UNITED STATES


SECURITIES AND EXCHANGE
COMMISSION


Washington,
D.C. 20549




FORM 10-Q




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





For the
quarterly period ended March 31, 2010





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.


(Exact
name of registrant as specified in its charter)





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





1900
Ninth Street, 3rd Floor


Boulder,
Colorado 80302


(Address
of principal executive offices)





(303)
449-7733


(Registrant's
telephone number, including area code)







(Former
name, former address and former fiscal year if changed since last
report)





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




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).                                                                                                                              
Yes o No x




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


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




Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: 65,086,152 shares as of May 17,
2010.











QUARTERLY
REPORT ON FORM 10-Q


OF
CHINA BROADBAND, INC.


FOR
THE PERIOD ENDED MARCH 31, 2010





TABLE
OF CONTENTS




PART I
              -
              FINANCIAL
      INFORMATION
              3Item
      1.
              
              Financial
      Statements
              3Item
      2.
              
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              15Item
      3
              
              Quantitative
      and Qualitative Disclosures About Market Risk
              20Item
      4.
              
              Controls
      and Procedures
              20PART II
              -
              OTHER
      INFORMATION
              21Item
      1.
              
              Legal
      Proceedings
              21Item
      1A.
              
              Risk
      Factors
              21Item
      2.
              
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              21Item
      3.
              
              Defaults
      Upon Senior Securities
              21Item
      4.
              
              Removed
      and Reserved
              21Item
      5.
              
              Other
      Information
              21Item
      6.
              
              Exhibits
              21Signatures
              22





References





Except
as otherwise indicated by the context, references in this report to (i) the
“Company,” “we,” “us,” and “our” are to the combined business of China
Broadband, Inc., a Nevada corporation, and its consolidated subsidiaries; (ii)
“Broadband Cayman” are to our wholly-owned subsidiary China Broadband, Ltd., a
Cayman Islands company; (iii) “WFOE” are to our wholly-owned subsidiary Beijing
China Broadband Network Technology Co., Ltd., a PRC company; (iv) “Jinan
Broadband” are to our 51% owned subsidiary Jinan Guangdian Jia He Broadband Co.
Ltd, a PRC company; (v) “Shandong Publishing” are to our 50% joint venture
Shandong Lushi Media Co., Ltd., a PRC company; (vi) “AdNet” are to our
wholly-owned subsidiary Wanshi Wangjing Media Technologies (Beijing) Co., Ltd.
(a/k/a AdNet Media Technologies (Beijing) Co., Ltd.), a PRC company; (vii) “SEC”
are to the United States Securities and Exchange Commission; (viii) “Securities
Act” are to Securities Act of 1933, as amended; (ix) “Exchange Act” are to the
Securities Exchange Act of 1934, as amended; (x) “PRC” and “China” are to
People’s Republic of China; (xii) “Renminbi” and “RMB” are to the legal currency
of China; and (xiii) “U.S. dollar,” “$” and “US$” are to United States
dollars.


2





PART
I — FINANCIAL INFORMATION




Item
1. Financial Statements.





China
Broadband, Inc. and Subsidiaries


CONSOLIDATED
BALANCE SHEETS





March 31,
                      
                      
                      December 31,2010
                      
                      
                      2009(Unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                      
                      $
                      1,513,927
                      
                      
                      $
                      2,190,494Marketable
      equity securities, available for sale
                      
                      
                      123,812
                      
                      
                      
                      47,244Accounts
      receivable, net
                      
                      
                      232,676
                      
                      
                      
                      213,713Inventory
                      
                      
                      493,529
                      
                      
                      
                      455,492Prepaid
      expense
                      
                      
                      238,401
                      
                      
                      
                      237,704Loan
      receivable from related party
                      
                      
                      290,020
                      
                      
                      
                      289,974Amounts
      due from shareholders
                      
                      
                      736,843
                      
                      
                      
                      168,907Other
      current assets
                      
                      
                      79,831
                      
                      
                      
                      78,478Total
      current assets
                      
                      
                      3,709,039
                      
                      
                      
                      3,682,006Property
      and equipment, net
                      
                      
                      6,783,901
                      
                      
                      
                      7,362,641Intangible
      assets, net
                      
                      
                      4,176,619
                      
                      
                      
                      4,294,614Convertible
      promissory note receivable
                      
                      
                      581,748
                      
                      
                      
                      -Other
      assets
                      
                      
                      407,388
                      
                      
                      
                      430,561Total
      assets
                      
                      $
                      15,658,695
                      
                      
                      $
                      15,769,822LIABILITIES AND SHAREHOLDERS'
      EQUITYCurrent
      liabilities:Accounts
      payable
                      
                      $
                      1,549,881
                      
                      
                      $
                      1,350,076Accrued
      expenses
                      
                      
                      1,932,046
                      
                      
                      
                      1,839,272Deferred
      revenue
                      
                      
                      1,531,854
                      
                      
                      
                      1,637,283Deferred
      tax liability
                      
                      
                      281,626
                      
                      
                      
                      281,626Convertible
      notes payable
                      
                      
                      304,853
                      
                      
                      
                      304,853Warrant
      liabilities
                      
                      
                      777,336
                      
                      
                      
                      819,150Loan
      payable
                      
                      
                      398,960
                      
                      
                      
                      398,960Loan
      payable to beneficial owner
                      
                      
                      600,000
                      
                      
                      
                      -Payable
      to Shandong Media
                      
                      
                      145,679
                      
                      
                      
                      145,679Payable
      to Jinan Parent
                      
                      
                      133,276
                      
                      
                      
                      152,268Other
      current liabilities
                      
                      
                      428,041
                      
                      
                      
                      378,847Total
      current liabilities
                      
                      
                      8,083,552
                      
                      
                      
                      7,308,014Convertible
      notes payable
                      
                      
                      4,690,181
                      
                      
                      
                      4,665,306Deferred
      tax liability and uncertain tax position liability
                      
                      
                      440,850
                      
                      
                      
                      454,578Total
      liabilities
                      
                      
                      13,214,583
                      
                      
                      
                      12,427,898Commitments
      and ContingenciesShareholders'
      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, 65,086,152 and
      64,761,396 issued and outstanding
                      
                      
                      65,087
                      
                      
                      
                      64,762Additional
      paid-in capital
                      
                      
                      14,975,335
                      
                      
                      
                      14,901,493Accumulated
      deficit
                      
                      
                      (18,019,550
                      )
                      
                      
                      (17,215,041
                      )Accumulated
      other comprehensive income
                      
                      
                      427,468
                      
                      
                      
                      331,283Total
      China Broadband shareholders' deficit
                      
                      
                      (2,551,660
                      )
                      
                      
                      (1,917,503
                      )Noncontrolling
      interests
                      
                      
                      4,995,772
                      
                      
                      
                      5,259,427Total
      shareholders' equity
                      
                      
                      2,444,112
                      
                      
                      
                      3,341,924Total
      liabilities and shareholders' equity
                      
                      $
                      15,658,695
                      
                      
                      $
                      15,769,822





See
notes to consolidated financial statements.


3





China
Broadband, Inc. and Subsidiaries


CONSOLIDATED
STATEMENTS OF OPERATIONS


Unaudited





Three Months EndedMarch 31,
                
                
                March 31,2010
                
                
                2009(Restated)Revenue
                
                $
                1,875,681
                
                
                $
                1,949,410Cost
      of revenue
                
                
                1,073,808
                
                
                
                1,173,881Gross
      profit
                
                
                801,873
                
                
                
                775,529Selling,
      general and adminstrative expenses
                
                
                723,270
                
                
                
                717,928Professional
      fees
                
                
                168,765
                
                
                
                110,496Depreciation
      and amortization
                
                
                945,444
                
                
                
                831,307Loss
      from operations
                
                
                (1,035,606
                )
                
                
                (884,202
                )Interest
      & other income / (expense)Interest
      income
                
                
                3,109
                
                
                
                3,458Interest
      expense
                
                
                (91,235
                )
                
                
                (87,384
                )Change
      in fair value of warrant liabilities
                
                
                41,814
                
                
                
                (613,809
                )Loss
      on sale of marketable equity securities
                
                
                -
                
                
                
                (20,352
                )Other,
      net
                
                
                26
                
                
                
                (328
                )Loss
      before income taxes and noncontrolling interest
                
                
                (1,081,892
                )
                
                
                (1,602,617
                )Income
      tax benefit
                
                
                13,728
                
                
                
                14,680Net
      loss, net of tax
                
                
                (1,068,164
                )
                
                
                (1,587,937
                )Plus:  Net
      loss attributable to noncontrolling interests
                
                
                263,655
                
                
                
                245,589Net
      loss attributable to China Broadband
                
                $
                (804,509
                )
                
                $
                (1,342,348
                )Net
      loss per shareBasic
                
                $
                (0.01
                )
                
                $
                (0.03
                )Diluted
                
                $
                (0.01
                )
                
                $
                (0.03
                )Weighted
      average shares outstandingBasic
                
                
                64,765,004
                
                
                
                50,586,376Diluted
                
                
                64,765,004
                
                
                
                50,586,376





See
notes to consolidated financial statements.


4





China
Broadband, Inc. and Subsidiaries


CONSOLIDATED
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE LOSS


for
the Periods Ended March 31, 2010 (Unaudited) and December 31, 2009





Accumulated
                                                        
                                                        
                                                        ChinaAdditional
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        Other
                                                        
                                                        
                                                        BroadbandCommon
                                                        
                                                        
                                                        Par
                                                        
                                                        
                                                        Paid-in
                                                        
                                                        
                                                        Accumulated
                                                        
                                                        
                                                        Comprehensive
                                                        
                                                        
                                                        Shareholders'
                                                        
                                                        
                                                        Noncontrolling
                                                        
                                                        
                                                        Total
                                                        
                                                        
                                                        ComprehensiveShares
                                                        
                                                        
                                                        Value
                                                        
                                                        
                                                        Capital
                                                        
                                                        
                                                        Deficit
                                                        
                                                        
                                                        Income(loss)
                                                        
                                                        
                                                        (Deficit)/Equity
                                                        
                                                        
                                                        Interest
                                                        
                                                        
                                                        Equity
                                                        
                                                        
                                                        LossBalance
      December 31, 2008
                                                        
                                                        
                                                        50,585,455
                                                        
                                                        
                                                        $
                                                        50,586
                                                        
                                                        
                                                        $
                                                        13,372,359
                                                        
                                                        
                                                        $
                                                        (12,200,289
                                                        )
                                                        
                                                        $
                                                        320,858
                                                        
                                                        
                                                        $
                                                        1,543,514
                                                        
                                                        
                                                        $
                                                        6,637,631
                                                        
                                                        
                                                        $
                                                        8,181,145Cumulative
      effect of accountingchange
      for warrants -reclassification
      of warrants towarrant
    liabilities
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (731,496
                                                        )
                                                        
                                                        
                                                        424,373
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (307,123
                                                        )
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (307,123
                                                        )Shandong
      Media valuationadjustment
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (275,448
                                                        )
                                                        
                                                        
                                                        (275,448
                                                        )Shares
      issued as paymentfor
      convertible note interest
                                                        
                                                        
                                                        921,043
                                                        
                                                        
                                                        
                                                        921
                                                        
                                                        
                                                        
                                                        259,637
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        260,558
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        260,558Stock
      option compensationexpense
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        33,656
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        33,656
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        33,656Shares
      issued for AdNetacquisition
                                                        
                                                        
                                                        11,254,898
                                                        
                                                        
                                                        
