March
      31, 2007
            
            $
            3.00
            
            
            $
            2.00





As of March 20, 2009 there were 307
record holders of our common stock and 50,585,455 shares of common stock issued
and outstanding.  Effective as of April 7, 2009, as a result of our
completion of the acquisition of AdNet, an additional 11,254,898 shares have
been authorized for issuance to 10 shareholders.  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.





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 or making distributions up to the parent.







19


Equity
Compensation Plan Information








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
            
            (c)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)
            
            317,500
            
            n/a
            
            -0-Total
            
            -0-
            
            n/a
            
            -0-







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




(2)
  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 317,500 options were granted under
the Plan which were issued on March 13, 2008, of which 100,000 were granted to
Mr. Urbach, exercisable at $1.00 per share, vesting over four years as per his
employment agreement with the remaining 217,500 granted to other directors in
June of 2008, exercisable at $.45 per share, exercisable over 3 years. As of
December 31, 2008, no equity compensation plans have been approved by the
security holders.





Item
6. Selected Financial Data.





Not
applicable.






20


Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.






The following discussion should be
read in conjunction with the Consolidated Financial Statements and notes thereto
included elsewhere in this Form 10-K. All information presented herein is based
on the Company’s fiscal calendar. Unless otherwise stated, references in this
report to particular years or quarters refer to the Company’s fiscal years ended
in December and the associated quarters of those fiscal years. The Company
assumes no obligation to revise or update any forward-looking statements for any
reason, except as required by law.




Background





We own and operate, through our
indirect subsidiaries in the People’s Republic of China (“PRC”), a cable
broadband business based in the Jinan region of China (Jinan Broadband) and a
television programming guide publication business joint venture (Shandong Media)
in the Shandong Province of China (see Item 1 above).  More recently,
we acquired an internet café content provider and advertising business in the
PRC (AdNet) (See “Recent Developments” in Item 1 above).  Our
principal activity is providing cable and wireless broadband and print based
media and television programming guide services.  We operate in the
media segment.   All references to dollar amounts herein which
relate to operations or revenues from the PRC are converted to reflect RMB
exchange rates to the US dollar.





Settlement
Agreement





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., Pu
Yue, Clive Ng, Chardan Capital Markets, LLC (“Chardan Capital”), Jaguar
Acquisition Corporation (“Jaguar”), and China Cablecom Holdings, Ltd (“Cablecom
Holdings”), pursuant to which the parties released certain potential claims
against one another, as more fully set forth in Item 1 above.





The
following table provides the details of the net gain the Company recognized in
2008 as a result of the Settlement Agreement  which is recorded in
“Interest and other income (expense)” in the accompanying Statement of
Operations:





Fair
      value of Cablecom Holdings Shares
            
            $
            2,515,500Waiver
      of accrued compensation
            
            
            212,054Warrant
      extensions
            
            
            (1,426,862
            )Net
      Gain
            
            $
            1,300,692





Issuance
of Shares in Lieu of Cash Interest Payments on Convertible Notes





On January 11, 2008, simultaneously
with the entry into the Settlement Agreement, 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 convertible notes (“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 (the “January 2008 Financing”).





In 2008 the Company incurred $247,000
in interest expense related to the Notes.  With the consent of the
Note holders, the Company issued 329,856 shares to the Note holders in lieu of
cash.




The following discussion and analysis
should be read in conjunction with our audited financial statements and related
notes included







21




Results of
Operations




The
following table presents for the periods indicated the results of the Company’s
operations.




Years
      Ended
              
              
              Amount
              
              
              %December
      31,
              
              
              December
      31,
              
              
              Increase
      /
              
              
              Increase
      /2008
              
              
              2007
              
              
              (Decrease)
              
              
              (Decrease)Revenue
              
              $
              6,361,970
              
              
              $
              2,839,197
              
              
              $
              3,522,773
              
              
              
              124
              %Cost
      of revenue
              
              
              3,740,381
              
              
              
              1,657,979
              
              
              
              2,082,402
              
              
              
              126
              %Gross
      profit
              
              
              2,621,589
              
              
              
              1,181,218
              
              
              
              1,440,371
              
              
              
              122
              %Selling,
      general and adminstrative expenses
              
              
              1,923,386
              
              
              
              954,382
              
              
              
              969,004
              
              
              
              102
              %Professional
      fees
              
              
              619,405
              
              
              
              628,490
              
              
              
              (9,085
              )
              
              
              -1
              %Depreciation
      and amortization
              
              
              3,037,199
              
              
              
              1,795,501
              
              
              
              1,241,698
              
              
              
              69
              %Income
      / (loss) from operations
              
              
              (2,958,401
              )
              
              
              (2,197,155
              )
              
              
              (761,246
              )
              
              
              35
              %Interest
      & other income / (expense)
              
              
              (912,097
              )
              
              
              (404,553
              )
              
              
              (507,544
              )
              
              
              125
              %Income
      / (loss) before minority interest
              
              
              (3,870,498
              )
              
              
              (2,601,708
              )
              
              
              (1,268,790
              )
              
              
              49
              %Minority
      interest loss in operating subsidiaries
              
              
              609,630
              
              
              
              439,722
              
              
              
              169,908
              
              
              
              39
              %Income
      / (loss) before income tax
              
              
              -3,260,868
              
              
              
              -2,161,986
              
              
              
              (1,098,882
              )
              
              
              51
              %Income
      tax benefit
              
              
              -93,997
              
              
              
              147,955
              
              
              
              (241,952
              )
              
              
              -164
              %Net
      income / (loss)
              
              $
              (3,354,865
              )
              
              $
              (2,014,031
              )
              
              $
              (1,340,834
              )
              
              
              67
              %


Year
Ended December 31, 2008 (“2008”) Compared to the Year Ended December 31,
2007 (“2007”)





Revenues





Revenues for fiscal year ended 2008
were $6,362,000 as compared to $2,839,000 for 2007.  The increase in
revenue of approximately $3,523,000 or 124% is attributable to our Shandong
Media joint venture entered into during 2008 that provided us with approximately
$1,644,000 of revenues during the last two quarters of the year, and the
inclusion of our Jinan Broadband operations for a full year in the 2008 period
as compared to only nine months of operations in the 2007 period





Our revenues were attributed to our PRC
based subsidiaries in 2008.  Jinan Broadband revenue consisted of
sales to our PRC based Internet consumers, cable modem consumers, business
customers and other internet and cable services of
$4,718,000.  Shandong Media’s revenue consisted of sales to
publications and advertising of $1,644,000.





We expect that our revenues will
increase as we continue to grow our businesses.  In addition, we
expect in increase in gross revenues as a result of our recent acquisition of
AdNet which, at the time of acquisition, operates in over 2,000 internet
cafés.





Gross
Profit





Our gross profit in 2008 was
$2,622,000, marking an increase from $1,181,000 in 2007.  The increase
in gross profit of approximately $1,141,000 or 122% is attributable to our
Shandong Media joint venture and the inclusion of our Jinan Broadband operations
for a full year in the 2008 period as compared to only nine months of operations
in the 2007 period.





Gross profit as a percentage of revenue
was 41.2% for 2008 as compared to 41.6% for 2007.





Selling,
General and Administrative Expenses





Our selling, general and administrative
expenses in 2008 totaled $1,923,000 as compared to $954,000 in
2007.  The increase in selling, general and administrative expenses of
$969,000 or 102% is primarily attributable to our Shandong Media joint venture
entered into during 2008 and the inclusion of our Jinan Broadband operations for
a full year in the 2008 period as compared to only nine months of operations in
the 2007 period.





22


During 2008 salaries and personnel
costs of approximately $1,207,000 or 57% is the major component of selling,
general and administrative expenses.  During 2007 salaries and
personnel costs were approximately $451,000 or 47%.





We expect our selling, general and
administrative expenses will increase as we continue to grow our
business.





Professional
Fees





The following contains a list of our
professional fees incurred during 2008 and 2007.




2008
              
              
              2007Accounting
              
              $
              259,000
              
              
              $
              250,000Consulting
              
              $
              147,000
              
              
              $
              223,000Legal
              
              $
              214,000
              
              
              $
              156,000Total
              
              $
              619,000
              
              
              $
              629,000


The professional fees are generally
related to public company reporting and governance expenses, and the Broadband
Acquisition in 2007.  In 2008 significant additional costs were
incurred primarily for services performed relating to the Settlement Agreement
and related transactions, the January 2008 note financing and the Shandong Media
joint venture.





We expect our costs for professional
services to remain significant, but to decrease as a percentage of our overall
revenues as we continue to acquire new entities and create synergistic
partnerships as we implement our strategy as set forth above for public company
reporting and corporate governance expenses.





Depreciation
and Amortization


2008
              
              
              2007Depreciation:
              
              $
              2,800,000
              
              
              $
              1,718,000Amortization:
              
              $
              237,000
              
              
              $
              77,000Total
              
              $
              3,037,000
              
              
              $
              1,795,000


The increase in depreciation expenses
of $1,082,000 is primarily attributable to our inclusion of Jinan Broadband
operations for a full year in the 2008 period as compared to only nine months of
consolidated operations in the 2007 period.  Depreciation expense
during 2008 relates to the depreciation on the approximately $13.7 million of
property, plant and equipment, at our Jinan Broadband subsidiary.





The increase in amortization of
$160,000 is attributable to (1) a full year in 2008 of our Jinan Broadband
service contract amortization compared to only nine months in 2007, (2)
amortization related to our Shandong Media intangible asset acquired in 2008 and
(3) the amortization of debt issuance costs associated with the Convertible Note
in 2008.





Interest
and Other Income (Expense), net





We recorded a net loss amount of
approximately $912,000, in interest and other income (expense), net, during
2008. This amount consisted primarily of:





·
            the
      net gain on the Settlement Agreement in the amount of approximately
      $1,301,000,


·
            the
      loss on marketable equity securities write-down related to our Cablecom
      Holdings shares in the amount of
$1,797,000,


·
            interest
      expense related to the 5% Convertible Notes issued on January 11, 2008 in
      the amount of approximately
$303,000,


·
            the
      loss on the sale of marketable equity securities in the amount of
      $103,000.





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.





23


Minority
Interest





49% of the operating loss of our Jinan
Broadband subsidiary is allocated to Jinan Parent, the 49% co-owner of this
business.  During 2008, $588,000 of our operating losses were
allocated to Jinan Parent and $440,000 was allocated in 2007.





50% of the operating loss of our
Shandong Media joint venture is allocated to our 50% Shandong Newspaper joint
venture partner.  We consolidated the results of Shandong Media
effective July 1, 2008.  During 2008 $22,000 (for 6 months of
operations) of our operating loss from Shandong Media was allocated to Shandong
Newspaper.








The
following table breaks down the results of operations for 2008 and 2007 between
our operating companies and our non-operating companies.





Ø
            The
      operating companies include Jinan Broadband and Shandong
    Media


Ø
            Includes
      a full year of operations of our Jinan Broadband company in 2008 as
      compared to only 9 months in 2007


Ø
            Includes
      6 months of operations of our Shandong Media company in 2008 as compared
      to no operations in 2007





Year
      Ended
                    
                    Year
      EndedDecember
      31, 2008
                    
                    
                    December
      31, 2007%
      of
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    %
      ofTotal
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    TotalOperating
                    
                    
                    Revenue
                    
                    
                    Non-Operating
                    
                    
                    Total
                    
                    
                    Operating
                    
                    
                    Revenue
                    
                    
                    Non-Operating
                    
                    
                    TotalRevenue
                    
                    $
                    6,361,970
                    
                    
                    
                    
                    
                    $
                    -
                    
                    
                    $
                    6,361,970
                    
                    
                    $
                    2,839,197
                    
                    
                    
                    
                    
                    $
                    -
                    
                    
                    $
                    2,839,197Cost
      of revenue
                    
                    
                    3,740,381
                    
                    
                    
                    
                    
                    
                    -
                    
                    
                    
                    3,740,381
                    
                    
                    
                    1,657,979
                    
                    
                    
                    
                    
                    
                    -
                    
                    
                    
                    1,657,979Gross
      profit
                    
                    
                    2,621,589
                    
                    
                    
                    41.2
                    %
                    
                    
                    -
                    
                    
                    
                    2,621,589
                    
                    
                    
                    1,181,218
                    
                    
                    
                    41.6
                    %
                    
                    
                    -
                    
                    
                    
                    1,181,218Selling,
      general and adminstrative expenses
                    
                    
                    1,100,667
                    
                    
                    
                    17.3
                    %
                    
                    
                    822,719
                    
                    
                    
                    1,923,386
                    
                    
                    
                    367,837
                    
                    
                    
                    13.0
                    %
                    
                    
                    586,545
                    
                    
                    
                    954,382Professional
      fees
                    
                    
                    24,808
                    
                    
                    