                                                        11,255
                                                        
                                                        
                                                        
                                                        1,676,980
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        1,688,235
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        1,688,235Costs
      related to stock issuedfor
      AdNet acquisition
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (3,622
                                                        )
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (3,622
                                                        )
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        (3,622
                                                        )Shares
      issued for cash
                                                        
                                                        
                                                        2,000,000
                                                        
                                                        
                                                        
                                                        2,000
                                                        
                                                        
                                                        
                                                        298,000
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        300,000
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        300,000Costs
      related to stock issuedfor
      cash
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (4,021
                                                        )
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (4,021
                                                        )
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (4,021
                                                        )Comprehensive
      loss:Net
      loss
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (5,439,125
                                                        )
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (5,439,125
                                                        )
                                                        
                                                        
                                                        (1,102,756
                                                        )
                                                        
                                                        
                                                        (6,541,881
                                                        )
                                                        
                                                        $
                                                        (5,439,125
                                                        )Foreign
      currency translationadjustments
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        28,345
                                                        
                                                        
                                                        
                                                        28,345
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        28,345
                                                        
                                                        
                                                        
                                                        28,345Unrealized
      loss onmarketable
      equity securities
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (17,920
                                                        )
                                                        
                                                        
                                                        (17,920
                                                        )
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (17,920
                                                        )
                                                        
                                                        
                                                        (17,920
                                                        )Balance
      December 31, 2009
                                                        
                                                        
                                                        64,761,396
                                                        
                                                        
                                                        $
                                                        64,762
                                                        
                                                        
                                                        $
                                                        14,901,493
                                                        
                                                        
                                                        $
                                                        (17,215,041
                                                        )
                                                        
                                                        $
                                                        331,283
                                                        
                                                        
                                                        $
                                                        (1,917,503
                                                        )
                                                        
                                                        $
                                                        5,259,427
                                                        
                                                        
                                                        $
                                                        3,341,924
                                                        
                                                        
                                                        $
                                                        (5,428,700
                                                        )Shares
      issued as paymentfor
      convertible note interest
                                                        
                                                        
                                                        324,756
                                                        
                                                        
                                                        
                                                        325
                                                        
                                                        
                                                        
                                                        65,626
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        65,951
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        65,951Stock
      option compensationexpense
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        8,216
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        8,216
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        8,216Comprehensive
      loss:Net
      loss
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (804,509
                                                        )
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (804,509
                                                        )
                                                        
                                                        
                                                        (263,655
                                                        )
                                                        
                                                        
                                                        (1,068,164
                                                        )
                                                        
                                                        $
                                                        (804,509
                                                        )Foreign
      currency translationadjustments
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        19,617
                                                        
                                                        
                                                        
                                                        19,617
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        19,617
                                                        
                                                        
                                                        
                                                        19,617Unrealized
      gain onmarketable
      equity securities
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        76,568
                                                        
                                                        
                                                        
                                                        76,568
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        76,568
                                                        
                                                        
                                                        
                                                        76,568Balance
      March 31, 2010
                                                        
                                                        
                                                        65,086,152
                                                        
                                                        
                                                        $
                                                        65,087
                                                        
                                                        
                                                        $
                                                        14,975,335
                                                        
                                                        
                                                        $
                                                        (18,019,550
                                                        )
                                                        
                                                        $
                                                        427,468
                                                        
                                                        
                                                        $
                                                        (2,551,660
                                                        )
                                                        
                                                        $
                                                        4,995,772
                                                        
                                                        
                                                        $
                                                        2,444,112
                                                        
                                                        
                                                        $
                                                        (708,324
                                                        )





See
notes to consolidated financial statements.


5





China
Broadband, Inc. and Subsidiaries


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)





Three Months EndedMarch 31,
                              
                              
                              March 31,2010
                              
                              
                              2009(Restated)Cash
      flows from operatingNet
      loss
                              
                              $
                              (1,068,164
                              )
                              
                              $
                              (1,587,937
                              )Adjustments
      to reconcile net loss to net cashprovided
      by operating activitiesStock
      compensation expense and shares issued as payment for
    interest
                              
                              
                              74,167
                              
                              
                              
                              77,456Depreciation
      and amortization
                              
                              
                              945,444
                              
                              
                              
                              831,307Noncash
      interest expense - original issue discount
                              
                              
                              24,875
                              
                              
                              
                              24,875Deferred
      income tax
                              
                              
                              (13,728
                              )
                              
                              
                              (14,680
                              )Loss
      on sale of marketable equity securities
                              
                              
                              -
                              
                              
                              
                              20,353Change
      in fair value of warrant liabilities
                              
                              
                              (41,814
                              )
                              
                              
                              613,809Change
      in assets and liabilities,Accounts
      receivable
                              
                              
                              (18,913
                              )
                              
                              
                              (55,771
                              )Inventory
                              
                              
                              (37,963
                              )
                              
                              
                              40,482Prepaid
      expenses and other assets
                              
                              
                              (3,582
                              )
                              
                              
                              (46,052
                              )Accounts
      payable and accrued expenses
                              
                              
                              342,005
                              
                              
                              
                              173,586Deferred
      revenue
                              
                              
                              (113,841
                              )
                              
                              
                              28,760Net
      cash provided by operating activities
                              
                              
                              88,486
                              
                              
                              
                              106,188Cash
      flows from investing activities:Proceeds
      from sale of marketable equity securities
                              
                              
                              -
                              
                              
                              
                              54,858Acquisition
      of property and equipment
                              
                              
                              (224,334
                              )
                              
                              
                              (227,430
                              )Loan
      to Sinotop Group Ltd
                              
                              
                              (580,000
                              )
                              
                              
                              -Loans
      made to Shandong Media shareholders
                              
                              
                              (585,111
                              )
                              
                              
                              (584,654
                              )Loan
      repayments received from Shandong Media shareholders
                              
                              
                              17,203
                              
                              
                              
                              -Net
      cash used in investing activities
                              
                              
                              (1,372,242
                              )
                              
                              
                              (757,226
                              )Cash
      flows from financing activitiesProceeds
      from issuance of convertible notes payable
                              
                              
                              600,000
                              
                              
                              
                              -Payable
      to Jinan Parent
                              
                              
                              (18,992
                              )
                              
                              
                              3,512Net
      cash provided by financing activities
                              
                              
                              581,008
                              
                              
                              
                              3,512Effect
      of exchange rate changes on cash
                              
                              
                              26,181
                              
                              
                              
                              20,795Net
      decrease in cash and cash equivalents
                              
                              
                              (676,567
                              )
                              
                              
                              (626,731
                              )Cash
      and cash equivalents at beginning of period
                              
                              
                              2,190,494
                              
                              
                              
                              4,425,529Cash
      and cash equivalents at end of period
                              
                              $
                              1,513,927
                              
                              
                              $
                              3,798,798Supplemental Cash Flow
      Information:Cash
      paid for taxes
                              
                              $
                              -
                              
                              
                              $
                              -Cash
      paid for interest
                              
                              $
                              413
                              
                              
                              $
                              368Value
      assigned to shares as payment for interest expense
                              
                              $
                              65,951
                              
                              
                              $
                              62,141Shandong
      Media valuation adjustment
                              
                              $
                              -
                              
                              
                              $
                              275,448Cumulative
      effect of change in accounting principle upon adoption of
    newaccounting
      pronouncement on January 1, 2009, reclassification ofwarrants
      from equity to warrant liabilities
                              
                              $
                              -
                              
                              
                              $
                              424,373





See
notes to consolidated financial statements.


6




CHINA
BROADBAND, INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





1.
            Basis of
      Presentation





China
Broadband, Inc., a Nevada corporation (“China Broadband”, “we”, “us”, or “the
Company”) owns and operates in the media segment through its subsidiaries in the
People’s Republic of China (“PRC” or “China”) (1) a cable broadband business,
Beijing China Broadband Network Technology Co. Ltd (referred to as Jinan
Broadband) and (2) a print based media and television programming guide
publication, Shandong Lushi Media Co., Ltd. (referred to as Shandong
Media).  We have also recently acquired and are developing to a
limited extent, an internet café advertising and content provider business in
China.





(1)  We
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 our Jinan
Broadband subsidiary based in the Jinan region of China.





(2)  We
operate a print based media and television programming guide publication
business through our Shandong Media joint venture based in the Shandong Province
of China.





Our
subsidiary AdNet Media Technologies (Beijing) Co. Ltd (“AdNet”) which was
acquired during the first half of 2009, holds an Internet Content Provider
(“ICP”), license with rights to provide delivery of multimedia advertising
content to internet cafés in the PRC.  AdNet 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.  Due to the shift of our business model to the PPV / VOD
business, as of December 31, 2009 we temporarily suspended day to day operations
of AdNet.  We have maintained our licenses, contracts, technology and
other assets for future use in our new PPV business.





The
unaudited consolidated financial statements include the accounts of China
Broadband, Inc. and (a) its wholly-owned subsidiary, China Broadband Cayman, (b)
a wholly-owned subsidiary of China Broadband Cayman, Beijing China Broadband
Network Technology Co, Ltd. (WFOE), and (c) four entities located in the PRC:
Jinan Zhong Kuan, Jinan Broadband, Shandong Media and AdNet, which are
controlled by the Company through contractual arrangements, as if they are
wholly-owned subsidiaries of the Company.  All material intercompany
transactions and balances are eliminated in consolidation.





In the
opinion of management, our Financial Statements reflect all adjustments, which
are of a normal recurring nature, necessary for a fair statement of the results
for the periods presented in accordance with U.S. Generally Accepted Accounting
Principles (GAAP) and with the instructions to Form 10-Q in Article 10 of SEC
Regulation S-X.  The results of operations for the interim periods
presented are not necessarily indicative of results for the full
year.





Certain
information and footnote disclosures normally included in the annual
consolidated financial statements prepared in accordance with accounting
principles generally accepted in the United States of America (“U.S. GAAP”) have
been condensed or omitted.  These unaudited condensed financial
statements should be read in conjunction with the Company’s audited consolidated
financial statements and notes thereto included in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2009.





The
information presented in the accompanying consolidated balance sheet as of
December 31, 2009 has been derived from the Company’s audited consolidated
financial statements but does not include all disclosures required by U.S.
GAAP.  All other information has been derived from the Company’s
unaudited consolidated financial statements for the three months ended March 31,
2010.





2.
            Restatement





The
financial statements for the three months ended March 31, 2009 have been
restated for the reasons described below and the accompanying financial
statements for the three months ended March 31, 2010 include the following
changes.




1)
            Reclassified
      certain warrants from shareholders’ equity to liabilities in accordance
      with EITF 07-5, “Determining Whether an Instrument (or Embedded Feature)
      is Indexed to an Entity’s Own Stock” (FASB ASC 815-40-15-5) ("ASC
      815”).  ASC 815 became effective and should have been adopted by
      the Company as of January 1, 2009 by classifying certain warrants as
      liabilities measured at fair value with changes in fair value recognized
      in earnings each reporting period and recording a cumulative-effect
      adjustment to the opening balance of accumulated deficit.  The
      cumulative-effect adjustment  at January 1, 2009 was as
      follows:


7





Additional
                  
                  
                  Accumulated
                  
                  
                  WarrantPaid-in Capital
                  
                  
                  Deficit
                  
                  
                  LiabilitiesWarrants
                  
                  $
                  (731,000
                  )
                  
                  $
                  424,000
                  
                  
                  $
                  307,000





For the
three months ended March 31, 2009, the adoption of ASC 815 had the effect of
increasing warrant liabilities and net loss by approximately
$614,000.





2)
            Corrected
      an error related to the valuation of our Shandong Media intangibles which
      includes our publication rights, operating permits and customer
      relationships and minor changes to the valuation of property and
      equipment.  The correction resulted in a decrease to the value
      of our intangible assets and property and equipment by reclassifying
      approximately $275,000 from non-controlling
  interest.





3.
            Accounting
      Policy Changes





ASC 810. We adopted ASC 810
on January 1, 2010, the adoption did not have an impact on the Company’s
financial statements The amendments on the consolidation guidance for
variable-interest entities include: (1) the elimination of the exemption for
qualifying special purpose entities, (2) a new approach for determining who
should consolidate a variable-interest entity, and (3) changes to when it is
necessary to reassess who should consolidate a variable-interest
entity.





ASU 2010-06.On January 1,
2010, we adopted ASU No. 2010-06 which provides improvements to disclosure
requirements related to fair value measurements. The adoption of these
provisions did not have an effect on the Company’s financial reporting. New
disclosures are required for significant transfers in and out of Level 1 and
Level 2 fair value measurements, disaggregation regarding classes of assets and
liabilities, valuation techniques and inputs used to measure fair value for both
recurring and nonrecurring fair value measurements for Level 2 or Level 3.
Additional new disclosures regarding the purchases, sales, issuances and
settlements in the roll forward of activity in Level 3 fair value measurements
are effective for fiscal years beginning after December 15, 2010 beginning with
the first interim period, the Company does not expect the adoption of these new
Level 3 disclosures to have a material impact on the Company’s financial
reporting.





4.
            Going Concern and Management’s
      Plans





The
Company has incurred significant continuing losses during 2010 and has a working
capital deficit at March 31, 2010 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.





The
unaudited consolidated financial statements have been prepared assuming that the
Company will continue as a going concern and, accordingly, do not include any
adjustments that might result from the outcome of this
uncertainty.  The Company has limited cash resources and management
continues its efforts to raise additional funds through debt or equity
offerings.  The Company's independent registered public accounting
firm's report of the financial statements for the year ended December 31, 2009,
contained an explanatory paragraph regarding the Company's ability to continue
as a going concern.





Management
plans to raise additional funds through an equity offering 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.  See Note 21 “Subsequent Events”
below.





5.
            Shandong
      Media Joint Venture - Cooperation Agreement Additional
    Payment




In
connection with the Shandong Newspaper Cooperation Agreement, based on certain
financial performance we were required to make an additional payment of 5
million RMB (approximately US $730,000).  In 2008 we recorded the
additional payment due as an increase to our Shandong Media noncontrolling
interest account.  The due date of the additional payment has been
extended to May 31, 2010.





6.
            Variable
      Interest Entities





Financial
accounting standards require the “primary beneficiary” of a VIE to include the
VIE’s assets, liabilities and operating results in its consolidated financial
statements.   In general, a VIE is a corporation, partnership,
limited-liability company, trust or any other legal structure used to conduct
activities or hold assets that either (a) has an insufficient amount of equity
to carry out its principal activities without additional subordinated financial
support, (b) has a group of equity owners that are unable to make significant
decisions about its activities, or (c) has a group of equity owners that do not
have the obligation to absorb losses or the right to receive returns generated
by its operations.


8





Our
consolidated VIEs were recorded at fair value on the date we became the primary
beneficiary.  Our VIEs at March 31, 2010 include Jinan Broadband and
Shandong Media.




7.
            Fair
      Value Measurements





Accounting
standards require the categorization of financial assets and liabilities, based
on the inputs to the valuation technique, into a three-level fair value
hierarchy. The various levels of the fair value hierarchy are described as
follows:





·
            Level 1 —
      Financial assets and liabilities whose values are based on unadjusted
      quoted market prices for identical assets and liabilities in an active
      market that we have the ability to
access.


·
            Level 2 —
      Financial assets and liabilities whose values are based on quoted prices
      in markets that are not active or model inputs that are observable for
      substantially the full term of the asset or
  liability.


·
            Level 3 —
      Financial assets and liabilities whose values are based on prices or
      valuation techniques that require inputs that are both unobservable and
      significant to the overall fair value
  measurement.





Accounting
standards require the use of observable market data, when available, in making
fair value measurements. When inputs used to measure fair value fall within
different levels of the hierarchy, the level within which the fair value
measurement is categorized is based on the lowest level input that is
significant to the fair value measurement.





The
following tables present the fair value hierarchy for those assets and
liabilities measured at fair value on a recurring basis at March 31, 2010 and
December 31, 2009:





March 31, 2010Fair Value MeasurementsLevel 1
                        
                        
                        Level 2
                        
                        
                        Level 3
                        
                        
                        Total FairValueAssetsAvailable-for-sale
      securities
                        
                        $
                        123,812
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        123,812LiabilitiesFair
      value of warrants
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        777,336
                        
                        
                        $
                        777,336





December 31, 2009Fair Value MeasurementsLevel 1
                      
                      
                      Level 2
                      
                      
                      Level 3
                      
                      
                      Total FairValueAssetsAvailable-for-sale
      securities
                      
                      $
                      47,244
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      47,244LiabilitiesFair
      value of warrants
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      819,150
                      
                      
                      $
                      819,150





8.
            Convertible
      Promissory Note Receivable and Letter of
Intent





On March
9, 2010, China Broadband Cayman entered into a Note Purchase Agreement and a
non-binding Letter of Intent, or the LOI with Sinotop Group Ltd., a Hong Kong
corporation, or Sinotop Hong Kong.  Through a series of contractual
arrangements referred to herein as “VIE Contracts”, Sinotop Hong Kong controls
Beijing Sino Top Scope Technology Co., Ltd., or Sinotop
Beijing.  Sinotop Beijing, a corporation established in the PRC is, in
turn, a party to a joint venture with two other PRC companies to provide
integrated value-added service solutions for the delivery of pay-per-view
(“PPV”), video-on-demand (“VOD”), and enhanced premium content for cable
providers.





The LOI
summarizes the proposed terms of the acquisition by CB Cayman of 100% of the
outstanding capital stock of Sinotop Hong Kong from its sole stockholder in
consideration for a percentage of China Broadband to be determined in the
definitive agreement.  Among other customary closing conditions, the
acquisition is contingent upon (1) the drafting and negotiation of definitive
agreements that cover the matters discussed in the LOI, (2) the funding of the
Note (as defined below), which has already occurred, (3) the contribution by CB
Cayman of at least US$5,000,000 to the capital of Sinotop Hong Kong (or the
purchase by CB Cayman of newly issued shares of Sinotop Hong Kong in
consideration for the same amount), and (4) the absence of any debts,
obligations or encumbrances on the equity or assets of Sinotop Hong Kong and the
WFOE other than the Note and the VIE Contracts.  The LOI contains a
binding exclusivity provision that prohibits Sinotop Hong Kong and Sinotop Hong
Kong’s sole stockholder from soliciting, initiating, entertaining, participating
in any discussions or negotiations concerning, or making or accepting any offer
or proposed transaction with any third party with regard to, any of the
transactions contemplated by the LOI or any similar
transaction.    This transaction has not been consummated
yet and we are dependent on our ability to raise capital in order to complete
this transaction.





Pursuant
to the Note Purchase Agreement, on March 9, 2010, China Broadband Cayman
acquired a Convertible Promissory Note, or Note from Sinotop Hong Kong in
consideration of China Broadband Cayman’s US$580,000 loan to Sinotop Hong
Kong.





The Note
accrues interest at a simple annual rate of 5% and is due on the date, or the
Maturity Date that is the earlier of the fifth anniversary of the date of
issuance of the Note or the day following a change of control (as described in
the Note).  The outstanding principal amount of the Note along with
all accrued interest is convertible into common shares of Sinotop Hong Kong upon
the occurrence of (1) Sinotop Hong Kong consummating a financing transaction, or
Financing, resulting in aggregate gross proceeds of at least $1 million, in
which case the Note would automatically be converted into ordinary shares of
Sinotop Hong Kong at a price equal to 70% of the price per share paid by
investors in such Financing, or (2) a change of control of Sinotop Hong Kong (as
described in the Note), in which case the Note would automatically be converted
into ordinary shares that represent 50% of the issued and outstanding capital
stock of Sinotop Hong Kong.  The outstanding principal amount of the
Note and all accrued interest thereon may also be converted, at the option of
China Broadband Cayman at any time after the Maturity Date or an event of
default, into ordinary shares of Sinotop Hong Kong representing 50% of the
issued and outstanding voting capital stock of Sinotop Hong
Kong.  Accrued interest as of March 31, 2010 is $1,748 and interest
income for the three months ended March 31, 2010 totaled
$1,748.


9





9.
            Related
      Party Transactions





Loan
Receivable





As of
March 31, 2010, the Company advanced an aggregate of approximately $290,000 in
the form of a loan to Music Magazine to fund its operations.  The loan
is unsecured, interest free and is due on December 31, 2010.  Music
Magazine is related through Modern Movie & TV Biweekly Press who is our
partner in our Shandong Media joint venture company.





Amounts
due from Shareholders





As of
March 31, 2010, amounts due from shareholders include approximately $92,000
advanced to Shandong Broadcast & TV Weekly Press and approximately $645,000
advanced to Modern Movie & TV Biweekly Press. Both companies are our
partners in our Shandong Media joint venture company.  The amount due
from Shandong Broadcast & TV Weekly Press is unsecured, interest free and
has no fixed repayment terms.  The amount due from Modern Movie &
TV Biweekly Press is unsecured, interest free and is due on December 31,
2010.  During the 3 months ended March 31, 2010, we received
repayments of approximately $17,000 from Shandong Broadcast and TV Weekly Press
and advanced approximately $585,000 to Modern Movie & TV Biweekly
Press.





Payable
to Jinan Parent





During
the three months ended March 31, 2010, our payable to Jinan Parent decreased
approximately $19,000.  At March 31, 2010, approximately $133,000
remains due to Jinan Parent.  The advance is unsecured, interest free
and has no fixed repayment terms.





Loan Payable to Beneficial
Owner





In the
three months ended March 31, 2010, a significant beneficial owner of the
Company’s securities, Oliviera Capital LLC, advanced the funds necessary for
China Broadband Cayman to make the loan to Sinotop Hong Kong as described in
Note 8 above.While the terms
of the advance have not yet been documented, the terms are generally understood
to be that the $600,000 loan will convert into our current fundraise at slightly
favorable terms with no interest and will receive two additional common share
purchase warrants, each for the purchase of one common share of the
Company.    See Note 21 “Subsequent Events”
below.





10.
            Property and
      Equipment





Property and equipment at March 31, 2010 and
December 31, 2009consisted of the following:





March 31,
                  
                  
                  December 31,2010
                  
                  
                  2009Furniture
      and office equipment
                  
                  $
                  995,000
                  
                  
                  $
                  984,000Headend
      facilities and machinery
                  
                  
                  14,386,000
                  
                  
                  
                  14,172,000Vehicles
                  
                  
                  30,000
                  
                  
                  
                  30,000Total
      property and equipment
                  
                  
                  15,411,000
                  
                  
                  
                  15,186,000Less:  accumulated
      depreciation
                  
                  
                  (8,627,000
                  )
                  
                  
                  (7,823,000
                  )Net
      carrying value
                  
                  $
                  6,784,000
                  
                  
                  $
                  7,363,000Depreciation
      expense
                  
                  $
                  804,000
                  
                  
                  $
                  3,068,000




11.
            Intangible
      Assets




In the
first quarter of 2009 the Company decreased the value of our intangible assets
by reclassifying approximately $279,000 from noncontrolling
interest.  The reclassification was made to correct an error related
to the valuation of our Shandong Media intangibles which includes our
publication rights, operating permits and customer relationships.  The
Company assessed the impact of this adjustment on all prior periods and
determined that the effect of this adjustment did not result in a material
misstatement to any previously issued annual or quarterly financial
statements.