                    0.4
                    %
                    
                    
                    594,597
                    
                    
                    
                    619,405
                    
                    
                    
                    -
                    
                    
                    
                    0.0
                    %
                    
                    
                    628,490
                    
                    
                    
                    628,490Depreciation
      and amortization
                    
                    
                    2,800,815
                    
                    
                    
                    44.0
                    %
                    
                    
                    236,384
                    
                    
                    
                    3,037,199
                    
                    
                    
                    1,718,277
                    
                    
                    
                    60.5
                    %
                    
                    
                    77,226
                    
                    
                    
                    1,795,503Income
      / (loss) from operations
                    
                    
                    (1,304,701
                    )
                    
                    
                    -20.5
                    %
                    
                    
                    (1,653,700
                    )
                    
                    
                    (2,958,401
                    )
                    
                    
                    (904,896
                    )
                    
                    
                    -31.9
                    %
                    
                    
                    (1,292,261
                    )
                    
                    
                    (2,197,157
                    )Interest
      & other income / (expense)Settlement
      gain
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    1,300,692
                    
                    
                    
                    1,300,692
                    
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    -
                    
                    
                    
                    -Interest
      income / (expense), net
                    
                    
                    24,218
                    
                    
                    
                    
                    
                    
                    
                    (326,988
                    )
                    
                    
                    (302,770
                    )
                    
                    
                    8,441
                    
                    
                    
                    
                    
                    
                    
                    (2,006
                    )
                    
                    
                    6,435Gain
      (loss) on sale of securities
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    (102,505
                    )
                    
                    
                    (102,505
                    )
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    -
                    
                    
                    
                    -Loss
      on securities write-down
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    (1,797,378
                    )
                    
                    
                    (1,797,378
                    )
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    -
                    
                    
                    
                    -Other
                    
                    
                    (122
                    )
                    
                    
                    
                    
                    
                    
                    (10,014
                    )
                    
                    
                    (10,136
                    )
                    
                    
                    (936
                    )
                    
                    
                    
                    
                    
                    
                    (410,053
                    )
                    
                    
                    (410,989
                    )Income
      / (loss) before minority interest
                    
                    
                    (1,280,605
                    )
                    
                    
                    
                    
                    
                    
                    (2,589,893
                    )
                    
                    
                    (3,870,498
                    )
                    
                    
                    (897,391
                    )
                    
                    
                    
                    
                    
                    
                    (1,704,320
                    )
                    
                    
                    (2,601,711
                    )Minority
      interest loss in operating subsidiaries
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    609,630
                    
                    
                    
                    609,630
                    
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    439,722
                    
                    
                    
                    439,722Income
      / (loss) before income tax
                    
                    
                    (1,280,605
                    )
                    
                    
                    -20.1
                    %
                    
                    
                    (1,980,263
                    )
                    
                    
                    (3,260,868
                    )
                    
                    
                    -897,391
                    
                    
                    
                    -31.6
                    %
                    
                    
                    -1,264,598
                    
                    
                    
                    -2,161,989Income
      tax benefit / (expense)
                    
                    
                    -
                    
                    
                    
                    0.0
                    %
                    
                    
                    (93,997
                    )
                    
                    
                    (93,997
                    )
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    147,955
                    
                    
                    
                    147,955Net
      income / (loss)
                    
                    $
                    (1,280,605
                    )
                    
                    
                    -20.1
                    %
                    
                    $
                    (2,074,260
                    )
                    
                    $
                    (3,354,865
                    )
                    
                    $
                    (897,391
                    )
                    
                    
                    -31.6
                    %
                    
                    $
                    (1,116,643
                    )
                    
                    $
                    (2,014,034
                    )


Liquidity and Capital
Resources





As of December 31, 2008 we had
$4,426,000 of cash on hand and a working capital deficit of
$675,000.  As of December 31, 2008, we had total current liabilities
of $6,569,000.  Given our current commitments and working capital
deficit, we cannot support our operations for the next 12 months without
additional capital.





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.





During 2008 the Company incurred
$345,000 in interest expense related to these notes. Based on a predetermined
presumed value of $.75 per share as set forth in the Subscription Agreement and
related documents with the consent of the Note holders, the Company
issued 329,856 shares to the Note holders in lieu of cash of approximately
$247,000 for interest accrued in 2008.  Additional interest expense of
$98,000 was recorded for the warrants.





24


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 2008 we used approximately $1.4 million to fund
our initial investment in our Shandong Media joint venture





In April 2008 we received 390,000
Cablecom Holdings Shares that were part of the Settlement Agreement described
above and recorded, as a portion of the settlement gain, $2,515,000 upon receipt
of the shares.  During 2008 the Company sold 71,880 of the Cablecom
Holdings Shares on the open market and received gross proceeds of $361,000 and
recorded a net loss on the sales of approximately $103,000.





As a result of a significant decline in
the price of the Cablecom Holdings Shares we recorded an other than temporary
impairment loss of approximately $1.8 million on these shares in interest and
other income (expense) in 2008.  The fair value of the remaining
236,806 Cablecom shares at March 20, 2009 approximates $69,000.





Cash
Flows





The
following sets forth a summary of the Company’s cash flows for 2008 and
2007:





Years
      EndedDecember
      31,
              
              
              December
      31,2008
              
              
              2007Net
      cash provided by (used in) operating activities
              
              $
              1,286,000
              
              
              $
              1,129,000Net
      cash provided by (used in) investing activities
              
              
              (1,700,000
              )
              
              
              (2,443,000
              )Net
      cash provided by (used in) financing activities
              
              
              4,232,000
              
              
              
              1,351,000Effect
      of exchange rate changes on cash
              
              
              135,000
              
              
              
              332,000





Operating activities for 2008 and 2007,
after adding back non-cash items, provided cash of approximately $448,000 and
$72,000, respectively. During such period other changes in working capital
provided cash of approximately $983,000 and $1,057,000, respectively, resulting
in cash being provided by operating activities of $1,432,000 and $1,129,000,
respectively.





Investing activities for 2008 and 2007
used cash of $1,700,000 and $2,443,000, respectively.  The 2008
amounts consisted of additions to property and equipment in the amount of
$2,061,000 offset by the proceeds from the sale of Cablecom Holding shares in
the amount of $361,000.  The 2007 amounts consisted solely of
additions to property and equipment.




Financing activities for 2008 and 2007
provided cash of $4,232,000 and $1,351,000, respectively. For 2008, this amount
consisted of proceeds from the issuance of convertible notes of $4,850,000
partially offset by $105,000 of payments related to issuance costs associated
with the convertible notes and an increase in the payable to Jinan Parent in the
amount of $513,000.  For 2007, this amount consisted of proceeds from
the private placement of $4,000,000 partially offset by $421,000 of payments
related to issuance costs associated with the private placement offering and a
decrease in the payable to Jinan Parent in the amount of
$2,228,000.





Our WOFE, Jinan Broadband subsidiary
and Shandong Media joint venture are located in China.  All of their
operations are conducted in the local currency of 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 (used) cash of $(11,000) and
$332,000 during 2008 and 2007, respectively.





Need
for Additional Capital





We have raised approximately $4.8
million (net of cost of capital and expenses) 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 2008 we used approximately $1.4
million to fund our first payment under the Shandong Newspaper Cooperation
Agreement to Shandong Media.  Management will need to raise additional
funds to satisfy the second payment to Shandong Media in October 2009 (see
below).





Management does not believe that the
Company has sufficient capital to sustain its operations without raising
additional capital.   Pursuant to the Settlement Agreement, we
received 390,000 shares of Cablecom Holdings Shares from Mr. Ng, in April 2008of
which 260,000 are subject to lock-up provisions that expire within the next 12
months.  In 2008 the Company sold 71,880 of the Cablecom Holdings
Shares on the open market and received gross proceeds of $361,000.  In
2008 the value of the Cablecom Holding Shares decreased approximately $1.8
million resulting in a value for these shares of approximately $254,000 at
December 31, 2008.  The Cablecom Holding Shares may continue to
fluctuate and may decline further.  In January and February of 2009 an
additional 81,314 shares were sold for total proceeds of $52,736.





25


We intend to grow primarily through
marketing to increase our subscriber (Jinan Broadband) and readership (Shandong
Media) base and through acquisitions and partnerships of China based broadband,
internet and media businesses.  The synergistic relationships and
economies of scale will also expand our growth.





Our first purchase of this nature was
the completion of our acquisition of Shandong Newspaper in a Joint Venture.
Shandong Newspaper’s business includes three main magazines: Shandong Broadcast
& TV Weekly (Newspaper), TV Weekly Magazine and Modern 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, and to cross market with our other asset, Jinan
Broadband.  No assurance can be made that we will be able to raise
capital if and as needed.





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.  Moreover, even if we are
profitable as a result of our PRC based operations and subsidiaries, PRC
regulations prevent the payment 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 $73,000
(500,000 RMB) annually for rent at its facilities in Jinan, China, renewable on
an annual basis.  The Company paid approximately $47,000 (RMB 325,000)
for 6 months rent in 2008 for its Shandong Media facility, renewable on an
annual basis at $94,000.





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.





Recent
Developments





In April of 2009 we completed our
acquisition of AdNet, an internet café content and adverting
provider.  Additional specific information relating to this
acquisition can be found in Item 1, above.





Recent
Financings





2007 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 “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 $2,572,000 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 broadband
cable internet business. This business acquisition is our only operating
business as of April 1, 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.





26


2007
Equity Financing and Broadband Acquisition





Simultaneously with the closing of our
acquisition of China Broadband Cayman pursuant to the Broadband Acquisition, we
consummated a $4,000,000 equity financing wherein we sold an aggregate of
8,000,000 shares of common stock and 4,000,000 warrants to purchase common stock
at $2.00 per share.   Additional information relating to this
financing is provided in Section 1 above in the subsection titled “Overview of
Holding Company” at the end of the Business section above.





The material terms of the Broadband
Acquisition, resulting in our becoming an operating entity in 2007, were
that:





·
            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 $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 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
      have 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, 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 as part of the Settlement
      Agreement through March 24, 2013);


·
            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 have subsequently been extended as part of
      the Settlement Agreement through March 24, 2013) 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,
      which employment agreements have since been
  modified.





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., Pu
Yue, 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.





27


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 violation 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 Yue. 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 transferred 390,000 shares of common stock of Cablecom Holdings (the
      “Cablecom Holdings Shares”) to the Company.  The Cablecom
      Holding Shares were transferred by Mr. Ng on an “as is basis”, except that
      such shares would 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.  The 390,000 Cablecom
      Holdings Shares were issued to the Company in April 2008 upon satisfaction
      of certain conditions in the Settlement Agreement, including, receipt of
      releases from certain parties listed therein and the shares have been
      registered for re-sale by Cablecom Holdings, subject to a lock up
      agreement.  71,880 Cablecom Shares were sold in 2008 for gross
      proceeds of approximately $361,000.  In January and February of
      2009, 81,314 shares have been sold for approximately $51,000, however,
      given the recent market crises and illiquidity, the Company’s management
      has been forced to significantly write down the value of the remaining
      shares;




·
            The
      Company and each of Messrs. Ng and Pu, have agreed to modifications to
      their employment agreements (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  waived his right to receive all accrued salary previously
      owed to him through January 11,
2008;




·
            Mr.
      Ng assigned 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 transferred 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 from such
      persons;




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




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




·
            The
      Company agreed to extend the expiration dates of 4,000,000 warrants to
      purchase our 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
      holders of the Investor Warrants.  All releases were obtained as
      of May 2, 2008, resulting in the modification of all of the Investor
      Warrants; and




·
            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, respectively, 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, all of which
      warrants have been extended
accordingly.





The following table provides the
components of the net gain the Company recognized as a result of the Settlement
Agreement in 2008 which is recorded in “Interest and other income (expense)” in
the accompanying Statement of Operations:





Fair
      value of Cablecom Holdings Shares
            
            $
            2,515,500Waiver
      of accrued compensation
            
            
            212,054Warrant
      extensions
            
            
            (1,426,862
            )Net
      Gain
            
            $
            1,300,692





28


January
2008 Financing of Convertible Notes and Warrants





On January 11, 2008, simultaneously
with the entry into the Settlement Agreement, we entered into and consummated a
note and warrant financing pursuant to 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 convertible notes (“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 (the “January 2008
Financing”).





While the gross proceeds of the
offering were $4,850,000, Chardan Capital applied its 2.5% cash placement
agent commission ($121,250) towards a subscription for Notes and Class A
Warrants resulting in the issuance of an aggregate of $4,971,250 principal
amount of Notes resulting in no cash payout to them at the closing for their
transfer agent fee.  Interest on the Notes compounds monthly at the
annual rate of five percent (5%) with the maturity date on January 11, 2013, if
not paid earlier.  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
(6,628,333 shares as of the issuance date).  The Notes have “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.





In 2008 the Company incurred $345,000
in interest expense related to the Notes and Warrants.  With the
consent of the Note holders, the Company issued 329,856 shares to Note holders
in lieu of cash.





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 placement agent fee of
$121,250 (based on 2.5% of $4,850,000 of principal amount of Notes issued to
other investors), which fee has, pursuant to the terms of their engagement
agreement, been applied their investment in a $121,250 Note and 161,667 Class A
Warrants at the same terms as all other investors in the offering and whose
value is included and discount applied in the same manner as the Class A
Warrants.  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. The Company recognized the
fair value of the Broker Warrants of $226,835 as debt issuance costs and is
amortizing such value over the five year life of the Convertible
Notes.





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, our Chairman and Majority
Shareholder, 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 $.001 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 madepari pasuamong all shareholders
subject to the 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.





Appointment
of Additional Members to Board of Directors





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 Pu Yue. 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.





29


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.






Through WFOE, we acquired a 51%
interest in Jinan Broadband effective April 1, 2007, and a 50% interest in
the Shandong Media joint venture effective July 1, 2008. Accordingly, our
historical experience with operations in China is limited and may change in the
future as we continue to operate the companies. 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 revenue
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.





Intangible
Assets





We 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.  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. 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.








30


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 businesses of the Company’s
operating subsidiaries are 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 December 2008, the FASB issued FSP
FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan
Assets” (“FSP FAS 132(R)-1”). FSP FAS 132(R)-1 applies to an employer
that is subject to the disclosure requirements of SFAS No. 132
(revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement
Benefits” (“SFAS 132R”) and amends SFAS 132R to provide guidance on an
employer’s disclosures about plan assets of a defined benefit pension or other
postretirement plan. The disclosures about plan assets required by FSP
FAS 132(R)-1 shall be provided for fiscal years ending after
December 15, 2009. Earlier application is permitted. We do not expect the
adoption of FSP FAS 132(R)-1 to have a material impact on our consolidated
financial statements.




In November 2008, the FASB issued EITF
Issue No. 08-7, “Accounting for Defensive Intangible Assets”
(“EITF 08-7”). EITF 08-7 applies to all acquired intangible assets in
situations in which the acquirer does not intend to actively use the asset but
intends to hold the asset to prevent its competitors from obtaining access
to the asset (a defensive intangible asset). Defensive intangible assets could
include assets that the acquirer will never actively use, as well as assets that
will be used by the acquirer during a transition period when the intention of
the acquirer is to discontinue the use of those assets. EITF 08-7 concluded
that a defensive intangible asset should be accounted for as a separate unit of
accounting and should be amortized over the period that the defensive intangible
asset directly or indirectly contributes to the future cash flows of the entity.
EITF 08-7 is effective prospectively for intangible assets acquired on or
after the beginning of the first annual reporting period beginning on or
after December 15, 2008. Earlier application is not
permitted.




In June 2008, the FASB issued FSP EITF
03-6-1, Determining Whether
Instruments Granted in Share-Based Payment Transactions are Participating
Securities. This FSP provides that unvested share-based payment awards
that contain nonforfeitable rights to dividends or dividend equivalents (whether
paid or unpaid) are participating securities and shall be included in the
computation of earnings per share pursuant to the two-class method. The Company
does not currently have any share-based awards that would qualify as
participating securities. Therefore, application of this FSP is not expected to
have an effect on the Company's financial reporting.





In May 2008, the FASB issued FASB Staff
Position (FSP) APB 14-1, Accounting for Convertible Debt That
May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)("FSP 14-1"). FSP 14-1 will be effective for financial statements issued
for fiscal years beginning after December 15, 2008. The FSP includes guidance
that convertible debt instruments that may be settled in cash upon conversion
should be separated between the liability and equity components, with each
component being accounted for in a manner that will reflect the entity's
nonconvertible debt borrowing rate when interest costs are recognized in
subsequent periods. The Company is currently assessing the potential effect of
the FSP on its financial statements.





In May 2008, the FASB issued Statement
of Financial Accounting Standards No. 162, The Hierarchyof Generally Accepted Accounting
Principles(“FAS 162"). This Standard identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles. FAS 162
directs thehierarchy to the
entity, rather than the independent auditors, as the entity is responsible for
selecting accounting principles for financial statements that are presented in
conformity with generally accepted accounting principles. The Standard is
effective 60 days following SEC approval of the Public Company Accounting
Oversight Board amendments to remove the hierarchy of generally accepted
accounting principles from the auditing standards. FAS 162 is not expected to
have an impact on the financial statements





In May 2008, the FASB issued Statement
of Financial Accounting Standards No. 162, The Hierarchyof Generally Accepted Accounting
Principles(“FAS 162"). This Standard identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles. FAS 162
directs thehierarchy to the
entity, rather than the independent auditors, as the entity is responsible for
selecting accounting principles for financial statements that are presented in
conformity with generally accepted accounting principles. The Standard is
effective 60 days following SEC approval of the Public Company Accounting
Oversight Board amendments to remove the hierarchy of generally accepted
accounting principles from the auditing standards. FAS 162 is not expected to
have an impact on the financial statements.





31


In April 2008, the FASB issued
FASB Staff Position FAS 142-3, “Determination of the Useful Life of Intangible
Assets” (“FSP FAS 142-3”). FSP FAS 142-3 amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under SFAS No. 142, “Goodwill
and Other Intangible Assets” (“SFAS 142”), and requires additional disclosures.
The objective of FSP FAS 142-3 is to improve the consistency between the useful
life of a recognized intangible asset under SFAS 142 and the period of expected
cash flows used to measure the fair value of the asset under SFAS No. 141
(R), “Business Combinations” (“SFAS 141(R)”), and other accounting principles
generally accepted in the United States of America. FSP FAS 142-3 applies to all
intangible assets, whether acquired in a business combination or otherwise and
shall be effective for financial statements issued for fiscal years beginning
after December 15, 2008, and interim periods within those fiscal years. The
guidance for determining the useful life of intangible assets shall be applied
prospectively to intangible assets acquired after the effective date. The
disclosure requirements apply prospectively to all intangible assets recognized
as of, and subsequent to, the effective date. Early adoption is prohibited. The
Company does not expect the adoption of FSP FAS 142-3 to have a material impact
on its consolidated financial statements.





In March 2008, the FASB issued
Statement No. 161, Disclosures about Derivative Instruments and Hedging
Activities (“SFAS 161”), which is effective January 1, 2009. SFAS 161 requires
enhanced disclosures about derivative instruments and hedging activities to
allow for a better understanding of their effects on an entity’s financial
position, financial performance, and cash flows. Among other things, SFAS 161
requires disclosures of the fair values of derivative instruments and associated
gains and losses in a tabular formant.  SFAS 161 is not currently
applicable to the Company since the Company does not have derivative instruments
or hedging activities







In February 2008, the FASB issued FASB
Staff Position No. 157-2, Effective Date of FASB Statement No. 157 ("FSP
157-2"), which delays the effective date of SFAS 157 for nonfinancial assets and
nonfinancial liabilities. Therefore, the Company has delayed application of SFAS
157 to its nonfinancial assets and nonfinancial liabilities, which include
assets and liabilities acquired in connection with a business combination,
goodwill, intangible assets and asset retirement obligations recognized in
connection with final capping, closure and post-closure landfill obligations,
until January 1, 2009. The Company is currently evaluating the impact of SFAS
157 for nonfinancial assets and liabilities on the Company's financial position
and results of operations.






In February 2007, the FASB issued SFAS
No. 159, The Fair Value Option for Financial Assets and Financial Liabilities.
SFAS No. 159 permits companies to choose to measure many financial instruments
and certain other items at fair value. SFAS No. 159 is effective for financial
statements issued for fiscal years beginning after November 15, 2007. The
adoption of SFAS No. 159 did not have a material impact on our consolidated
financial statements.






In December 2007, the FASB issued SFAS
No. 141 (R), Business Combinations, and SFAS No. 160, Noncontrolling Interests
in Consolidated Financial Statements. SFAS No. 141 (R) requires an acquirer to
measure the identifiable assets acquired, the liabilities assumed and any
noncontrolling interest in the acquiree at their fair values on the acquisition
date, with goodwill being the excess value over the net identifiable assets
acquired. SFAS No. 160 clarifies that a noncontrolling interest in a subsidiary
should be reported as equity in the consolidated financial statements. The
calculation of earnings per share will continue to be based on income amounts
attributable to the parent. SFAS No. 141 (R) and SFAS No. 160 are effective for
financial statements issued for fiscal years beginning after December 15, 2008.
Early adoption is prohibited. The Company has not yet determined the effect on
our consolidated financial statements, if any, upon adoption of SFAS No. 141 (R)
or SFAS No. 160.  However, future acquisitions, including AdNet, will
be accounted for in accordance with these new standards.




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.





32


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.








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 April 13, 2009 was
approximately 6.836 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 31, 2009, the
Company has not entered into any type of hedging or interest rate swap
transaction.








33


Item 8. Financial Statements and
Supplementary Data





CHINA
BROADBAND, INC. AND SUBSIDIARIES
 
 INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
 PageReport
      of Independent Registered Public Accounting Firms
                                                      
                                                      F-1Consolidated
      Financial Statements:Balance
      Sheets as of December 31, 2008 and 2007
                                                      
                                                      F-2Statements
      of Operations for the years ended December 31, 2008 and
    2007
                                                      
                                                      F-3Statements
      of Shareholders’ Equity and Comprehensive Loss for the years ended
      December 31, 2008 and 2007
                                                      
                                                      F-4Statements
      of Cash Flows for the years ended December 31, 2008 and
    2007
                                                      
                                                      F-5Notes
      to Consolidated Financial Statements
                                                      
                                                      F-6
  34
  Report of Independent
Registered Public Accounting Firm
   To the
Board of Directors and Stockholders
 China
Broadband, Inc.
 
 
 We have
audited the accompanying consolidated balance sheets of China Broadband, Inc.
(the “Company”) as of December 31, 2008 and 2007 and the related consolidated
statements of operations, 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 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 are we engaged to perform, an audit of its
internal control over financial reporting. Our audits included 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 control
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 consolidated financial statements referred to above present fairly,
in all material respects, the financial position of China Broadband, Inc. as of
December 31, 2008 and 2007, and the results of its operations and its cash flows
for the years then ended, in conformity with accounting principles generally
accepted ion the United States of America.
 
 The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 3 to the
consolidated financial statements, the has incurred significant losses during
2008 and 2007, has a working capital deficit at December 31, 2008 and has relied
on debt and equity financings to fund operations. These conditions raise
substantial doubt about the Company’s ability to continue as a going concern.
Management’s plans regarding these matters are also described in Note 3. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
 
  /s/
UHY LLP
  
 April 14,
2009
 Albany,
NY
  F-1
  CHINA BROADBAND, INC. AND
      SUBSIDIARIESCONSOLIDATED BALANCE
      SHEETSDecember
      31, 2008 and 2007
  2008
                                          
                                          
                                          2007ASSETSCurrent
    assets:Cash and cash
      equivalents
                                          
                                          $
                                          4,425,529
                                          
                                          
                                          $
                                          472,670Marketable equity
      securities
                                          
                                          
                                          254,496
                                          
                                          
                                          
                                          -Accounts
      receivable
                                          
                                          
                                          136,709
                                          
                                          
                                          
                                          136,655Inventory
                                          
                                          
                                          877,309
                                          
                                          
                                          
                                          642,313Prepaid
    expense
                                          
                                          
                                          46,380
                                          
                                          
                                          
                                          14,781Other current
      assets
                                          
                                          
                                          153,277
                                          
                                          
                                          
                                          73,947Total current
      assets
                                          
                                          
                                          5,893,700
                                          
                                          
                                          
                                          1,340,366Property and equipment,
      net
                                          
                                          
                                          9,299,473
                                          
                                          
                                          
                                          10,333,105Intangible
      assets
                                          
                                          
                                          4,218,758
                                          
                                          
                                          
                                          1,981,307Other
assets
                                          
                                          
                                          692,911
                                          
                                          
                                          
                                          -Total
assets
                                          
                                          $
                                          20,104,842
                                          
                                          
                                          $
                                          13,654,778LIABILITIES AND SHAREHOLDERS'
      EQUITYCurrent
      liabilities:Accounts
      payable
                                          
                                          $
                                          1,237,251
                                          
                                          
                                          $
                                          835,257Accrued
      expenses
                                          
                                          
                                          936,134
                                          
                                          
                                          
                                          554,073Deferred
      revenue
                                          
                                          
                                          1,382,103
                                          
                                          
                                          
                                          1,252,313Payable to Shandong
      Media
                                          
                                          
                                          145,679
                                          
                                          
                                          