Determining
the fair value of a reporting unit requires the use of significant estimates and
assumptions, including revenue growth rates, discount rates and future market
conditions, among others. Long-lived assets are reviewed for impairment whenever
events, such as significant changes in the business climate, changes in product
and service offerings, or other circumstances indicate that the carrying amount
may not be recoverable.




The
Company amortizes its service agreement, publication rights, operating permits,
customer relationships and software technology that have finite
lives.  Our service agreement, publication rights and operating
permits are amortized over 20 years.  Customer relationships are
amortized over 10 years and our software technology is amortized over 3
years.




We have
intangible assets relating to the acquisition of our Jinan Broadband subsidiary,
Shandong Media joint venture and AdNet Media acquisition.




Balance at
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  Balance atDecember31,
                  
                  
                  
                  
                  
                  
                  
                  
                  Other
                  
                  
                  March 31,2009
                  
                  
                  Additions
                  
                  
                  Amortization
                  
                  
                  Changes
                  
                  
                  2010Amortized
      intangible assets:Service
      agreement
                  
                  $
                  1,483,762
                  
                  
                  $
                  -
                  
                  
                  $
                  (21,680
                  )
                  
                  $
                  -
                  
                  
                  $
                  1,462,082Publication
      rights
                  
                  
                  824,812
                  
                  
                  
                  -
                  
                  
                  
                  (11,146
                  )
                  
                  
                  -
                  
                  
                  
                  813,666Customer
      relationships
                  
                  
                  183,730
                  
                  
                  
                  -
                  
                  
                  
                  (5,404
                  )
                  
                  
                  -
                  
                  
                  
                  178,326Operating
      permits
                  
                  
                  1,234,583
                  
                  
                  
                  -
                  
                  
                  
                  (16,684
                  )
                  
                  
                  -
                  
                  
                  
                  1,217,899Software
      technology
                  
                  
                  567,727
                  
                  
                  
                  -
                  
                  
                  
                  (63,081
                  )
                  
                  
                  -
                  
                  
                  
                  504,646Total
      amortized intangible assets
                  
                  $
                  4,294,614
                  
                  
                  $
                  -
                  
                  
                  $
                  (117,995
                  )
                  
                  $
                  -
                  
                  
                  $
                  4,176,619





Balance at
                      
                      
                      
                      
                      
                      Amortization/
                      
                      
                      
                      
                      
                      Balance atDecember31,
                      
                      
                      
                      
                      
                      Impairment
                      
                      
                      Other
                      
                      
                      December31,2008
                      
                      
                      Additions
                      
                      
                      Charge
                      
                      
                      Changes
                      
                      
                      2009Amortized
      intangible assets:Service
      agreement
                      
                      $
                      1,570,482
                      
                      
                      $
                      -
                      
                      
                      $
                      (86,720
                      )
                      
                      $
                      -
                      
                      
                      $
                      1,483,762Publication
      rights
                      
                      
                      968,977
                      
                      
                      
                      -
                      
                      
                      
                      (42,250
                      )
                      
                      
                      (101,915
                      )
                      
                      
                      824,812Customer
      relationships
                      
                      
                      228,933
                      
                      
                      
                      -
                      
                      
                      
                      (20,491
                      )
                      
                      
                      (24,712
                      )
                      
                      
                      183,730Operating
      permits
                      
                      
                      1,450,366
                      
                      
                      
                      -
                      
                      
                      
                      (63,236
                      )
                      
                      
                      (152,547
                      )
                      
                      
                      1,234,583Software
      technology
                      
                      
                      -
                      
                      
                      
                      756,969
                      
                      
                      
                      (189,242
                      )
                      
                      
                      -
                      
                      
                      
                      567,727Total
      amortized intangible assets
                      
                      $
                      4,218,758
                      
                      
                      $
                      756,969
                      
                      
                      $
                      (401,939
                      )
                      
                      $
                      (279,174
                      )
                      
                      $
                      4,294,614Unamortized
      intangible assets:Goodwill
                      
                      $
                      -
                      
                      
                      $
                      1,239,291
                      
                      
                      $
                      (1,239,291
                      )
                      
                      $
                      -
                      
                      
                      $
                      -


10




In
accordance with ASC 250, we recorded amortization expense related to our
intangible assets of $117,995 and $58,722 for the three months ended March 31,
2010 and 2009, respectively.




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




Jinan
                  
                  
                  Shandong
                  
                  
                  AdNetYears ending December 31,
                  
                  Broadband
                  
                  
                  Media
                  
                  
                  Media
                  
                  
                  Total2010
      (nine months)
                  
                  $
                  65,040
                  
                  
                  $
                  99,700
                  
                  
                  $
                  189,242
                  
                  
                  $
                  353,9822011
                  
                  
                  86,720
                  
                  
                  
                  132,934
                  
                  
                  
                  252,323
                  
                  
                  
                  471,9772012
                  
                  
                  86,720
                  
                  
                  
                  132,934
                  
                  
                  
                  63,081
                  
                  
                  
                  282,7352013
                  
                  
                  86,720
                  
                  
                  
                  132,934
                  
                  
                  
                  -
                  
                  
                  
                  219,6542014
                  
                  
                  86,720
                  
                  
                  
                  132,934
                  
                  
                  
                  -
                  
                  
                  
                  219,654Thereafter
                  
                  
                  1,050,162
                  
                  
                  
                  1,578,455
                  
                  
                  
                  -
                  
                  
                  
                  2,628,617Total
      amortization to be recognized
                  
                  $
                  1,462,082
                  
                  
                  $
                  2,209,891
                  
                  
                  $
                  504,646
                  
                  
                  $
                  4,176,619





12.
            Accrued
      Expenses




Accrued
expenses at March 31, 2010 and December 31, 2009 consist of the
following:





March 31,
                  
                  
                  December 31,2010
                  
                  
                  2009Accrued
      expenses
                  
                  $
                  1,028,000
                  
                  
                  $
                  1,053,000Accrued
      payroll
                  
                  
                  904,000
                  
                  
                  
                  786,000$
                  1,932,000
                  
                  
                  $
                  1,839,000





13.
            Convertible
      Notes





In 2009,
we completed a private placement transaction and sold 5% Convertible Promissory
Notes, or the 2009 Notes, for gross proceeds of approximately $305,000 and an
aggregate of 2,000,000 shares of our common stock at a purchase price of $.15
per share, for aggregate proceeds of $300,000. The Notes accrue interest at 5%
per year payable quarterly in cash or stock, are initially convertible at $.20
per share, and become due and payable in full on May 27, 2010.  The
Company did not pay any placement agent or similar fees in connection with the
Note Offering.





In
connection with the 2009 private placement, we entered into a waiver letter with
all the holders of January 2008 Notes, pursuant to which, among other things,
the conversion price of the January 2008 Notes were reduced from $.75 per share
to (i) $.20 per share for existing note holders that invested in the 2009
private placement and (ii) $.25 per share for those that did not
participate.  All of the existing note holders waived certain anti
dilution adjustments contained in the January 2008 Notes and the Class A
Warrants in exchange for the above changes.





On
January 11, 2008, we completed a private placement transaction and sold an
aggregate of $4,971,250 principal amount of notes due January 11, 2013, or the
January 2008 Notes, and Class A Warrants to purchase an aggregate of 6,628,333
shares of our common stock, at $.60 per share and expiring on June 11,
2013.  The conversion price of these January 2008 Notes was originally
$.75 per share and, in June of 2009 in connection with a subsequent financing
with these investors, reduced to $.20 per share (see waiver letters under
“Private Financings, June 2009” above).  One investor had his
conversion price reduced to $.25 per share.  We recorded a $504,661
original issue discount related to the Notes.  We calculate the
interest at 5% annually and issue shares for interest payments on a quarterly
basis.  We recorded amortization of original issue discount as
interest expense of $24,875 for each of the three months ended March 31, 2010
and 2009.





The
convertible notes due are as follows:





March
      31,
                  
                  
                  December
      31,2010
                  
                  
                  2009Convertible
      notes , noncurrent
                  
                  $
                  4,971,250
                  
                  
                  $
                  4,971,250Less:  Original
      issue discount
                  
                  
                  (281,069
                  )
                  
                  
                  (305,944
                  )$
                  4,690,181
                  
                  
                  $
                  4,665,306Convertible
      notes, current
                  
                  $
                  304,853
                  
                  
                  $
                  304,853





14.
            Warrant
      Liabilities





In June
2008, the FASB issued authoritative guidance on determining whether an
instrument (or embedded feature) is indexed to an entity’s own stock. Under the
authoritative guidance, effective January 1, 2009, instruments which do not have
fixed settlement provisions are deemed to be derivative instruments. Certain
warrants issued by the Company, do not have fixed settlement provisions because
their exercise prices may be lowered if the Company issues securities at lower
prices in the future. The Company was required to include the reset provisions
in order to protect the holders from potential dilution associated with future
financings. The warrants have been characterized as derivative liabilities to be
re-measured at the end of every reporting period with the change in value
reported in the statement of operations.





The
warrant liabilities were valued using The Black-Scholes Merton model which
incorporates the following assumptions:





March 31,
                      
                      December 31,2010
                      
                      2009Risk-free
      interest rate
                      1.51%
                      
                      1.50%Expected
      volatility
                      298.82%
                      
                      309.62%Expected
      life (in years)
                      3.2
      years
                      
                      3.4
      yearsExpected
      dividend yield
                      0
                      
                      0


11


The FASB
authoritative guidance was adopted as of January 2009 and is reported as a
cumulative change in accounting principle. The cumulative effect on the
accounting for the warrants at January 1, 2009 was as follows:





Additional
                  
                  
                  Accumulated
                  
                  
                  WarrantPaid-in Capital
                  
                  
                  Deficit
                  
                  
                  LiabilitiesWarrants
                  
                  $
                  (731,496
                  )
                  
                  $
                  424,373
                  
                  
                  $
                  307,123





The
warrants were originally recorded at their relative fair value as an increase in
additional paid-in capital. The decrease in the accumulated deficit includes
gains resulting from decreases in the fair value of the warrant liabilities
through December 31, 2008. The warrant liability amount reflects the fair value
of the derivative instrument from issuance date as of the January 1, 2009 date
of implementation.





15.
            Net
      Loss Per Common Share




Basic net
loss per common share is calculated by dividing the net loss by the weighted
average number of outstanding common shares during the period. Diluted net loss
per common share includes the weighted average dilutive effect of stock options
and warrants.




Potential
common shares outstanding as of March 31, 2010 and 2009:





Three
      Months EndedMarch 31,2010
                  
                  
                  2009Warrants
                  
                  
                  16,874,800
                  
                  
                  
                  16,874,800Options
                  
                  
                  317,500
                  
                  
                  
                  317,500





For the
three month periods ended March 31, 2010 and 2009, the number of securities not
included in the diluted EPS because the effect would have been anti-dilutive was
17,192,300.