                                          -Payable to Jinan
      Parent
                                          
                                          
                                          2,795,472
                                          
                                          
                                          
                                          3,308,443Other current
      liabilities
                                          
                                          
                                          72,013
                                          
                                          
                                          
                                          25,905Total current
      liabilities
                                          
                                          
                                          6,568,652
                                          
                                          
                                          
                                          5,975,991Long-term
      liabilitiesConvertible notes
      payable
                                          
                                          
                                          4,564,427
                                          
                                          
                                          
                                          -Deferred tax
      liability
                                          
                                          
                                          790,617
                                          
                                          
                                          
                                          366,672Total long-term
      liabilities
                                          
                                          
                                          5,355,044
                                          
                                          
                                          
                                          366,672Total
      liabilities
                                          
                                          
                                          11,923,696
                                          
                                          
                                          
                                          6,342,663Minority
      Interest
                                          
                                          
                                          6,637,631
                                          
                                          
                                          
                                          4,879,802Common shares to be
      issued
                                          
                                          
                                          -
                                          
                                          
                                          
                                          410,053Shareholders'
      equityPreferred stock, $.001 par value;
      5,000,000 shares authorized,       no
      shares issued and outstanding
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Common stock, $.001 par value;
      95,000,000 shares authorized, 50,585,455 and 50,048,000 issued and
      outstanding
                                          
                                          
                                          50,586
                                          
                                          
                                          
                                          50,048Additional paid-in
      capital
                                          
                                          
                                          13,372,358
                                          
                                          
                                          
                                          10,485,874Accumulated
      deficit
                                          
                                          
                                          (12,200,287
                                          )
                                          
                                          
                                          (8,845,426
                                          )Accumulated other comprehensive
      income (loss)
                                          
                                          
                                          320,858
                                          
                                          
                                          
                                          331,764Total shareholders'
      equity
                                          
                                          
                                          1,543,515
                                          
                                          
                                          
                                          2,022,260Total liabilities, minority
      interest and shareholders' equity
                                          
                                          $
                                          20,104,842
                                          
                                          
                                          $
                                          13,654,778
 See notes to consolidated financial
statements.
  F-2
  CHINA BROADBAND, INC. AND
      SUBSIDIARIESCONSOLIDATED STATEMENTS OF
      OPERATIONSYears
      Ended December 31, 2008 and
2007
  Years EndedDecember
31,
                              
                              
                              December
31,2008
                              
                              
                              2007Revenue
                              
                              $
                              6,361,970
                              
                              
                              $
                              2,839,197Cost of
    revenue
                              
                              
                              3,740,381
                              
                              
                              
                              1,657,979Gross
profit
                              
                              
                              2,621,589
                              
                              
                              
                              1,181,218Selling, general and adminstrative
      expenses
                              
                              
                              1,923,386
                              
                              
                              
                              954,382Professional
      fees
                              
                              
                              619,405
                              
                              
                              
                              628,490Depreciation and
      amortization
                              
                              
                              3,037,199
                              
                              
                              
                              1,795,501Loss from
      operations
                              
                              
                              (2,958,401
                              )
                              
                              
                              (2,197,155
                              )Interest & other income /
      (expense)Settlement
    gain
                              
                              
                              1,300,692
                              
                              
                              
                              -Interest income / (expense),
      net
                              
                              
                              (302,770
                              )
                              
                              
                              6,435Loss on sale of
      securities
                              
                              
                              (102,505
                              )
                              
                              
                              -Loss on securities
      write-down
                              
                              
                              (1,797,378
                              )
                              
                              
                              -Other
                              
                              
                              (10,136
                              )
                              
                              
                              (410,988
                              )Loss before minority
      interest
                              
                              
                              (3,870,498
                              )
                              
                              
                              (2,601,708
                              )Minority interest loss in
      operating subsidiaries
                              
                              
                              609,630
                              
                              
                              
                              439,722Loss before income
      tax
                              
                              
                              (3,260,868
                              )
                              
                              
                              (2,161,986
                              )Income tax (expense) /
      benefit
                              
                              
                              (93,997
                              )
                              
                              
                              147,955Net loss
                              
                              $
                              (3,354,865
                              )
                              
                              $
                              (2,014,031
                              )Net loss per
      shareBasic
                              
                              $
                              (0.07
                              )
                              
                              $
                              (0.04
                              )Diluted
                              
                              $
                              (0.07
                              )
                              
                              $
                              (0.04
                              )Weighted average shares
      outstandingBasic
                              
                              
                              50,332,705
                              
                              
                              
                              46,504,812Diluted
                              
                              
                              50,332,705
                              
                              
                              
                              46,504,812
  See notes to consolidated financial
statements.
  F-3
  CHINA BROADBAND
      INCCONSOLIDATED STATEMENTS OF CHANGES
      IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE LOSSYears Ended December 31, 2008 and
      2007
  AccumulatedAdditional
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      OtherCommon
                                                                                      
                                                                                      
                                                                                      Par
                                                                                      
                                                                                      
                                                                                      Paid-in
                                                                                      
                                                                                      
                                                                                      Accumulated
                                                                                      
                                                                                      
                                                                                      Comprehensive
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      ComprehensiveShares
                                                                                      
                                                                                      
                                                                                      Value
                                                                                      
                                                                                      
                                                                                      Capital
                                                                                      
                                                                                      
                                                                                      Deficit
                                                                                      
                                                                                      
                                                                                      Income(loss)
                                                                                      
                                                                                      
                                                                                      Total
                                                                                      
                                                                                      LossBalance December 31,
      2006
                                                                                      
                                                                                      
                                                                                      543,494
                                                                                      
                                                                                      
                                                                                      $
                                                                                      535
                                                                                      
                                                                                      
                                                                                      $
                                                                                      6,705,918
                                                                                      
                                                                                      
                                                                                      $
                                                                                      (6,831,393
                                                                                      )
                                                                                      
                                                                                      $
                                                                                      -
                                                                                      
                                                                                      
                                                                                      $
                                                                                      (124,940
                                                                                      )Shares issued for
      services
                                                                                      
                                                                                      
                                                                                      2,300,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      2,300
                                                                                      
                                                                                      
                                                                                      
                                                                                      26,321
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      28,621Shares issued for
      shareexchange
                                                                                      
                                                                                      
                                                                                      37,865,506
                                                                                      
                                                                                      
                                                                                      
                                                                                      37,865
                                                                                      
                                                                                      
                                                                                      
                                                                                      (37,865
                                                                                      )
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      -Shares issued
      uponconversion of
      convertiblepromissory
      notes
                                                                                      
                                                                                      
                                                                                      1,348,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      1,348
                                                                                      
                                                                                      
                                                                                      
                                                                                      227,200
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      228,548Shares issued in
      privateplacement
      offering
                                                                                      
                                                                                      
                                                                                      8,000,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      8,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      3,992,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      4,000,000Debt issuance cost
      associatedwith private
      placementoffering and
      conversion ofconvertible promissory
      notes
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      (427,700
                                                                                      )
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      (427,700
                                                                                      )Comprehensive
      loss:Net
      loss
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      (2,014,031
                                                                                      )
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      (2,014,031
                                                                                      )
                                                                                      (2,014,031
                                                                                      )Foreign currency
      translationadjustments
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      331,764
                                                                                      
                                                                                      
                                                                                      
                                                                                      331,764
                                                                                      
                                                                                      331,764Balance December 31,
      2007
                                                                                      
                                                                                      
                                                                                      50,057,000
                                                                                      
                                                                                      
                                                                                      $
                                                                                      50,048
                                                                                      
                                                                                      
                                                                                      $
                                                                                      10,485,874
                                                                                      
                                                                                      
                                                                                      $
                                                                                      (8,845,424
                                                                                      )
                                                                                      
                                                                                      $
                                                                                      331,764
                                                                                      
                                                                                      
                                                                                      $
                                                                                      2,022,262
                                                                                      
                                                                                      (1,682,267
                                                                                      )Warrant valuation associated
      withconvertible notes
      payable & other
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      745,694
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      745,694Option valuation associated
      withemployment
      agreeement
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      44,898
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      44,898Shares issued for
      penaltyof
      non-registration
                                                                                      
                                                                                      
                                                                                      207,599
                                                                                      
                                                                                      
                                                                                      
                                                                                      208
                                                                                      
                                                                                      
                                                                                      
                                                                                      421,970
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      422,178Warrant valuation associated
      withextension from
      settlement agreement
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      1,426,862
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      1,426,862Shares issued in lieu of
      convertiblenote
      interest
                                                                                      
                                                                                      
                                                                                      329,856
                                                                                      
                                                                                      
                                                                                      
                                                                                      330
                                                                                      
                                                                                      
                                                                                      
                                                                                      247,061
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      247,391Comprehensive
      loss:Net
      loss
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      (3,354,865
                                                                                      )
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      (3,354,865
                                                                                      )
                                                                                      (3,354,865
                                                                                      )Foreign currency
      translationadjustments
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      320,858
                                                                                      
                                                                                      
                                                                                      
                                                                                      320,858
                                                                                      
                                                                                      320,858Balance December 31,
      2008
                                                                                      
                                                                                      
                                                                                      50,594,455
                                                                                      
                                                                                      
                                                                                      $
                                                                                      50,586
                                                                                      
                                                                                      
                                                                                      $
                                                                                      13,372,359
                                                                                      
                                                                                      
                                                                                      $
                                                                                      (12,200,289
                                                                                      )
                                                                                      
                                                                                      $
                                                                                      320,858
                                                                                      
                                                                                      
                                                                                      $
                                                                                      1,543,514
                                                                                      
                                                                                      (3,034,007
                                                                                      )
 See notes to consolidated financial
statements.
  F-4
  CHINA BROADBAND, INC. AND
      SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH
      FLOWSYears
      Ended December 31, 2008 and
2007
  2008
                                                                                  
                                                                                  
                                                                                  2007Cash flows from
      operatingNet loss
                                                                                  
                                                                                  $
                                                                                  (3,354,864
                                                                                  )
                                                                                  
                                                                                  $
                                                                                  (2,014,033
                                                                                  )Adjustments to reconcile net loss
      to net cash provided by operating activitiesStock compensation
      expense
                                                                                  
                                                                                  
                                                                                  318,818
                                                                                  
                                                                                  
                                                                                  
                                                                                  438,674Depreciation and
      amortization
                                                                                  
                                                                                  
                                                                                  3,369,930
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,795,501Deferred income
      tax
                                                                                  
                                                                                  
                                                                                  423,945
                                                                                  
                                                                                  
                                                                                  
                                                                                  (147,954
                                                                                  )Minority
      interest
                                                                                  
                                                                                  
                                                                                  (609,630
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (439,722
                                                                                  )Loss on sale and write-down of
      marketable equity securities
                                                                                  
                                                                                  
                                                                                  1,899,883
                                                                                  
                                                                                  
                                                                                  
                                                                                  -Gain on settlement
      agreement
                                                                                  
                                                                                  
                                                                                  (1,300,692
                                                                                  )
                                                                                  
                                                                                  
                                                                                  -Change in assets and
      liabilities,Accounts
      receivable
                                                                                  
                                                                                  
                                                                                  (54
                                                                                  )
                                                                                  
                                                                                  
                                                                                  442,640Inventory
                                                                                  
                                                                                  
                                                                                  (234,996
                                                                                  )
                                                                                  
                                                                                  
                                                                                  667,357Prepaid expenses and other
      assets
                                                                                  
                                                                                  
                                                                                  213,177
                                                                                  
                                                                                  
                                                                                  
                                                                                  (88,728
                                                                                  )Accounts payable and accrued
      expenses
                                                                                  
                                                                                  
                                                                                  1,187,894
                                                                                  
                                                                                  
                                                                                  
                                                                                  247,454Deferred
      revenue
                                                                                  
                                                                                  
                                                                                  129,790
                                                                                  
                                                                                  
                                                                                  
                                                                                  230,889Other
                                                                                  
                                                                                  
                                                                                  (611,512
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (17,416
                                                                                  )Net cash provided by operating
      activities
                                                                                  
                                                                                  $
                                                                                  1,431,513
                                                                                  
                                                                                  
                                                                                  $
                                                                                  1,129,494Cash flows from investing
      activities:Proceeds from sale of marketable
      equity securities
                                                                                  
                                                                                  
                                                                                  361,121
                                                                                  
                                                                                  
                                                                                  
                                                                                  -Acquisition of property and
      equipment
                                                                                  
                                                                                  
                                                                                  (2,061,401
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (2,443,055
                                                                                  )Net cash used in investing
      activities
                                                                                  
                                                                                  $
                                                                                  (1,700,280
                                                                                  )
                                                                                  
                                                                                  $
                                                                                  (2,443,055
                                                                                  )Cash flows from financing
      activitiesProceeds from issuance of
      convertible notes payable
                                                                                  
                                                                                  
                                                                                  4,850,000
                                                                                  
                                                                                  
                                                                                  
                                                                                  4,000,000Issuance costs associated with
      private placement and convertible notes
                                                                                  
                                                                                  
                                                                                  (104,500
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (420,500
                                                                                  )Payable to Jinan
      Parent
                                                                                  
                                                                                  
                                                                                  (512,971
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (2,228,203
                                                                                  )Net cash provided by financing
      activities
                                                                                  
                                                                                  $
                                                                                  4,232,529
                                                                                  
                                                                                  
                                                                                  $
                                                                                  1,351,297Effect of exchange rate changes on
      cash
                                                                                  
                                                                                  $
                                                                                  (10,903
                                                                                  )
                                                                                  
                                                                                  $
                                                                                  331,764Net increase in cash and cash
      equivalents
                                                                                  
                                                                                  
                                                                                  3,952,859
                                                                                  
                                                                                  
                                                                                  
                                                                                  369,500Cash and cash equivalents at
      beginning of period
                                                                                  
                                                                                  
                                                                                  472,670
                                                                                  
                                                                                  
                                                                                  
                                                                                  103,170Cash and cash equivalents at end
      of period
                                                                                  
                                                                                  $
                                                                                  4,425,529
                                                                                  
                                                                                  
                                                                                  $
                                                                                  472,670Supplemental Cash Flow
      Information:Cash paid for
      interest
                                                                                  
                                                                                  $
                                                                                  -
                                                                                  
                                                                                  
                                                                                  $
                                                                                  10,490Notes payable converted to common
      stock
                                                                                  
                                                                                  $
                                                                                  -
                                                                                  
                                                                                  
                                                                                  $
                                                                                  325,000Value assigned to shares issued as
      penaltyfor non-registration of 7%
      convertible notes
                                                                                  
                                                                                  $
                                                                                  12,125
                                                                                  
                                                                                  
                                                                                  $
                                                                                  410,053Value assigned to shares issued in
      lieu of cash for interest expense
                                                                                  
                                                                                  $
                                                                                  247,392
                                                                                  
                                                                                  
                                                                                  $
                                                                                  -Acquisition of Shandong
      Media:Fair value of assets
      acquired
                                                                                  
                                                                                  $
                                                                                  4,184,022
                                                                                  
                                                                                  
                                                                                  $
                                                                                  -Liabilities
      assumed
                                                                                  
                                                                                  $
                                                                                  -
                                                                                  
                                                                                  
                                                                                  $
                                                                                  -Consideration
      paid:Cash paid
                                                                                  
                                                                                  $
                                                                                  1,311,113
                                                                                  
                                                                                  
                                                                                  $
                                                                                  -Cash amount
      owed
                                                                                  
                                                                                  $
                                                                                  780,899
                                                                                  
                                                                                  
                                                                                  $
                                                                                  -Minority
      interest
                                                                                  
                                                                                  $
                                                                                  2,345,777
                                                                                  
                                                                                  
                                                                                  $
                                                                                  -Acquisition of Jinan
      BroadbandFair value of assets
      acquired
                                                                                  
                                                                                  $
                                                                                  -
                                                                                  
                                                                                  
                                                                                  $
                                                                                  11,497,317Liabilities
      assumed
                                                                                  
                                                                                  $
                                                                                  -
                                                                                  
                                                                                  
                                                                                  $
                                                                                  2,186,360Consideration
      paid:Cash paid
                                                                                  
                                                                                  $
                                                                                  3,200,000
                                                                                  
                                                                                  
                                                                                  $
                                                                                  2,752,125Cash amount
      owed
                                                                                  
                                                                                  $
                                                                                  -
                                                                                  
                                                                                  
                                                                                  $
                                                                                  3,200,000Minority
      interest
                                                                                  
                                                                                  $
                                                                                  4,291,854
                                                                                  
                                                                                  
                                                                                  $
                                                                                  5,319,524Convertible Note
      IssuanceProceeds received from issuance of
      Convertible Notes
                                                                                  
                                                                                  $
                                                                                  4,850,000
                                                                                  
                                                                                  
                                                                                  $
                                                                                  -Debt issuance costs converted to
      Convertible Notes
                                                                                  
                                                                                  $
                                                                                  121,250
                                                                                  
                                                                                  
                                                                                  $
                                                                                  -Debt issuance costs not converted
      to Convertible Notes
                                                                                  
                                                                                  $
                                                                                  226,835
                                                                                  
                                                                                  
                                                                                  $
                                                                                  -
  See notes to consolidated financial
statements.
  F-5
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 1.
                Basis
      of Presentation
 China Broadband, Inc., a Nevada
corporation and its subsidiaries (“China Broadband”, “we,” “us,” or
“the Company”) owns and operates,
through its subsidiariesin
the People’s Republic of China (“PRC”or “China”), a cable broadband business based in
the Jinan region of China and, effective as of July 1, 2008 a television
programming guide publication business joint venture in the Shandong Province of
China (seeNote 3 below).  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 through its Jinan Broadband
subsidiary.  In addition, beginning July 2008 and as a result of our
recently acquired Shandong Newspaper subsidiary, we provide a print based media
and television programming guide business.  The Company operates in
the media segment.
 
 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.
                Recent
      Developments
 Shandong
Media Joint Venture - Cooperation Agreement and Additional Payments
 
 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 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, Shandong Lushi Media Co., Ltd. (referred to herein as
"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 pledge and trust documents, the
Shandong Newspaper entities mentioned above contributed their entire Shandong
Newspaper Business and transferred 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 the second quarter of 2008 with the joint
venture becoming operational in July of 2008.  In exchange therefore,
the Cooperation Agreement provided for total initial consideration from us of
approximately $1.5 million (approximately 10 million RMB) which was contributed
to Shandong Media as working and acquisition capital.  As part of the
transaction, and to facilitate our subsidiary’s ownership and control over
Shandong Newspaper under PRC law, through our WFOE in the PRC, we loaned
Shandong Media said funds pursuant to a loan agreement and equity option
agreement, and a majority of the shares of Shandong Newspaper are held on our
behalf by Pu Yue, our CFO, as trustee on behalf of the Company pursuant to a
pledge agreement and trustee agreement.  The results of the Shandong
Newspaper Business have been consolidated with the Company’s consolidated
financial statements as of July 1, 2008.
   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 $730,000 (as
adjusted for current rates as of March 2009) and US $2,900,000 (between 5
million RMB and 20 million RMB, respectively) 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.
   Specifically, in the event that audited
annual net profits during the first fiscal year (i.e. calendar 2009) 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 presuming current
      exchange rates are in effect at such time) 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 we will be required to contribute only an
      additional 5 million RMB (approximately US $730,000 presuming current
      exchange rates are in effect at such
time).
  F-6
 In order to facilitate the transfer of
equitable ownership and control of Shandong Media, this acquisition was
completed in accordance with a pledge and loan agreement, pursuant to which all
of the shares of Shandong Media which we acquired are held in trust on our
behalf by Pu Yue, our CFO as nominee holder, as security for a loan to Shandong
Media’s parent seller.   See below in the “Management Discussion
and Analysis of Financial Condition and Results of Operations” section, for more
information about the individual publications.
 
 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., Pu
Yue, 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.   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) are as follows:.
 
 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 violation 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 Yue. 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 transferred 390,000 shares of common stock of Cablecom Holdings (the
      “Cablecom Holdings Shares”) to the Company.  The Cablecom
      Holding Shares were transferred by Mr. Ng on an “as is basis”, except that
      such shares would 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.  The 390,000 Cablecom
      Holdings Shares were issued to the Company in April 2008 upon satisfaction
      of certain conditions in the Settlement Agreement, including, receipt of
      releases from certain parties listed therein and the shares have been
      registered for re-sale by Cablecom Holdings, subject to a lock up
      agreement.  71,880 Cablecom Shares were sold in 2008 for gross
      proceeds of approximately $361,000.  In January and February of
      2009, 81,314 shares have been sold for approximately $51,000, however,
      given the recent market crises and illiquidity, the Company’s management
      has been forced to significantly write down the value of the remaining
      shares;
  ·
                  The
      Company and each of Messrs. Ng and Pu, have agreed to modifications to
      their employment agreements (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  waived his right to receive all accrued salary previously
      owed to him through January 11,
2008;
  ·
                  Mr.
      Ng assigned 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 transferred 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 from such
      persons;
  ·
                  Chardan
      Capital, a party to the Settlement Agreement, completed the January 2008
      Financing as placement agent, concurrently upon execution by all
      related parties of the Settlement
Agreement;
  F-7
 ·
                  Mr.
      David Zale, Mr. Jonas Grossman and Mr. James Cassano were appointed as
      directors joining Messrs. Pu Yue and Clive Ng on the
  board;
  ·
                  The
      Company agreed to extend the expiration dates of 4,000,000 warrants to
      purchase our 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
      holders of the Investor Warrants.  All releases were obtained as
      of May 2, 2008, resulting in the modification of all of the Investor
      Warrants; and
  ·
                  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, respectively, 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, all of which
      warrants have been extended
accordingly.
 
 The following table provides the
components of the net gain the Company recognized as a result of the Settlement
Agreement in 2008 which is recorded in “Interest and other income (expense)” in
the accompanying Statement of Operations:
 
 Fair
      value of Cablecom Holdings Shares
                  
                  $
                  2,515,500Waiver
      of accrued compensation
                  
                  
                  212,054Warrant
      extensions
                  
                  
                  (1,426,862
                  )Net
      Gain
                  
                  $
                  1,300,692
 
 January
2008 Financing of Convertible Notes and Warrants
 
 On January 11, 2008, simultaneously
with the entry into the Settlement Agreement, we entered into and consummated a
note and warrant financing pursuant to 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 convertible notes (“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 (the “January 2008
Financing”).
 
 While the gross proceeds of the
offering were $4,850,000, Chardan Capital applied its 2.5% cash placement
agent commission ($121,250) towards a subscription for Notes and Class A
Warrants resulting in the issuance of an aggregate of $4,971,250 principal
amount of Notes resulting in no cash payout to them at the closing for their
transfer agent fee.  Interest on the Notes compounds monthly at the
annual rate of five percent (5%) with the maturity date on January 11, 2013, if
not paid earlier.  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
(6,628,333 shares as of the issuance date).  The Notes have “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.
 
 In 2008 the Company incurred $345,000
in interest expense related to the Notes and Warrants.  With the
consent of the Note holders, the Company issued 329,856 shares to Note holders
in lieu of cash.
 
 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 placement agent fee of
$121,250 (based on 2.5% of $4,850,000 of principal amount of Notes issued to
other investors), which fee has, pursuant to the terms of their engagement
agreement, been applied their investment in a $121,250 Note and 161,667 Class A
Warrants at the same terms as all other investors in the offering and whose
value is included and discount applied in the same manner as the Class A
Warrants.  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. The Company recognized the
fair value of the Broker Warrants of $226,835 as debt issuance costs and is
amortizing such value over the five year life of the Convertible
Notes.
 
 F-8
 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, our Chairman and Majority
Shareholder, 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 $.001 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 madepari pasuamong all shareholders
subject to the 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-UpAgreement for all parties effective as
of January 13, 2008.
 3.
                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, ChinaBroadband
Cayman. The statements also includes those of our WOFE entities controlled
through the WOFEand  Jinan Broadband and Shandong
Media.Allmaterial 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 (GAAP). The Company has elected a December 31, year-end.
 
 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.
 
 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. Accounts receivable of $137,000 and $137,000 as of December
31, 2008 and 2007, respectively, consisted of receivables from
customers.
  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 $877,000 and $642,000 as of
December 31, 2008 and 2007, 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 $2,800,000 and $1,718,000, during the years ended December 31, 2008 and 2007,
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.
 
 F-9
 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.
  No
impairment have been recognized in either 2008 or 2007.
  h)
                  Intangible
      Assets
 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.”
  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.
 
 F-10
 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 positionor
results of operations.
 
 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 subsidiaryand Shandong Media joint
venturelocated inChinauses its local currency (RMB) as its
functional currency. Translation adjustments are reported as other comprehensive
income or expenses and accumulated as other comprehensiveincome 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 are reported as a separate component of stockholders’ equity
and are included in Comprehensive Loss.  The currency translation
adjustment increased equity by $332,000 for the period ended December 31,
2008.
  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 inJinan, a sub-provincial city ofShandongprovince in the People’s Republic ofChina.
 
 n)
                  Fair value of
      Financial Instruments
 The fair values of accountsreceivable, prepaid expensesandaccounts payable and accruedexpenses are estimated to
approximate the carrying valuesatDecember 31, 2008due 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.
 