16.
            Comprehensive
      Loss





Comprehensive
loss for the periods ended March 31, 2010 and 2009 is as follows:





Three
      Months EndedMarch 31,2010
                  
                  
                  2009Net
      loss attributable to shareholders
                  
                  $
                  (804,509
                  )
                  
                  $
                  (1,342,348
                  )Other
      comprehensive income (loss):Currency
      translation adjustment
                  
                  
                  19,617
                  
                  
                  
                  20,798Unrealized
      gain (loss) on marketable equity securities
                  
                  
                  76,568
                  
                  
                  
                  (85,160
                  )Comprehensive
      loss
                  
                  $
                  (708,324
                  )
                  
                  $
                  (1,406,710
                  )





17.
            Interest
      Expense and Share Issuance





In
connection with the Convertible Notes issued in January 2008 and June 2009,
during the three months ended March 31, 2010 and 2009 the Company incurred
$91,000 and $87,000, respectively, for interest expense related to these
Notes.





As set
forth in the related documents and with the consent of the Note holders, we
issued 324,756 and 82,855 shares to the Note holders as payment for convertible
note interest of approximately $66,000 and $62,000 for the three months ended
March 31, 2010 and 2009, respectively.





18.
            Stock
      Based Compensation





Through
March 31, 2010, 317,500 options have been issued under the plan and 2,182,500
shares remain available to be issued.





The
following table provides the details of the total stock based compensation
during the three month periods ended March 31, 2010 and 2009:




Three
      Months EndedMarch 31,2010
                    
                    
                    2009Stock
      option amortization
                    
                    $
                    8,000
                    
                    
                    $
                    8,000Warrant
      amortization
                    
                    
                    -
                    
                    
                    
                    7,000Stock
      issued as payment for interest
                    
                    
                    66,000
                    
                    
                    
                    62,000$
                    74,000
                    
                    
                    $
                    77,000





The
Company accounts for its stock option awards pursuant to the provisions of ASC
718, Stock Compensation
and recorded a charge of $8,000 during both three month periods ended March 31,
2010 and 2009 in connection with the issuance of stock options.





There
were no stock options issued during the three month periods ended March 31, 2010
and 2009.  As of March 31, 2010, there were 317,500 options
outstanding with 255,000 options exercisable at a weighted average exercise
price of $0.65 with a weighted average remaining life of 4.75
years.





As of
March 31, 2010 the Company had total unrecognized compensation expense related
to options granted of $27,000 which will be recognized over a remaining service
period of 1.75 years.





19.
            Warrants





Number ofWarrants
                      
                      
                      Exercise
                      
                      ExpirationName
                      
                      Issued
                      
                      
                      Price
                      
                      DateShare
      Exchange Consulting Warrants
                      
                      
                      4,474,800
                      
                      
                      $
                      0.60
                      
                      1/11/20132007
      Private Placement Broker Warrants
                      
                      
                      640,000
                      
                      
                      $
                      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
                      
                      6/11/2013January
      2008 Financing Broker Warrants
                      
                      
                      1,131,667
                      
                      
                      $
                      0.50
                      
                      6/11/201316,874,800





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, the Company issued warrants to investors and service providers to
purchase common stock of the Company .   As of March 31, 2010, the
weighted average exercise price was $.93 and the weighted average remaining life
was 3.0 years.  The following table outlines the warrants outstanding
as of March 31, 2010 and December 31, 2009:


12





20.
            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.  The income tax benefit for the
three month periods ended March 31, 2010 and 2009 results primarily from changes
in calculated deferred taxes, particularly liabilities associated with
intangible assets.  Deferred tax assets associated with net operating
losses have a full valuation allowance recorded against them.





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.





The
estimation of the income tax effect of any future repatriation of the Company’s
share of any profits generated by its interests in Jinan Broadband, Shandong
Media and AdNet 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.





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.





The
Company’s income tax benefit for the three months ended March 31, 2010 and 2009
each consisted entirely of foreign deferred taxes arising from net operating
loss carryforwards.





The
Company’s United States income tax returns are subject to examination by the
Internal Revenue Service (“IRS”) for at least 2006 and later years. Because of
the uncertainty regarding the filing of tax returns for earlier years it is
possible that the Company is subject to examination by the IRS for earlier
years. All of the Chinese tax returns for the Chinese operating companies are
subject to examination by the Chinese tax authorities for all periods from the
companies’ inceptions in 2007, 2008 and 2009 as applicable.





21.
            Subsequent
      Events





On May
20, 2010, the Company entered into separate securities purchase agreements with
several accredited investors, including one strategic investor who was an early
promoter of pay-per-view programming in the United States.  The
securities purchase agreements (the “Financing Agreements”) contemplate three
separate, but simultaneous, financing transactions (collectively, the
“Financings”).  The first financing will involve the sale of up to
$4,629,000 of units (“Common Units”) at a price per Common Unit of $0.05, with
each Common Unit consisting of one share of the Company’s common stock and a
five year warrant for the purchase of one share of common stock at an exercise
price of $0.05.  The second financing, involving the strategic
investor, relates to the sale of up to $3,500,000 of units (“Preferred A Units”)
at a price of $0.50 per Preferred A Unit, with each Preferred A Unit consisting
of one share of the Company’s Series A Preferred Stock and a five year warrant
for the purchase of  34.2857 shares of common stock at an exercise
price of $0.05 per share of Common Stock.  Each share of Series A
Preferred Stock will be convertible into ten shares of common stock (subject to
adjustment) and will have super voting rights that allow the strategic investor
to have ten votes for each underlying share of common stock that the Series A
Preferred Stock is convertible into.  The third financing involves an
accredited investor who is an existing holder of the Company’s securities and
relates to the sale of up to $3,000,000 of units (the “Preferred B Units”) at a
price of $0.50 per Preferred B Unit, with each Preferred B Unit consisting of
one share of the Company’s Series B Preferred Stock and a five year warrant for
the purchase of  ten shares of common stock at an exercise price of
$0.05 per share.  Each share of Series B Preferred Stock will be
convertible into ten shares of common stock (subject to
adjustment).  The Series B Preferred Stock does not have any voting
rights.





In
connection with the proposed sale of the Preferred B Units, the Company has
agreed, in exchange for the forgiveness of a $600,000 advance to the Company as
discussed in Note 9 “Related Party Transactions” above, to allocate such amount
towards [Mr. Oliviera’s] investment in the Company’s Financings.  Upon
consummation of the Financings, the $600,000 will go towards the purchase of
units consisting of one share of the Company’s Series B Preferred Stock and
warrants to purchase ten shares of the Company’s common stock, at a per unit
price of $0.50.  In addition, the Company will issue to [Mr.
Oliviera]  two additional warrants, each for the purchase of one share
of the Company’s common stock, for each share of common stock underlying the
Preferred B Units purchased in connection with the forgiveness of the
advance.  The Company anticipates that the financings will close on or
before July 15, 2010.  The $600,000 applied towards the purchase of
the Preferred B Units is included in the aggregate $3,000,000 of Preferred B
Units sold in the Financing.


13





The
consummation of the Financings is subject to several closing conditions,
including without limitation the satisfactory conclusion of the strategic
investor’s due diligence investigation of the Company and its subsidiaries and
variable interest entities, an amendment to the Company’s articles of
incorporation that increases the number of authorized shares of common stock
from 95,000,000 to 1,500,000,000 and the number of authorized shares of blank
check preferred stock from 5,000,000 to 50,000,000, and the amendment and
restatement or other modification as necessary to all of the Company’s
agreements with its variable interest entities in China to the satisfaction of
the strategic investor.  In addition, at any time prior to the
closing, the strategic investor has the complete and unconditional right to
terminate its obligations under the Financing Agreements for any reason, for no
reason and for convenience in his sole discretion. Proceeds from all investors
except the strategic investor are currently held in escrow subject to the
closing conditions being satisfied.





Upon
closing of the Financings, which the Company’s anticipates will occur on or
before July 15, 2010, the strategic investor will hold a majority of the
outstanding voting securities of the Company.  The net proceeds will
be used to acquire Sinotop Hong Kong as discussed in Note 8 above, to fund the
value added service platform and for working capital purposes.





In
connection with the Financings, on May 20, 2010, the Company entered into (i) a
Waiver and Agreement to Convert with the holders of an aggregate of $4,971,250
in principal amount of notes of the Company, dated January 11, 2008, and (ii) a
Waiver and Agreement to Convert with the holders of an aggregate of $304,902 in
principal amount of notes of the Company, dated June 30, 2009 (collectively, the
“Waivers”), whereby the holders of the notes, except for an existing minority
investor of the Company, agreed to convert, upon the consummation of the
Financings, 100% of the outstanding principal and interest owing on the notes
into shares of the Company’s Common Stock at a conversion price of $0.05 per
share (the “Debt Conversion”).  In addition, the holders of the notes,
except for the minority investor, will receive warrants identical to those
issued in connection with the sale of the Common Units, to purchase such number
of shares of the Company’s Common Stock equal to the number of shares of Common
Stock issued upon conversion of the notes.  Pursuant to the Waivers,
the minority investor, who currently holds notes of the Company in aggregate
principal amount of $2,133,400, will (i) convert 100% of the outstanding
principal and interest owing on such notes into shares of Series B Preferred
Stock at a conversion price of $0.50 per share and (ii) receive warrants
identical to those issued in connection with the purchase of Series B Units, to
purchase such number of shares of the Company’s Common Stock equal to the number
of shares of Common Stock underlying the Series B Preferred Stock issued upon
conversion of such notes.


14


Cautionary
Note Regarding Forward Looking Statements





This Form
10-Q contains “forward-looking” statements that involve risks and uncertainties.
You can identify these statements by the use of forward-looking words such as
"may", "will", "expect", "anticipate", "estimate", "believe", "continue", or
other similar words. You should read statements that contain these words
carefully because they discuss our future expectations, contain projections of
our future results of operations or financial condition or state other
"forward-looking" information. We believe that it is important to communicate
our future expectations to our investors. However, these forward-looking
statements are not guarantees of future performance and actual results may
differ materially from the expectations that are expressed, implied or
forecasted in any such forward-looking statements. There may be events in the
future that we are unable to accurately predict or control, including weather
conditions and other natural disasters which may affect demand for our products,
and the product–development and marketing efforts of our competitors. Examples
of these events are more fully described in the Company’s Annual Report on Form
10-K for the year ended December 31, 2009 under Part I. Item 1A. Risk
Factors.





Unless
required by law, the Company undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise. However, readers should carefully review the reports
and documents the Company files from time to time with the SEC, particularly its
Quarterly Reports on Form 10-Q, Annual Report on Form 10-K , Current Reports on
Form 8-K and all amendments to those reports.





Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.





The
following management’s discussion and analysis should be read in conjunction
with our financial statements and the notes thereto and the other financial
information appearing elsewhere in this report. In addition to historical
information, the following discussion contains certain forward-looking
information. See “Cautionary Note Regarding Forward Looking Statements” above
for certain information concerning those forward looking
statements.





Overview





We
operate in the media segment through our Chinese VIE operating subsidiaries, (1)
a cable broadband business based in the Jinan region of China and
(2) a television program guide, newspaper and magazine publishing business
based in the Shandong region of China.  In addition, AdNet holds a
business license to operate in 28 provinces and provide internet content
advertising in cafés in the PRC.





Through
our subsidiary Jinan Broadband, we 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.  Jinan Broadband’s revenue consists
primarily of sales to our PRC based internet consumers, cable modem consumers,
business customers and other internet and cable services.