 3.
                Going
      Concern
 The
accompanying financial statements are presented on a going concern
basis.  At December 31, 2008, the Company had a working capital
deficit of approximately $675,000.  The Company generated a net loss
of $3,354,000 and $2,014,000 during the years ended December 31, 2008 and 2007,
respectively.  These conditions 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.
 F-11
  Management
plans to raise additional funds through debt or equity offerings or to merge
with or acquire other companies. Management has yet to decide what type of
offering the Company will use, how much capital the Company will raise and which
company it will merge with or acquire. There is no guarantee that the Company
will be able to raise any capital through any type of offerings or merge with or
acquire any other companies.
  4.
                Convertible
      Notes
 As
described in Note 2 above, on January 11, 2008 the Company entered
into and consummated the 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. During 2008 the Company incurred $345,000 in interest expense
related to these Notes and Warrants.
 
 Based on
a predetermined presumed value of $.75 per share as set forth in the
Subscription Agreement and related documents during 2008, with the consent of
the Note holders, the Company issued 329,856 shares to the Note holders in lieu
of cash of approximately $247,000 for interest in 2008.  No assurance
can be made that these holders will be willing to accept stock in lieu of cash
payments for interest in future payments.
 
 5.
                Marketable
      Equity Securities
 The
Company holds investments in certain “available-for-sale” marketable equity
securities all of which consist of the Cablecom Holdings Shares (Note 2).
Available-for-sale securities and are carried at estimated fair value, based on
available information. In 2008 the Company recognized an other than temporary
loss of $1,797,000 in interest and other income (expense).  The
securities remain on the Company’s books as of December 31, 2008 at the fair
value amount of $270,000.
 
 During
2008, the Company sold 71,880 Cablecom Holdings Shares for gross proceeds of
approximately $361,000 leaving the Company with 318,120 Cablecom Holdings
Shares. The Company recognized a net loss from the sale of these securities of
approximately $103,000.
  6.
                Property and
      Equipment
 Property and equipment at December 31, 2008 and
2007consistedof the following:
  2008
                                  
                                  
                                  2007Furniture, fixtures and electrical
      appliances
                                  
                                  $
                                  835,000
                                  
                                  
                                  $
                                  631,000Headend facilities and fiber
      infrastructure
                                  
                                  
                                  13,177,000
                                  
                                  
                                  
                                  11,420,000Other
                                  
                                  
                                  27,000
                                  
                                  
                                  
                                  -Total property and
      equipment
                                  
                                  
                                  14,039,000
                                  
                                  
                                  
                                  12,051,000Less: accumulated
      depreciation
                                  
                                  
                                  (4,740,000
                                  )
                                  
                                  
                                  (1,718,000
                                  )Net carrying
      value
                                  
                                  $
                                  9,299,000
                                  
                                  
                                  $
                                  10,333,000Depreciation
      expense
                                  
                                  $
                                  2,800,000
                                  
                                  
                                  $
                                  1,718,000
  7.
                Accrued
      Expenses
 Accrued expenses at December 31,
2008and 2007consist of the
following:
  2008
                        
                        
                        2007Accrued
      expenses
                        
                        $
                        543,000
                        
                        
                        $
                        254,000Accrued
    payroll
                        
                        
                        393,000
                        
                        
                        
                        300,000$
                        936,000
                        
                        
                        $
                        554,000
 8.
                Accumulated Other Comprehensive
      Income
 The foreign currency translation
adjustment is the only amount included in accumulatedother comprehensive income
(loss).  Theforeigncurrency translation adjustmentisfrom the Renminbi to the US
dollar.  We recorded amounts of $(11,000) and $332,000
during 2008 and 2007,
respectively.
  F-12
  9.
                Stock Based
      Compensation
 
 The
following table provides the details of the total stock based compensation
during 2008 and 2007:
 
 2008
                      
                      
                      2007Stock
      issued for consulting services
                      
                      $
                      -
                      
                      
                      $
                      208,699Stock
      option amortization
                      
                      
                      44,898
                      
                      
                      
                      -Warrant
      amortization
                      
                      
                      14,198
                      
                      
                      
                      -Stock
      issued in lieu of interest
                      
                      
                      247,391
                      
                      
                      
                      -Stock
      issued as non registration penalty
                      
                      
                      12,125
                      
                      
                      
                      -$
                      318,612
                      
                      
                      $
                      208,699
 
 The
Company accounts for its stock option awards pursuant to the provisions of SFAS
123(R) and recorded a charge of $8,216 in connection with the issuance of stock
options to employees and a charge of $36,682 in connection with the issuance of
stock options to our board members in 2008. During 2007 no options were
outstanding and company incurred no charges in 2007.
 
 The fair value of each option award is estimated on the date of
grant using the Black-Scholes option valuation model. The Company recognizes the
fair value of each option as compensation expense ratably using the
straight-line attribution method over the service period, which is generally the
vesting period. The Black-Scholes model incorporates the following
assumptions:
  ·
                Expected
      volatility - the Company estimates the volatility of common stock at the
      date of grant using historical
volatility.
  ·
                Expected
      term - the Company estimates the expected term of options granted based on
      a combination of vesting schedules, term of the option and historical
      experience.
  ·
                Risk-free
      interest rate - the Company estimates the risk-free interest rate using
      the U.S. Treasury yield curve for periods equal to the expected term of
      the options in effect at the time of
grant.
  ·
                Dividends
      - the Company uses an expected dividend yield of zero. The Company intends
      to retain any earnings to fund future operations and, therefore, does not
      anticipate paying any cash dividends in the foreseeable
      future.
  The
following table outlines the variables used in the Black-Scholes option-pricing
model.
 
 2008Risk
      free interest rate
                      
                      
                      3.53
                      %Volatility
                      
                      
                      188.76
                      %Dividend
      yield
                      
                      
                      -
                      %Expected
      option life
                      
                      4
      years
   As of
December 31, the Company had total unrecognized compensation expense related to
options granted to employees and board members of $61,330, which will be
recognized over a remaining average period of 2 years.
  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. 250,000 options have been issued under the
plan.
  F-13
 A summary
of option activity under the Plan as of December 31, 2008, and changes during
the period then ended, is presented below:
  Shares
                      
                      
                      Weighted
      Average Exercise Price
                      
                      
                      Weighted
      Average Remaining Contractual TermOptions
      outstanding at January 1, 2008
                      
                      
                      -
                      
                      
                      $
                      -
                      
                      
                      
                      -Options
      granted
                      
                      
                      317,500
                      
                      
                      
                      0.66
                      
                      
                      
                      6.50Options
      exercised
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Options
      terminated and expired
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Options
      outstanding at December 31, 2008
                      
                      
                      250,000
                      
                      
                      
                      0.67
                      
                      
                      
                      6.50Options
      exercisable at December 31, 2008
                      
                      
                      145,000
                      
                      
                      
                      0.59
                      
                      
                      
                      6.50
 
 
 In
connection with the Company’s Share Exchange, capital raising efforts in 2007
and the Company’s January 2008 Financing of Convertible Notes and Class A
Warrants described in Item 1 above, the Company has issued 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 warrants outstanding as of December 31, 2008:
  Number
      ofWarrants
                          
                          
                          Exercise
                          
                          
                          ExpirationName
                          
                          Issued
                          
                          
                          Price
                          
                          
                          DateMaxim
      Financial Corporation
                          
                          
                          3,974,800
                          
                          
                          $
                          0.60
                          
                          
                          
                          1/11/2013WestPark
      Capital, Inc.
                          
                          
                          640,000
                          
                          
                          $
                          0.60
                          
                          
                          
                          1/11/2013BCGU
      LLC
                          
                          
                          500,000
                          
                          
                          $
                          0.60
                          
                          
                          
                          1/11/20132007
      Private Placement Investor Warrants
                          
                          
                          4,000,000
                          
                          
                          $
                          2.00
                          
                          
                          
                          1/11/2013January
      2008 Financing Class A Warrants
                          
                          
                          6,628,333
                          
                          
                          $
                          0.60
                          
                          
                          
                          1/11/2013Chardan
      Capital Broker Warrants
                          
                          
                          1,131,667
                          
                          
                          $
                          0.50
                          
                          
                          
                          6/11/2013Other
      Warrants
                          
                          
                          67,500
                          
                          
                          $
                          0.60
                          
                          
                          
                          3/13/201316,942,300
   On
January 11, 2008, as part of the Settlement Agreement described above in Item 1,
the Company agreed to extend the expiration date of the Maxim Financial
Corporation, WestPark Capital, BCGU and the 2007 Private Placement Investor
warrants issued in 2007 until January 11, 2013.  The Company recorded an expense of
$1,426,862 in 2008 as a result of the extension of these
warrants.
 
 On
January 11, 2008 the Company issued warrants in connection with the January 2008
Financing of Notes and Class A Warrants to ten accredited investors and Chardan
Capital as broker.  The
Company recorded the value of theClass A Warrantsof $504,661 as a discount to the Notes
issued therewith and is amortizing this discount over the five year life of
the Notes.
 
 On
January 11, 2008 the Company issued the 1,131,667 Broker Warrants expiring June
11, 2013 in connection with the January 2008 Financing to Chardan Capital as
broker.  The Company is
recognizing the valueof
the Broker Warrants of $226,835 as debt issuance costs and is expensing the
value over the five year life of the Convertible Notes.
 
 Pursuant
to an agreement entered into in April 2007, the Company also issued warrants to
a consultant for services provided on March 13, 2008, exercisable at $.60 per
share. The Company incurred an expense of $14,198 during 2008 related to the
issuance of these warrants and had total unrecognized compensation expense
related to these warrants of $7,099, which will be recognized in April
2009.
 
 10.
                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 believes that because of the lack of taxable income there will be no
material penalties resulting from any previous
non-compliance.
 F-14
 Management
believes that it has $6,706,453 of pre-exchange transaction net operating loss
carryovers that expire in various years through 2025.  Since
Management has not been able to determine whether income tax returns were filed
prior to the January 23, 2007 merger transaction, 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, 2008 and 2007 the Company generated an additional
U.S. net operating loss carryover of $ 477,000and $1,023,000 which expires in
2028 and 2027, respectively.  Jinan Broadband has generated an
additional Chinese net operating loss carryover of $407,000 and $732,498 during
the year ended December 31, 2008 and 2007, which expires in 2013 and
2012.  Shandong Media has generated $86,000 Chinese net operating loss
carryover during the year ended December 31, 2008.  The estimation of
the income tax effect of any future repatriation of the Company’s 51% share of
Jinan Broadband’s profits and the non-controlling interest in Shandong Media is
not practicable.  This is because it may involve additional Chinese
taxation on 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
$1,638,000 at December 31, 2008.
 
 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, 2008 and 2007
consisted of:
 
 2008
                  
                  
                  2007Deferred
      tax assetsU.S.
      NOL - pre-stock exchange transaction
                  
                  $
                  2,280,194
                  
                  
                  $
                  2,280,194U.S.
      NOL - subsequent to stock exchange transaction
                  
                  
                  510,082
                  
                  
                  
                  347,986Foreign
      NOL
                  
                  
                  219,379
                  
                  
                  
                  93,393Deferred
      revenue
                  
                  
                  345,526
                  
                  
                  
                  -Fixed
      assets cost basis
                  
                  
                  409,876
                  
                  
                  
                  -Accrued
      payroll
                  
                  
                  133,716
                  
                  
                  
                  72,098Total
      deferred tax assets
                  
                  
                  3,898,772
                  
                  
                  
                  2,793,671Less:
      valuation allowance
                  
                  
                  (3,649,485
                  )
                  
                  
                  (2,750,133
                  )Deferred
      tax liability - intangible assets
                  
                  
                  (1,039,905
                  )
                  
                  
                  (410,210
                  )Net
      deferred tax liability
                  
                  $
                  (790,617
                  )
                  
                  $
                  (366,673
                  )
 
 The
deferred tax valuation allowance increased $899,000 and $2,750,000 during the
year ended December 31, 2008 and 2007, respectively.  $2,280,000 of
the 2007 increase in deferred tax valuation allowance amount was acquired in the
stock exchange transaction and the remaining $470,000 by the companies
operations.
 
 F-15
 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:
 
 2008
                  
                  
                  2007Net
      loss before income taxes
                  
                  
                  (3,870,499
                  )
                  
                  
                  (2,161,988
                  )Expected
      income tax benefit at 34%
                  
                  
                  (1,315,970
                  )
                  
                  
                  (735,076
                  )Nondeductible
      expenses
                  
                  
                  273
                  
                  
                  
                  43,662Rate-differential
      on foreign income invested indefinitely
                  
                  
                  135,132
                  
                  
                  
                  110,848WFOE
      NOL not recognized for indefinite reversal
                  
                  
                  12,681
                  
                  
                  
                  14,601Depreciation
      of fixed assets and amortization of intangible assets
                  
                  
                  123,779
                  
                  
                  
                  -Deferred
      revenue
                  
                  
                  (345,526
                  )
                  
                  
                  -Stock
      options and warrants
                  
                  
                  (26,830
                  )
                  
                  
                  -Write-down
      in value of available for sale securities
                  
                  
                  611,109
                  
                  
                  
                  -Increase
      in valuation allowance
                  
                  
                  899,352
                  
                  
                  
                  418,010Income
      tax expense (benefit)
                  
                  $
                  93,998
                  
                  
                  $
                  (147,955
                  )
 11.
                Commitments and
      Contingencies
 Leases
 The Company pays approximately $58,000 (400,000 RMB) annually for rent at its
facilities inJinan,China, renewable on an annual
basis.The
Company paidapproximately
$47,000 (RMB 325,000) for 6 months rent in 2008 for its Shandong Media facility,
renewable on an annual basis at $94,000.
 