We
operate our publishing business, which 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, and the provision of audio value added
communication services, through Shandong Publishing, our joint venture company.
Shandong Media’s revenue consists primarily of sales of publications and
advertising revenues.





Our
subsidiary AdNet, which was acquired during the first half of 2009, holds an
Internet Content Provider (“ICP”) license with rights to provide delivery of
multimedia advertising content to internet cafés in the PRC.  AdNet 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.





During
late 2009, management opted to limit its expenses in respect of AdNet’s business
and has reduced AdNet’s full and part time staff, all of which were based in the
PRC, from 20 persons to 2 full time employees. Nonetheless, we are maintaining
AdNet’s ICP and other licenses, servers and infrastructure, as well as all of
its intellectual property, all of which we intend on using both for AdNet and,
in connection with other businesses that we contemplate acquiring or entering
into, which would require similar technology and infrastructure.





On March
9, 2010, China Broadband Cayman entered into a Note Purchase Agreement and a
non-binding Letter of Intent, or the LOI with Sinotop Group Ltd., a Hong Kong
corporation, or Sinotop Hong Kong.  Through a series of contractual
arrangements referred to herein as “VIE Contracts”, Sinotop Hong Kong controls
Beijing Sino Top Scope Technology Co., Ltd., or Sinotop
Beijing.  Sinotop Beijing, a corporation established in the PRC is, in
turn, a party to a joint venture with two other PRC companies to provide
integrated value-added service solutions for the delivery of pay-per-view
(“PPV”), video-on-demand (“VOD”), and enhanced premium content for cable
providers.





The LOI
summarizes the proposed terms of the acquisition by CB Cayman of 100% of the
outstanding capital stock of Sinotop Hong Kong from its sole stockholder in
consideration for a percentage of China Broadband to be determined in the
definitive agreement.  Among other customary closing conditions, the
acquisition is contingent upon (1) the drafting and negotiation of definitive
agreements that cover the matters discussed in the LOI, (2) the funding of the
Note (as defined below), which has already occurred, (3) the contribution by CB
Cayman of at least US$5,000,000 to the capital of Sinotop Hong Kong (or the
purchase by CB Cayman of newly issued shares of Sinotop Hong Kong in
consideration for the same amount), and (4) the absence of any debts,
obligations or encumbrances on the equity or assets of Sinotop Hong Kong and the
WFOE other than the Note and the VIE Contracts.  The LOI contains a
binding exclusivity provision that prohibits Sinotop Hong Kong and Sinotop Hong
Kong’s sole stockholder from soliciting, initiating, entertaining, participating
in any discussions or negotiations concerning, or making or accepting any offer
or proposed transaction with any third party with regard to, any of the
transactions contemplated by the LOI or any similar
transaction.    This transaction has not been consummated
yet and we are dependent, among other conditions, on our ability to raise
capital in order to complete this transaction.


15




Pursuant
to the Note Purchase Agreement, on March 9, 2010, CB Cayman acquired a
Convertible Promissory Note, or Note from Sinotop Hong Kong in consideration of
CB Cayman’s loan to Sinotop Hong Kong of US$580,000 as contemplated by the
LOI.





The Note
accrues interest at a simple annual rate of 5% and is due on the date, or the
Maturity Date that is the earlier of the fifth anniversary of the date of
issuance of the Note or the day following a change of control (as described in
the Note).  The outstanding principal amount of the Note along with all
accrued interest is convertible into common shares of Sinotop Hong Kong upon the
occurrence of (1) Sinotop Hong Kong consummating a financing transaction, or
Financing, resulting in aggregate gross proceeds of at least $1 million, in
which case the Note would automatically be converted into ordinary shares of
Sinotop Hong Kong at a price equal to 70% of the price per share paid by
investors in such Financing, or (2) a change of control of Sinotop Hong Kong (as
described in the Note), in which case the Note would automatically be converted
into ordinary shares that represent 50% of the issued and outstanding capital
stock of Sinotop Hong Kong.  The outstanding principal amount of the Note
and all accrued interest thereon may also be converted at the option of CB
Cayman at any time after the Maturity Date or an event of default into ordinary
shares of Sinotop Hong Kong representing 50% of the issued and outstanding
voting capital stock of Sinotop Hong Kong.  The Note may not be prepaid
prior to the Maturity Date without the consent of the holder of the Note. 
The Note contains customary events of default.





Recent
Developments





On May
20, 2010, we entered into separate securities purchase agreements with several
accredited investors, including one strategic investor who was an early promoter
of pay-per-view programming in the United States.  The securities purchase
agreements (the “Financing Agreements”) contemplate three separate, but
simultaneous, financing transactions (collectively, the “Financings”).  The
first financing will involve the sale of up to $4,629,000 of units (“Common
Units”) at a price per Common Unit of $0.05, with each Common Unit consisting of
one share of our common stock and a five year warrant for the purchase of one
share of our common stock at an exercise price of $0.05.  The second
financing, involving the strategic investor, relates to the sale of up to
$3,500,000 of units (“Preferred A Units”) at a price of $0.50 per Preferred A
Unit, with each Preferred A Unit consisting of one share of our Series A
Preferred Stock and a five year warrant for the purchase of  34.2857 shares
of our common stock at an exercise price of $0.05 per share of Common
Stock.  Each share of Series A Preferred Stock will be convertible into ten
shares of our Common Stock (subject to adjustment) and will have super voting
rights that allow the strategic investor to have ten votes for each underlying
share of Common Stock that the Series A Preferred Stock is convertible
into.  The third financing involves an accredited investor who is an
existing holder of our securities and relates to the sale of up to $3,000,000 of
units (the “Preferred B Units”) at a price of $0.50 per Preferred B Unit, with
each Preferred B Unit consisting of one share of our Series B Preferred Stock
and a five year warrant for the purchase of ten shares of our common stock at an
exercise price of $0.05 per share of Common Stock.  Each share of Series B
Preferred Stock will be convertible into ten shares of our Common Stock (subject
to adjustment).  The Series B Preferred Stock does not have any voting
rights.




In
connection with the proposed sale of the Preferred B Units, the Company has
agreed, in exchange for the forgiveness of a $600,000 advance to the Company as
discussed in Note 9 “Related Party Transactions” above, to allocate such amount
towards [Mr. Oliviera’s] investment in the Company’s Financings.  Upon
consummation of the Financings, the $600,000 will go towards the purchase of
units consisting of one share of the Company’s Series B Preferred Stock and
warrants to purchase ten shares of the Company’s common stock, at a per unit
price of $0.50.  In addition, the Company will issue to [Mr. Oliviera] two
additional warrants, each for the purchase of one share of the Company’s common
stock, for each share of common stock underlying the Preferred B Units purchased
in connection with the forgiveness of the advance.  The Company anticipates
that the financings will close on or before July 15, 2010.  The $600,000
applied towards the purchase of the Preferred B Units is included in the
aggregate $3,000,000 of Preferred B Units sold in the Financing.




The
consummation of the Financings is subject to several closing conditions and
uncertainties, including without limitation the satisfactory conclusion of the
strategic investor’s due diligence investigation of us and our subsidiaries and
variable interest entities, an amendment to our articles of incorporation that
increases the number of authorized shares of our common stock from 95,000,000 to
1,500,000,000 and the number of authorized shares of our blank check preferred
stock from 5,000,000 to 50,000,000, and the amendment and restatement or other
modification as necessary to all of our agreements with our variable interest
entities in China to the satisfaction of the strategic investor.  In
addition, at any time prior to the closing, the strategic investor has the
complete and unconditional right to terminate its obligations under the
Financing Agreements for any reason, for no reason and for convenience in his
sole discretion.  Proceeds from all investors except the strategic investor
are currently held in escrow subject to the closing conditions being
satisfied.





Upon
closing of the Financings, which we anticipate will occur on or before July 15,
2010, the strategic investor will hold a majority of the outstanding voting
securities of the Company.  The net proceeds will be used to acquire
Sinotop Hong Kong as discussed above, to fund the value added service platform
and for working capital purposes.





In
connection with the Financings, on May 20, 2010, we entered into (i) a Waiver
and Agreement to Convert with the holders of an aggregate of $4,971,250 in
principal amount of notes of the Company, dated January 11, 2008, and (ii) a
Waiver and Agreement to Convert with the holders of an aggregate of $304,902 in
principal amount of notes of the Company, dated June 30, 2009 (collectively, the
“Waivers”), whereby the holders of the notes, except for an existing minority
investor of the Company, agreed to convert, upon the consummation of the
Financings, 100% of the outstanding principal and interest owing on the notes
into shares of our Common Stock at a conversion price of $0.05 per share (the
“Debt Conversion”).  In addition, the holders of the notes, except for the
minority investor, will receive warrants identical to those issued in connection
with the sale of the Common Units, to purchase such number of shares of our
Common Stock equal to the number of shares of Common Stock issued upon
conversion of the notes.  Pursuant to the Waivers, the minority investor,
who currently holds notes of the Company in aggregate principal amount of
$2,133,400, will (i) convert 100% of the outstanding principal and interest
owing on such notes into shares of Series B Preferred Stock at a conversion
price of $0.50 per share and (ii) receive warrants identical to those issued in
connection with the purchase of Series B Units, to purchase such number of
shares of our Common Stock equal to the number of shares of Common Stock
underlying the Series B Preferred Stock issued upon conversion of such
notes.


16


Results
of Operations





The following
table sets forth key components of our results of operations for the periods
indicated.





3
      Months Ended
                        
                        
                        Amount
                        
                        
                        %March
      31,
                        
                        
                        March
      31,
                        
                        
                        Increase
      /
                        
                        
                        Increase
      /2010
                        
                        
                        2009
                        
                        
                        (Decrease)
                        
                        
                        (Decrease)(as
      restated)Revenue
                        
                        $
                        1,876,000
                        
                        
                        $
                        1,949,000
                        
                        
                        $
                        (73,000
                        )
                        
                        
                        -4
                        %Cost
      of revenue
                        
                        
                        1,074,000
                        
                        
                        
                        1,174,000
                        
                        
                        
                        (100,000
                        )
                        
                        
                        -9
                        %Gross
      profit
                        
                        
                        802,000
                        
                        
                        
                        775,000
                        
                        
                        
                        27,000
                        
                        
                        
                        3
                        %Selling,
      general and adminstrative expenses
                        
                        
                        723,000
                        
                        
                        
                        718,000
                        
                        
                        
                        5,000
                        
                        
                        
                        1
                        %Professional
      fees
                        
                        
                        169,000
                        
                        
                        
                        110,000
                        
                        
                        
                        59,000
                        
                        
                        
                        54
                        %Depreciation
      and amortization
                        
                        
                        946,000
                        
                        
                        
                        831,000
                        
                        
                        
                        115,000
                        
                        
                        
                        14
                        %Loss
      from operations
                        
                        
                        (1,036,000
                        )
                        
                        
                        (884,000
                        )
                        
                        
                        (152,000
                        )
                        
                        
                        17
                        %Interest
      & other income / (expense)Interest
      income
                        
                        
                        3,000
                        
                        
                        
                        3,000
                        
                        
                        
                        -
                        
                        
                        
                        0
                        %Interest
      expense
                        
                        
                        (91,000
                        )
                        
                        
                        (88,000
                        )
                        
                        
                        (3,000
                        )
                        
                        
                        3
                        %Change
      in fair value of warrant liabilities
                        
                        
                        42,000
                        
                        
                        
                        (614,000
                        )
                        
                        
                        656,000
                        
                        
                        
                        -107
                        %Loss
      on sale of marketable equity securities
                        
                        
                        -
                        
                        
                        
                        (20,000
                        )
                        
                        
                        20,000
                        
                        
                        
                        -100
                        %Loss
      before income taxes and noncontrolling interests
                        
                        
                        (1,082,000
                        )
                        
                        
                        (1,603,000
                        )
                        
                        
                        521,000
                        
                        
                        
                        -33
                        %Income
      tax benefit
                        
                        
                        14,000
                        
                        
                        
                        15,000
                        
                        
                        
                        (1,000
                        )
                        
                        
                        -7
                        %Net
      loss, net of tax
                        
                        
                        (1,068,000
                        )
                        
                        
                        (1,588,000
                        )
                        
                        
                        520,000
                        
                        
                        
                        -33
                        %Plus: 
      Net loss attributable to noncontrolling interests
                        
                        
                        264,000
                        
                        
                        
                        246,000
                        
                        
                        
                        18,000
                        
                        
                        
                        7
                        %Net
      loss attributable to China Broadband shareholders
                        
                        $
                        (804,000
                        )
                        
                        $
                        (1,342,000
                        )
                        
                        $
                        538,000
                        
                        
                        
                        -40
                        %





Comparison of Three Months
Ended March 31, 2010 and 2009





Revenues





Our
revenues are generated by our operating companies in the PRC.  Revenues for
the three months ended March 31, 2010 totaled $1,876,000, as compared to
$1,949,000 for the three months ended March 31, 2009, a decrease of
approximately $73,000, or 4%.





Jinan
Broadband’s revenue consists primarily of sales to our PRC based internet
consumers, cable modem consumers, business customers and other internet and
cable services.  For the three months ended March 31, 2010, revenues
totaled $1,230,000, an increase of $145,000, or 13%, as compared to revenues of
$1,085,000 for the first quarter of 2009. The increase is attributable to
increases in our value added services.





Shandong
Media’s revenue consists primarily of sales of publications and advertising
revenues.  For the three months ended March 31, 2010, revenues totaled
$646,000, a decrease of $218,000, or 25%, as compared to revenues of $864,000
for the first quarter of 2009.  Although
we had decreases in both our publication and advertising revenues, the decrease
is mainly attributable to decreases in advertising revenue which can be directly
correlated to the decline of the advertising market as a whole in China. 
We believe this decrease to be temporary.  We will continue to look to
increase our advertising sales for the publishing side of the business.  We
also anticipate launching an electronic programming guide in the second part of
2010.  This will be another significant source of revenue for the
company.





Gross
Profit





Our gross
profit for the three months ended March 31, 2010 was $802,000, as compared to
$775,000 for the three months ended March 31, 2009,an increase of approximately
$27,000, or 3%.  Jinan Broadband’s gross profit increased $120,000, or 25%,
mainly due to increased revenue.  Shandong Media’s gross profit decreased
$93,000, or 31%, primarily due to decreased revenues.





Gross
profit as a percentage of revenue was 43% for the three months ended March 31,
2010, as compared to 40% for the three months ended March 31, 2009.





Selling,
General and Administrative Expenses





Our
selling, general and administrative expenses for the three months ended March
31, 2010 increased approximately $5,000 to $723,000, as compared to $718,000 for
the three months ended March 31, 2009.





Salaries
and personnel costs are the major component of selling, general and
administrative expenses. During the first quarter of 2010, salaries and
personnel costs accounted for 64% of our selling, general and administrative
expenses.  For the three months ended March 31, 2010, salaries and
personnel costs totaled $461,000, an increase of $31,000 or 7% as compared to
$430,000 for the first quarter of 2009.





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





Professional
Fees





Our
professional fees are generally related to public company reporting and
governance expenses as well as costs related to our acquisitions.  Our
costs for professional fees increased $59,000, or 54%, to $169,000 during the
three months ended March 31, 2010 from $110,000 in 2009.  We expect our
costs for professional services for public company reporting and corporate
governance expenses to remain significant, but to decrease as a percentage of
our overall revenues if we continue to acquire new entities and enter into
strategic partnerships.





Depreciation
and Amortization





Our
depreciation expense increased $55,000, or 7%, to $804,000 for the three months
ended March 31, 2010 from $749,000 in 2009.  The increase is mainly due to
the acquisition of new equipment by our Jinan Broadband subsidiary.





Our
amortization expense increased $60,000, or 72%, to $142,000 for the three months
ended March 31, 2010 from $82,000 in 2009.  The increase is mainly due to
the amortization expense related to our software technology acquired from our
AdNet Media acquisition.


17


Interest
and Other Income (Expense), net





Interest
income


Interest
income was $3,000 for both three month periods ended March 31, 2010 and
2009.





Interest
expense


Interest
expense is related to our 5% Convertible Notes issued in January 2008 and June
2009.  Interest expense increased $3,000, or 3%, to $91,000 for the three
months ended March 31, 2010 from $88,000 in 2009, primarily due to additional
convertible notes issued in 2009 in the amount of approximately $305,000. 
Interest expense includes amortization of the original issue discount on the
notes resulting from the allocation of fair value to the warrants issued in the
financing.





We expect
our interest expense to increase due to the convertible notes issued in
2009.  Interest on the Notes compounds monthly at the annual rate of five
percent (5%).  The January 2008 Notes mature on January 11, 2013.  The
outstanding principal amount of the January 2008 Notes as of March 31, 2010 was
$4,971,250, net of original issue discount of $504,661.  The June 2009
Notes mature on May 27, 2010.  The outstanding principal amount on the June
2009 Notes as of December 31, 2009 was approximately $305,000.





Change
in fair value of warrant liabilities


Under new
authoritative guidance, effective January 1, 2009, the Company was required to
reclassify warrants from equity to warrant liabilities.  Warrants are fair
valued quarterly using the Black-Scholes Merton Model and changes in fair value
are recorded to the statement of operations.  We recorded a gain of $42,000
classified as a change in fair value of warrants on our statement of operations
for the 3 months ended March 31, 2010 and we recorded a charge of $614,000 in
2009.





Loss
on sale of marketable equity securities


There
were no sales of our marketable equity securities during the three months ended
March 31, 2010.  We recorded a loss of $20,000 during the first quarter of
2009.





Net
Loss Attributable to Noncontrolling Interest





49% of
the operating loss of our Jinan Broadband subsidiary is allocated to Jinan
Parent, the 49% co-owner of this business.  During the three months ended
March 31, 2010, $204,000 of our operating losses from Jinan Broadband was
allocated to Jinan Parent, as compared to $224,000 during the first quarter of
2009.





50% of
the operating loss of our Shandong Media joint venture is allocated to our 50%
Shandong Newspaper joint venture partner.  During the three months ended
March 31, 2010, $60,000 of our operating loss from Shandong Media was allocated
to Shandong Newspaper, as compared to $22,000 during the first quarter of
2009.





Net
Loss Attributable to Shareholders





Net loss
attributable to shareholders for the three months ended March 31, 2010 was
$804,000, a decrease of $538,000, or 40%, as compared to $1,342,000 for the
three months ended March 31, 2009.  The decrease is primarily due to the
recognition of a $614,000 charge due to the increase in the fair value of
warrant liabilities in 2009.





The
following table breaks down the results of operations for the three months ended
March 31, 2010 and 2009 between our operating companies and our non-operating
companies.  Our operating companies include Jinan Broadband and Shandong
Media.





3
      Months Ended
                                                                                      
                                                                                      
                                                                                      3
      Months EndedMarch
      31, 2010
                                                                                      
                                                                                      
                                                                                      March
      31, 2009(as
      restated)%
      of
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      %
      ofTotal
                                                                                      
                                                                                      
                                                                                      Non-
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      Total
                                                                                      
                                                                                      
                                                                                      Non-Operating
                                                                                      
                                                                                      
                                                                                      Revenue
                                                                                      
                                                                                      
                                                                                      Operating
                                                                                      
                                                                                      
                                                                                      Total
                                                                                      
                                                                                      
                                                                                      Operating
                                                                                      
                                                                                      
                                                                                      Revenue
                                                                                      
                                                                                      
                                                                                      Operating
                                                                                      
                                                                                      
                                                                                      TotalRevenue
                                                                                      
                                                                                      $
                                                                                      1,876,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      $
                                                                                      -
                                                                                      
                                                                                      
                                                                                      $
                                                                                      1,876,000
                                                                                      
                                                                                      
                                                                                      $
                                                                                      1,949,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      $
                                                                                      -
                                                                                      
                                                                                      
                                                                                      $
                                                                                      1,949,000Cost
      of revenue
                                                                                      
                                                                                      
                                                                                      1,074,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      -
                                                                                      
                                                                                      
                                                                                      
                                                                                      1,074,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      1,174,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      -
                                                                                      
                                                                                      
                                                                                      
                                                                                      1,174,000Gross
      profit
                                                                                      
                                                                                      
                                                                                      802,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      43
                                                                                      %
                                                                                      
                                                                                      
                                                                                      -
                                                                                      
                                                                                      
                                                                                      
                                                                                      802,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      775,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      40
                                                                                      %
                                                                                      
                                                                                      
                                                                                      -
                                                                                      
                                                                                      
                                                                                      
                                                                                      775,000Selling,
      general and adminstrative expenses
                                                                                      
                                                                                      
                                                                                      532,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      28
                                                                                      %
                                                                                      
                                                                                      
                                                                                      191,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      723,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      525,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      27
                                                                                      %
                                                                                      
                                                                                      
                                                                                      193,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      718,000Professional
      fees
                                                                                      
                                                                                      
                                                                                      1,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      0
                                                                                      %
                                                                                      
                                                                                      
                                                                                      168,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      169,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      4,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      0
                                                                                      %
                                                                                      
                                                                                      
                                                                                      106,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      110,000Depreciation
      and amortization
                                                                                      
                                                                                      
                                                                                      805,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      43
                                                                                      %
                                                                                      
                                                                                      
                                                                                      141,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      946,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      750,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      38
                                                                                      %
                                                                                      
                                                                                      
                                                                                      81,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      831,000Loss
      from operations
                                                                                      
                                                                                      
                                                                                      (536,000
                                                                                      )
                                                                                      
                                                                                      
                                                                                      -29
                                                                                      %
                                                                                      
                                                                                      
                                                                                      (500,000
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (1,036,000
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (504,000
                                                                                      )
                                                                                      
                                                                                      
                                                                                      -26
                                                                                      %
                                                                                      
                                                                                      
                                                                                      (380,000
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (884,000
                                                                                      )Interest
      & other income / (expense)Interest
      income
                                                                                      
                                                                                      
                                                                                      1,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      2,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      3,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      3,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      -
                                                                                      
                                                                                      
                                                                                      
                                                                                      3,000Interest
      expense
                                                                                      
                                                                                      
                                                                                      -
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      (91,000
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (91,000
                                                                                      )
                                                                                      
                                                                                      
                                                                                      -
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      (88,000
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (88,000
                                                                                      )Change
      in fair value of warrant liabilities
                                                                                      
                                                                                      
                                                                                      -
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      42,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      42,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      -
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      (614,000
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (614,000
                                                                                      )Loss
      on sale of marketable equity securities
                                                                                      
                                                                                      
                                                                                      -
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      -
                                                                                      
                                                                                      
                                                                                      
                                                                                      -
                                                                                      
                                                                                      
                                                                                      
                                                                                      -
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      (20,000
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (20,000
                                                                                      )Loss
      before income taxes and noncontrolling interests
                                                                                      
                                                                                      
                                                                                      (535,000
                                                                                      )
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      (547,000
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (1,082,000
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (501,000
                                                                                      )
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      (1,102,000
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (1,603,000
                                                                                      )Income
      tax benefit
                                                                                      
                                                                                      
                                                                                      -
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      14,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      14,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      -
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      15,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      15,000Net
      loss, net of tax
                                                                                      
                                                                                      
                                                                                      (535,000
                                                                                      )
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      (533,000
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (1,068,000
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (501,000
                                                                                      )
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      (1,087,000
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (1,588,000
                                                                                      )Plus:  Net
      loss attributable to noncontrolling interest
                                                                                      
                                                                                      
                                                                                      264,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      -
                                                                                      
                                                                                      
                                                                                      
                                                                                      264,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      246,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      -
                                                                                      
                                                                                      
                                                                                      
                                                                                      246,000Net
      loss attributable to China Broadband shareholders
                                                                                      
                                                                                      $
                                                                                      (271,000
                                                                                      )
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      $
                                                                                      (533,000
                                                                                      )
                                                                                      
                                                                                      $
                                                                                      (804,000
                                                                                      )
                                                                                      
                                                                                      $
                                                                                      (255,000
                                                                                      )
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      $
                                                                                      (1,087,000
                                                                                      )
                                                                                      
                                                                                      $
                                                                                      (1,342,000
                                                                                      )





Liquidity
and Capital Resources





As of
March 31, 2010 we had cash and cash equivalents of approximately
$1,514,000.  Given our current commitments and working capital, we cannot
support our operations for the next 12 months without additional capital. (See
“Need for Additional Capital”, below).