 Jinan Broadband has a contract withJinanCenterto install cables.  The
contract value is approximately $730,000 (RMB 5.0 million) for the period of
October 2008 through October 2009.  As of December 31, 2008 Jinan
Broadband has completedapproximately $248,000 (RMB 1.7 million)
with the remaining $482,000 (RMB 3.3 million) to be completed in
2009.
 
 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 endedDecember 31,
2007and 2006 and has
agreed to discharge all rental costs under the terms of its consulting agreement
with the Company throughDecember 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.
 
 12.
                Recent Accounting
      Pronouncements
 In December 2008, the FASB issued FSP
FAS132(R)-1,
“Employers’Disclosures about Postretirement
Benefit Plan Assets”(“FSP FAS132(R)-1”). FSP FAS 132(R)-1 applies to an
employer that is subject to the disclosure requirements of
SFAS No.132
(revised 2003), “Employers’Disclosures about Pensions and Other
Postretirement Benefits”(“SFAS132R”) and amends SFAS 132R to provide
guidance on an employer’s disclosures about plan assets of a
defined benefit pensionor other postretirement plan. The
disclosures about plan assets required by FSP FAS 132(R)-1 shall be
provided for fiscal years ending afterDecember 15, 2009. Earlier application is permitted. We
do not expect the adoption of FSP FAS 132(R)-1 to have a material impact on our consolidated
financial statements.
  In November 2008, the FASB issued EITF
Issue No.08-7,
“Accounting for Defensive
Intangible Assets”(“EITF08-7”). EITF 08-7 applies to all
acquired intangible assets in situations in which the acquirer does not intend to actively use
the asset but intends to hold the asset to prevent its competitors from
obtaining access to the asset (a defensive intangible asset). Defensive
intangible assets could include assets that the acquirer will never
actively use, as well as assets that will be
used by the acquirer during a transition period when the intention of the
acquirer is to discontinue the use of those assets. EITF 08-7 concluded
that a defensive intangible asset should be accounted for as a
separate unit of accounting and should be
amortized over the period that the defensive intangible asset directly or
indirectly contributes to the future cash flows of the entity. EITF 08-7 is
effective prospectively for intangible assets acquired on or after
thebeginning of the first annual reporting
period beginning on or afterDecember 15, 2008. Earlier application is not
permitted.
  In June
2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions are Participating Securities.
This FSP provides that unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and shall be included in the computation of
earnings per share pursuant to the two-class method. The Company does not
currently have any share-based awards that would qualify as participating
securities. Therefore, application of this FSP is not expected to have an effect
on the Company's financial reporting.
 F-16
 In May
2008, the FASB issued FASB Staff Position (FSP) APB 14-1, Accounting for Convertible Debt That
May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)("FSP 14-1"). FSP 14-1 will be effective for financial statements issued
for fiscal years beginning after December 15, 2008. The FSP includes guidance
that convertible debt instruments that may be settled in cash upon conversion
should be separated between the liability and equity components, with each
component being accounted for in a manner that will reflect the entity's
nonconvertible debt borrowing rate when interest costs are recognized in
subsequent periods. The Company is currently assessing the potential effect of
the FSP on its financial statements.
 
 In May
2008, the FASB issued Statement of Financial Accounting Standards No. 162, The Hierarchyof Generally Accepted Accounting
Principles(“FAS 162"). This Standard identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles. FAS 162
directs thehierarchy to the
entity, rather than the independent auditors, as the entity is responsible for
selecting accounting principles for financial statements that are presented in
conformity with generally accepted accounting principles. The Standard is
effective 60 days following SEC approval of the Public Company Accounting
Oversight Board amendments to remove the hierarchy of generally accepted
accounting principles from the auditing standards. FAS 162 is not expected to
have an impact on the financial statements
 
 In May
2008, the FASB issued Statement of Financial Accounting Standards No. 162, The Hierarchyof Generally Accepted Accounting
Principles(“FAS 162"). This Standard identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles. FAS 162
directs thehierarchy to the
entity, rather than the independent auditors, as the entity is responsible for
selecting accounting principles for financial statements that are presented in
conformity with generally accepted accounting principles. The Standard is
effective 60 days following SEC approval of the Public Company Accounting
Oversight Board amendments to remove the hierarchy of generally accepted
accounting principles from the auditing standards. FAS 162 is not expected to
have an impact on the financial statements.
 
 In April2008, the FASB issued FASB Staff
Position FAS 142-3, “Determination of the Useful Life of
Intangible Assets”(“FSP FAS
142-3”). FSP FAS 142-3
amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset
under SFAS No.142,
“Goodwill and Other
Intangible Assets”(“SFAS 142”), and requires additional disclosures. The
objective of FSP FAS 142-3 is to improve the consistency between the useful life
of a recognized intangible asset under SFAS 142 and the period of expected cash
flows used to measure the fair value of the asset under SFASNo.141 (R), “Business Combinations”(“SFAS 141(R)”), and other accounting principles
generally accepted in the United States of America. FSP FAS 142-3 applies to all
intangible assets, whether acquired in a business combination or otherwise and
shall beeffective for financial statements issued
for fiscal years beginning afterDecember 15, 2008, and interim periods within those
fiscal years. The guidance for determining the useful life of intangible assets
shall be applied prospectively to intangible assets acquired after the effective date. The
disclosure requirements apply prospectively to all intangible assets recognized
as of, and subsequent to, the effective date. Early adoption is prohibited. The
Company does not expect the adoption of FSP FAS 142-3to have a material impact on its
consolidated financial statements.
 
 In March
2008, the FASB issued Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities (“SFAS 161”), which is effective January 1,
2009. SFAS 161 requires enhanced disclosures about derivative instruments and
hedging activities to allow for a better understanding of their effects on an
entity’s financial position, financial performance, and cash flows. Among other
things, SFAS 161 requires disclosures of the fair values of derivative
instruments and associated gains and losses in a tabular
formant.  SFAS 161 is not currently applicable to the Company since
the Company does not have derivative instruments or hedging
activities
  In February 2008, the FASB issued FASB
Staff Position No. 157-2, Effective Date of FASB Statement No. 157 ("FSP
157-2"), which delays the effective date of SFAS 157 for nonfinancial assets and
nonfinancial liabilities. Therefore, the Company has delayed application of SFAS
157 to its nonfinancial assets and nonfinancial liabilities, which include
assets and liabilities acquired in connection with a business combination,
goodwill, intangible assets and asset retirement obligations recognized in
connection with final capping, closure and post-closure landfill obligations,
untilJanuary 1,
2009. The Company is
currently evaluating the impact of SFAS 157 for nonfinancial assets and
liabilities on the Company's financial position and results of
operations.
  In February 2007, the FASB issued SFAS
No. 159, The Fair Value Option for Financial Assets and Financial Liabilities.
SFAS No. 159 permits companies to choose to measure many financial instruments
and certain other items at fair value. SFAS No. 159 is effective for financial
statements issued for fiscal years beginning afterNovember 15, 2007. The adoption of SFAS No. 159 did not
have a material impact on our consolidated financial
statements.
 F-17
 In
December 2007, the FASB issued SFAS No. 141 (R), Business Combinations, and SFAS
No. 160, Noncontrolling Interests in Consolidated Financial Statements. SFAS No.
141 (R) requires an acquirer to measure the identifiable assets acquired, the
liabilities assumed and any noncontrolling interest in the acquiree at their
fair values on the acquisition date, with goodwill being the excess value over
the net identifiable assets acquired. SFAS No. 160 clarifies that a
noncontrolling interest in a subsidiary should be reported as equity in the
consolidated financial statements. The calculation of earnings per share will
continue to be based on income amounts attributable to the parent. SFAS No. 141
(R) and SFAS No. 160 are effective for financial statements issued for fiscal
years beginning after December 15, 2008. Early adoption is prohibited. The
Company has not yet determined the effect on our consolidated financial
statements, if any, upon adoption of SFAS No. 141 (R) or SFAS No.
160.  Our recent acquisition of AdNet (Note 13) will be accounted for
in accordance with these new standards.
 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.
  
 13.
                Subsequent
      Events
 On April
7, 2009 we signed an agreement to acquire AdNet China, a leader in the delivery
of multimedia advertising content to internet cafes in China.  AdNet
China currently operates in 29 provinces in China with servers in five data
centers including Wuhan, Wenzhou, Yantai, Yunan, with a master distribution
server in Tongshan.
 Partnering
with local advertisement agencies, AdNet China provides a network for tens of
thousands of daily video ad insertions to entertainment content traffic (movies,
music, video, and games). The Company projects a target service initiation of
over 3,000 cafes during the first quarter of 2009, and progressing to triple
that by the end of the year.
  We
anticipate many synergic relationships between Adnet and our existing
assets.  Besides growing Adnet’s core business, the Adnet employees
that will be joining China Broadband have experience with and will focus on
additional value-added services for both Jinan Broadband and Shandong
Media.
  F-18


Item
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosures





None.




Item 9A.  Controls and
Procedures





Disclosure
Controls and Procedures





Management, under the supervision and
with the participation of our Principal Executive Officer and Principal
Financial Officer,  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
this report  (December 31, 2008) and concluded that the
disclosure controls and procedures were effective 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.  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 Exchange 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.   Accordingly, at the
time of the final filing hereof, 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.





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.   This was primarily
due to its mid year acquisitions of operating businesses in the PRC in both 2007
and then in early 2008.  In addition, the Company determined in 2008
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, and has done so. 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 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.





Management assessed the effectiveness
of the Company’s internal control over financial reporting as of December 31,
2008.  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 effective as of December 31, 2008.  Management
has, during 2008,  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.




35


This Form 10-K 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 ExchangeCommission that permit
the Company to provide only management's report in this annual
report.







Item
9B.   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. Currently, only 317,500 options were issued under the plan, of which
100,000 were granted to Mr. Urbach as per his employment agreement with the
company (as described below) with the remaining 217,500 issued to certain
directors and a consultant in 2008.





36


PART
III




Item 10. Directors, Executive
Officers and Corporate Governance





Executive
Officer and Directors





The executive officers and directors of
the Company as of the date hereof are as set forth in the below
chart.





Simultaneously with the closing of the
Convertible Note 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 Pu
Yue.  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 who
has resigned effective April 8, 2008:








Name
            Age
            PositionMarc
      Urbach
            36
            President,
      Principal Executive OfficerTom
      Lee
            51
            Chief
      Executive Officer (January 11,2008 - April 8, 2008)Clive
      Ng
            46
            Chairman,
      DirectorPu
      Yue
            36
            Vice
      Chairman of China Broadband, Ltd. and China Broadband, Inc., and Principal
      Accounting Officer and Principal Financial OfficerJames
      Cassano
            62
            DirectorDavid
      Zale
            55
            DirectorJonas
      Grossman
            34
            DirectorPriscilla
      Lu
            56
            Director
      (Appointed April 7, 2009)





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).




Pu Yueis 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.





37


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.





Dr. Priscilla Lu, is a
Managing Partner of Cathaya Funds, a private equity fund which she co founded in
December 2008, focused on investing in mature PRC businesses where she acts as
independent consultant in assisting in leveraging cross border
alliances.   Dr. Lu was PRC advisor to Mayfield since November
2003 for more than 5 years and helped found GSR Fund in China.  Between
February 2004 and May 2008, Dr Lu served as CEO of ViDeOnline,Inc., a company which
delivers digital media content over secured broadband and mobile networks to
broadband service providers in PRC.  Dr. Lu founded ViDeOnline, Inc. in
February 2004.   In 1994, Dr. Lu was founder of interWAVE
Communications Inc.  (Nasdaq “IWAV”), a company for which she served
as Chairman and CEO between June 1994 to November 2003, and for which she was an
executive during its public offering and NASDAQ Between 1976 and 1993, Dr. Lu
served in various capacities at AT&T Bell Laboratories, where she led
efforts in digital switching and networking and assisted in pioneering early
technologies in CMOS VLSI in microprocessors.  Dr. Lu has B.S. and M.S.
degrees in Computer Science and Mathematics, University of Wisconsin, Madison
and holds a Ph.D. in Electrical Engineering and Computer Science from
Northwestern University.