Cash
Flows





The
following sets forth a summary of the Company’s cash flows for the three months
ended March 31, 2010 and 2009:





Three
      Months EndedMarch
      31,
                
                
                March
      31,2010
                
                
                2009Net
      cash provided by operating activities
                
                $
                89,000
                
                
                $
                106,000Net
      cash used in investing activities
                
                
                (1,372,000
                )
                
                
                (757,000
                )Net
      cash provided by financing activities
                
                
                581,000
                
                
                
                4,000Effect
      of exchange rate changes on cash
                
                
                26,000
                
                
                
                21,000Net
      decrease in cash and cash equivalents
                
                
                (676,000
                )
                
                
                (627,000
                )Cash
      and cash equivalents at beginning of period
                
                
                2,190,000
                
                
                
                4,426,000Cash
      and cash equivalents at end of period
                
                
                1,514,000
                
                
                
                3,799,000





Operating
activities


Cash
provided by operating activities for the three months ended March 31, 2010 and
2009 was $88,000 and $106,000, respectively.


18


Investing
activities


Investing
activities for the three months ended March 31, 2010 and 2009 used cash of
$1,372,000 and $757,000, respectively.  For 2010, this amount consisted of
(i) $224,000 for additions to property and equipment, (ii) $580,000 loan to
Sinotop Group Ltd for our potential acquisition and (iii) $568,000 loan to our
Shandong Media shareholders.  For 2009, this amount consisted of (i)
$227,000 for additions to property and equipment and (ii) $585,000 loan to our
Shandong Media shareholder partially offset by the proceeds from the sale of
Cablecom Holding Shares in the amount of $55,000.




Financing
activities


Financing
activities for the three months ended 2010 and 2009 provided cash of $581,000
and $4,000, respectively.  For 2010, the amount consisted of $600,000 from
the issuance of a convertible note payable offset by a $19,000 decrease in the
payable to Jinan Parent.  For 2009, the amount was due to an increase in
the payable to Jinan Parent in the amount of $4,000.





Obligations
Under Material Contracts





On March
7, 2008, we entered into the Shandong Publishing Cooperation Agreement with
Shandong Broadcast & TV Weekly Press and Modern Movie & TV Biweekly
Press, pursuant to which Shandong Broadcast & TV Weekly Press and Modern
Movie & TV Biweekly Press contributed their entire businesses and
transferred certain employees to Shandong Publishing in exchange for a 50% stake
in Shandong Publishing, with the other 50% of Shandong Publishing to be owned by
our WFOE in the PRC.  In exchange, we were required to pay approximately
$1.5 million (approximately 10 million RMB), which was contributed to Shandong
Publishing as working and acquisition capital.





Based on
certain financial performance we were required to make an additional payment of
5 million RMB (approximately US $730,000).  In 2008 we recorded the
additional payment due as an increase to our Shandong noncontrolling interest
account.  The due date of the additional payment has been extended to May
31, 2010.





On June
30, 2009, we consummated a note offering pursuant to which we issued
$304,902 principal amount of notes to nine investors.  The notes accrue
interest at 5% per year payable quarterly in cash or stock, were initially
convertible at $.20 per share, and become due and payable in full on May 27,
2010.   In connection with the Financings discussed above, on May 20,
2010, we entered into a Waiver and Agreement to Convert (the “Waiver”) with the
note holders whereby the holders $171,502 in aggregate principal amount of the
notes agreed to convert, upon the consummation of the Financings, 100% of the
outstanding principal and interest owing on the notes into shares of our common
stock at a conversion price of $0.05 per share.  In addition, the holders
of such notes will receive warrants identical to those issued in connection with
the sale of the Common Units, to purchase such number of shares of our common
stock equal to the number of shares of common stock issued upon conversion of
such notes.  Pursuant to the Waiver, the holder of the remaining $133,400
in aggregate principal amount of the notes will (i) convert 100% of the
outstanding principal and interest owing on such notes into shares of Series B
Preferred Stock at a conversion price of $0.50 per share and (ii) receive
warrants identical to those issued in connection with the purchase of Preferred
B Units, to purchase such number of shares of our Common Stock equal to the
number of shares of Common Stock underlying the Series B Preferred Stock issued
upon conversion of such notes.  In addition, the Waiver amends the maturity
date of the Notes from May 27, 2010 to December 31, 2012.





Need
for Additional Capital





As
indicated above, management does not believe that the Company has sufficient
capital to sustain its operations beyond 12 months nor fund the required
contribution to Shandong Publishing or the $305,000 convertible notes maturing
May 27, 2010 without raising additional capital.  We presently do not have
any available credit, bank financing or other external sources of
liquidity.  Accordingly, we will require additional funding through
additional equity and/or debt financings.  However, there can be no
assurance that any additional financing will become available to us, and if
available, on terms acceptable to us.





The
conversion of our outstanding notes and exercise of our outstanding warrants
into shares of common stock would have a dilutive effect on our common stock,
which would in turn reduce our ability to raise additional funds on favorable
terms.  In addition, the subsequent sale on the open market of any shares
of common stock issued upon conversion of our outstanding notes and exercise of
our outstanding warrants could impact our stock price which would in turn reduce
our ability to raise additional funds on favorable terms.





Any
financing, if available, may involve restrictive covenants that may impact our
ability to conduct our business or raise additional funds on acceptable
terms.  If we are unable to raise additional capital when required or on
acceptable terms, we may have to delay, scale back or discontinue our expansion
plans.  In the event we are unable to raise additional capital we will not
be able to sustain any growth or continue to operate.


19


Critical
Accounting Policies and Significant Judgments and Estimates


The
discussion and analysis of our financial condition and results of operation are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America.  Note 2 to the consolidated financial statements in our Annual
Report on Form 10-K for the year ended December 31, 2009 includes a summary of
our most significant accounting policies.  There have been no material
changes to the critical accounting policies previously disclosed in our 2009
Annual Report on Form 10-K.  The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of assets and
liabilities.  On an ongoing basis, we evaluate our estimates and judgments,
including those related to revenue recognition, inventories, securities
available for sale, income taxes, stock-based compensation and warrant
liabilities.  Management bases its estimates on historical experience and
on various other factors that are believed to be 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.  Actual results may differ from these estimates under
different assumptions or conditions.  Periodically, we review our critical
accounting estimates with the Audit Committee of our Board of
Directors.





Recent
Accounting Pronouncements


Refer to
Note 3 for to the financial statements for updates on recent accounting
pronouncements since the filing of our 2009 annual report on Form
10-K.





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
3. Quantitative and Qualitative Disclosures about Market Risk





We are a
smaller reporting company as defined by Rule 12b-2 of the Securities Exchange
Act of 1934 and are not required to provide the information under this
item.





Item
4. Controls and Procedures





a.
Evaluation of Disclosure Controls and Procedures





We
maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under
the Exchange Act) that are designed to ensure that information that would be
required to be disclosed in Exchange Act reports is recorded, processed,
summarized and reported within the time period specified in the SEC’s rules and
forms, and that such information is accumulated and communicated to our
management, including to our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure.





As
required by Rule 13a-15 under the Exchange Act, our management,
including our Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures as of March 31, 2010.  Based on that evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that as
of March 31, 2010, and as of the date that the evaluation of the effectiveness
of our disclosure controls and procedures was completed, our disclosure controls
and procedures were not effective to satisfy the objectives for which they are
intended.  Although we still have material weaknesses, we have hired
outside consultants to help improve our internal controls.





b.
Changes in Internal Control over Financial Reporting





There
have been no changes in our internal control over financial reporting during the
first quarter of 2010 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting.


20


PART II - OTHER INFORMATION




Item
1. Legal Proceedings.





There are
no material pending legal proceedings to which we are a party or to which any of
our property is subject. To the best of our knowledge, no such actions against
us are contemplated or threatened.





Item
1A. Risk Factors




The
discussion of our business and operations should be read together with the risk
factors contained in Part I, Item 1A of our Annual Report on Form 10-K for the
year ended December 31, 2009, which describes the various risks and
uncertainties to which we are or may become subject to.




No
assurance can be made that the Company will be able to consummate its currently
contemplated offering.




As set
forth in the section titled “Recent Developments” above, the Company entered
into various financing agreements all of which are subject to a number of pre
and post conditions and satisfactory due diligence of the strategic investor,
which may also terminate the transaction for any reason or no reason.  If
we do not complete this financing we will likely not be able to complete our
acquisition of Sinotop and will continue to have liquidity problems as we have
limited capital to operate our operations without such financing.  We do
not have alternate financing commitments at this time.  If a financing is
not completed, the Company will be adversely affected.




Other
than as relates to the above risks, there have been no material changes to the
risk factors set forth in our Annual Report on Form 10-K for the year ended
December 31, 2009.




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





None.





Item
3. Defaults Upon Senior Securities.




None.





Item
4. Removed and Reserved




Item
5. Other Information.




None.





Item 6. Exhibits.




EXHIBIT
INDEX




Exhibit
      No.
              
              Description31.1
              
              Certification
      by Chief Executive Officer pursuant to Sarbanes Oxley Section
      302.31.2
              
              Certification
      by Chief Financial Officer pursuant to Sarbanes Oxley Section
      302.32.1
              
              Certification
      by Chief Executive Officer pursuant to 18 U.S.C. Section
    1350.32.2
              
              Certification
      by Chief Financial Officer pursuant to 18 U.S.C. Section
    1350.


21




SIGNATURES





In
accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on May 24, 2010.





CHINA
      BROADBAND, INCBy:
                  /s/
      Marc UrbachName:
      Marc UrbachTitle: President (Principal
      Executive Officer)By:
                  /s/
      Yue PuName:
      Yue PuTitle:
      Vice Chairman (Principal Accounting Officer, PrincipalFinancial
      Officer)


22