38


Previous
Management





Tom Lee was appointed as Chief
Executive Officer effective as of January 11, 2008 through April 8, 2008 and is
no longer with 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.





Employment
Agreement Amendments





Additionally, in connection with the
Settlement Agreement and convertible note financing in January 2008, Messrs. Pu
Yue 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.  The
modifications included reducing their time commitments to the Company and its
subsidiaries 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 any and all accrued salary compensation owed to him by the Company,
through January 11, 2008, all of which has accrued but were not
paid.





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.





In 2008 the Company established an
audit committee, nominating committee and compensation committee.
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 Pu Yue and the Settlement Agreement.


39


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 Pu Yue. 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.





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.





Appointment of Dr. Lu As Director
Pursuant to AdNet Acquisition





The terms
of the AdNet acquisition completed in April of 2009 provides that, effective as
of the closing of the AdNet Acquisition on April 7, 2009 and for a minimum of
two years thereafter, the Company will make all commercially reasonable best
efforts to appoint and maintain Dr. Priscilla Lu to the Board of the China
Broadband (with no requirement for re-appointment or nomination after the two
year anniversary following the closing), and, that in the event she is unable to
continue her duties for any reason during such two year period following
closing, the former AdNet Shareholders acting by vote of the majority of the
Broadband Shares issued to them at the closing shall have the right, but not the
obligation, to appoint or remove a designee to the Board of directors of the
Parent for the remainder of such term, which designees shall be reasonably
acceptable to the majority of the remaining Board members.





Prior to
the AdNet acquisition and her appointment to the Board, Dr. Lu was not
affiliated with the Company.





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





Although, 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 are not required to
have an audit committee, we have established an audit committee, nominating
committee and compensation committee with the committee heads James Cassano,
David Zale and Jonas Grossman, respectively. Messrs Cassano, Zale and Grossman
were also each appointed to the foregoing committees as of June 13,
2008.   The committees have not met during 2008.





Advisory
Board





We do not currently have an Advisory
Board.





Meetings
of our Board of Directors





Our Board of Directors took action by
written consent in lieu of meeting two times and held one board meeting during
the 2008 fiscal year.





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, 2008, 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 Mr.  Tom Lee who has not filed any report upon departing the
company.





40


Code
of Ethics





To date, we have not adopted a Code of
Ethics as described in Item 406 of Regulation S-K. 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 11. Executive Compensation





Summary of 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,
2008 and 2007.




Change
      inPension
      ValueNon-Equity
                
                and
      NonqualifiedIncentive
                
                DeferredStock
                
                Option
                
                Plan
                
                Compensation
                
                All
      OtherYear
                
                Salary
                
                Bonus
                
                Awards
                
                Awards
                
                Compensation
                
                Earnings
                
                Compensation
                
                
                Total(1)
      Clive Ng,
                2008
                
                $
                242,607
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                -
                
                
                $
                242,607Chairman
                2007
                
                
                -
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                -(2) Yu
      Pu,
                2008
                
                
                120,000
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                120,000Vice
      Chairman
                2007
                
                
                101,786
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                101,786Marc Urbach,
                2008
                
                
                102,759
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                12,016
                
                
                
                114,775President
      and PrincipalExecutive
      Officer
                2007
                
                
                -(3) Mark
      L. Baum,
                2008
                
                
                -Former
      President, CFOand
      Director
                2007
                
                
                -(3) James
      Panthe, II
                2008
                
                
                -Former
      Director andSecretary
                2007
                
                
                -


(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’s discharged and waived all accrued salary of $212,054 owed to him by the
Company, and agreed to accrue future salary until a financing.





(2) Mr.
Yu became an executive and director of the Company, simultaneously with the
closing of our Share Exchange Agreement on January 23, 2007.  Mr.
Yue’s salary was accrued in 2007 and not paid in accordance with his employment
agreement and was to be paid upon a subsequent financing.  Mr. Yu was
paid $60,000 in 2008.





(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.








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,
2008.







Option
      Awards
              
              
              
              Stock
      AwardsEquity
              EquityEquity
              
              
              
              
              
              Incentive
              IncentiveIncentive
              
              
              
              
              
              Plan
      Awards:
              Plan
      Awards:Plan
      Awards:
              
              
              
              
              Market
              Number
      of
              Market
      orNumber
      of
              Number
      of
              Number
      of
              
              
              
              Number
      of
              Value
      of
              Unearned
              Payout
      ValueSecurities
              Securities
              Securities
              
              
              
              Shares
      or
              Shares
      or
              Shares,
              of
      UnearnedUnderlying
              Underlying
              Underlying
              
              
              
              Units
      of
              Units
      of
              Units
      or
              Shares,
      Units orUnexercised
              Unexercised
              Unexercised
              Option
              
              
              Stock
              Stock
              Other
      Rights
              Other
      RightsOptions
              Options
              Unearned
              Exercise
              Option
              
              That
      have
              That
      have
              That
      have
              That
      have(#)
              (#)
              Options
              Price
              Expiration
              
              not
      vested
              not
      vested
              not
      vested
              not
      vestedName
              
              Exercisable
              Unexcercisable
              (#)
              ($)
              Date
              
              (#)
              ($)
              (#)
              ($)Marc
      Urbach
              
              25000
              75,000
              
              $        1.00
              3/13/2018





41


2008 Director Compensation





We currently do not compensate our
directors.  Directors are eligible however to participate in our 2008
Stock Option Plan. Our three independent directors, Mr. Jonas Grossman, David
Zale and James Cassano were each granted options to acquire 50,000 shares at
$.50 per share, becoming exercisable over three years, commencing June
2008.




Employment
and Consultant Agreements





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
discretionary bonuses and a vehicle and travel allowance and similar benefits as
an executive.





Consulting
Agreement and Office Lease with Maxim Financial Corporation





We have 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 it,
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
12. 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 20, 2009
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 20, 2009, we had 50,585,455 shares of common
stock outstanding




Amount
      of
              
              
              Percent
      ofBeneficial
              
              
              BeneficialName
      of Beneficial Owner
              
              Ownership
      (1)
              
              
              Ownership
      (1)(2
              )
              Clive
      Ng
              
              
              26,002,915
              
              (3)
              
              51.4
              %(4
              )
              Marc
      Urbach
              
              
              50,000
              
              
              
              0.1
              %(5
              )
              Pu
      Yue
              
              
              0
              
              
              
              0.0
              %(6
              )
              David
      Zale
              
              
              100,000
              
              (6)
              
              0.2
              %(7
              )
              James
      Cassano
              
              
              25,000
              
              
              
              0.0
              %(8
              )
              Jonas
      Grossman
              
              
              352,375
              
              (9)
              
              0.7
              %Other
      Persons (Non Executives etc.)(10
              )
              Mark
      L. Baum, Esq.
              
              
              3,000,000
              
              (10)
              
              5.9
              %Oliveira
      Capital, LLC
              
              
              3,026,649
              
              (11)
              
              6.0
              %All
      Directors and Executive Officers
              
              
              26,530,290
              
              
              
              52.4
              %
  42





*           Indicates
less than 1%.





(1)           Indicates
shares and percentages held as of March 20, 2009, based on 50,585,455 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 rdFloor,
Boulder, Colorado 80302.




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




(4)           Includes
shares issuable upon options to exercise 50,000 shares which are exercisable
within 60 days at $1.00 per share. Does not include options to purchase an
additional 50,000 shares at $1.00 which are not yet exercisable.  The
address for Mr. Urbach is 79 Green Hill Rd, Springfield,
NJ  07081.




(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
warrants to purchase common stock at $2.00 acquired in our January 2007 private
offering. ..  Includes shares issuable upon options to exercise 25,000
shares which are exercisable at $.45.  Does not include options to
purchase an additional 25,000 shares at $.45 which are not yet
exercisable.





(7)           The
address for Mr. Cassano is 117 Graham Way, Devon, Pennsylvania,
19333..  Includes shares issuable upon options to exercise 25,000
shares which are exercisable at $.45.  Does not include options to
purchase an additional 25,000 shares at $.45 which are not yet
exercisable.





(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 warrants in connection with its services as placement
agent in connection with our January 2008 Note and warrant offering and which
also invested its fee into Notes and 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 convertible promissory notes, 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 all conversion thereof, (ii) 1,131,666 shares of Warrants, of
which, Mr. Grossman disclaims beneficial ownership of 877,041 shares issuable
upon conversions thereof and, (iii) 161,667 shares of Class A Warrants, of which
Mr. Grossman disclaims beneficial ownership of 125,292 shares issuable upon
conversion thereof.  Includes shares issuable upon options to exercise
25,000 shares which are exercisable at $.45.  Does not include options
to purchase an additional 25,000 shares at $.45 which are not yet
exercisable.





(10)           Indicates
shares acquired from China Broadband Partners, Ltd., an entity controlled by
Clive Ng, in conjunction with our January 2008 convertible note and warrant
financing.





Item
13. 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 “Item 7.  Management Discussion and Analysis of
Financial Condition and Results of Operations” section above, 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 on 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 Broadband Acquisition, Mark L.
Baum.





43


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.  There was
no relationship between the parties prior to such transaction. Additional
specific details relating to these transactions is provided in Item 1 above and
previous filings.





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.





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.





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.





44


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





Since 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 “Item 1.Business.”





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, 2008.





Audit
Fees





UHY, LLP Certified Public Accountants,
billed us $120,000 in fees for our annual audit for the year ended December 31,
2008.





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, 2008 and December 31,
2007.





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, 2008 and December 31,
2007.





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, 2008, 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.





Through the date of this filing, UHY
LLP had a continuing relationship with UHY Advisors NY, Inc. (“Advisors”) from
which it leased auditing staff who were full time, permanent employees of
Advisors and through which UHY LLP’s partners provide non-audit
services.  UHY LLP has only a few full time
employees.  Therefore, few, if any, of the audit services performed
were provided by permanent full-time employees of UHY LLP.  UHY LLP
manages and supervises the audit services and audit staff, and is exclusively
responsible for the opinion rendered in connection with its
examination.




45


PART
IV





Item
15. Exhibits, Financial Statement Schedules








Exhibit
            
            Description2.1
            
            Share
      Exchange Agreement dated as of January 23, 2007 by and among the Company,
      China Broadband, Ltd. and its shareholders.*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 Pu
      Yue, incorporated by reference from the Corporation’s Current Report on
      Form 8-K, dated January 23, 2007.10.10
            
            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.*




46




10.11
            
            Exclusive
      Service Agreement dated December 2006.10.12
            
            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., Pu Yue, 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)10.13
            
            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)10.14
            
            Employment
      Agreement Amendment, dated Janaury 11, 2008, amending employment agreement
      of Pu Yue. (Incorporated by reference from the Corporation’s Current
      Report on Form 8-K, dated January 11, 2008)10.15
            
            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)10.16
            
            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)10.17
            
            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)10.18
            
            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)10.19
            
            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)10.20
            
            Share
      Issuance Agreement between China Broadband, Inc., a Nevada corporation,
      China Broadband, Ltd., a Cayman Islands corporation, Waanshi Wangjing
      Media Technologies (Beijing) Co., Ltd. (a/k/a AdNet Media technologies
      (Beijing) Co., Ltd. (“AdNet”) and its shareholders, dated as of April 7,
      2009 (Incorporated by reference from the Corporation’s Current Report on
      Form 8-K, filed on April 13, 2009)31.1
            
            Certification
      by Principal Executive Officer pursuant to Sarbanes Oxley Section
      302.*31.2
            
            Certification
      by Principal Financial Officer pursuant to Sarbanes Oxley Section
      302.*32.1
            
            Certification
      by Principal Executive Officer pursuant to 18 U.S.C. Section
      1350.*32.2
            
            Certification
      by 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)99.2
            
            Audit
      Committee Charter99.3
            
            Nominating
      Committee Charter99.4
            
            Compensation
      Committee Charter




47





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 April 15, 2009, thereunto
duly authorized.







CHINA
      BROADBAND, INCBy:
            /s/
      Marc UrbachName:
      Marc Urbach
              Title:
      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)
            
            April
      15, 2009Marc
      Urbach/s/
      Pu Yue
            
            Vice
      Chairman of China Broadband, Ltd. and
            
            April  15,
      2009Pu
      Yue
            
            China
      Broadband, Inc., and Principal Accounting

              Officer
      and Principal Financial Officer and Director/s/Clive
      Ng
            
            Chairman,
      Director
            
            April  15,
      2009Clive
      Ng/s/
      James Cassano
            
            Director
            
            April
      15, 2009James
      Cassano/s/
      David Zale
            
            Director
            
            April
      15, 2009David
      Zale/s/Jonas
      Grossman
            
            Director
            
            April,
      15, 2009Jonas
      Grossman









48