UNITED STATES


SECURITIES AND EXCHANGE
COMMISSION


Washington,
D.C. 20549




FORM 10-Q/A




x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934For
      the quarterly period ended March 31, 2009o
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934For
      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 xNo o




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company:





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 oNo x




Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: 61,923,208 shares as of May 15,
2009.









Explanatory
Note





China
Broadband, Inc. (the “Company”) is filing this Amendment No. 1 to its Quarterly
Report on Form 10-Q for the quarter ended March 31, 2009, which was originally
filed with the Securities and Exchange Commission (the “Commission”) on May 20,
2009 (the “Original Filing”).





The
Company is amending the financial statements included in Part 1, Item 1 of the
Original Filing as follows:





1)
            Reclassify
      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:




Additional
                Paid-in
      Capital
              
              
              Accumulated
                Deficit
              
              
              Warrant
                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)
            Correct
      an error related to the valuation of our Shandong Media intangibles which
      include 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 noncontrolling
  interest.





In
addition, the Company is concurrently filing certain additional improvements to
its disclosures in this amended Form 10-Q/A for the quarter ended March 31,
2009.





For the
convenience of the reader, this Form 10-Q/A sets forth the entire filing which
was prepared and relates to the Company as of and for the quarter ended March
31, 2009.  Accordingly, except for the foregoing amended information,
this Form 10-Q/A continues to speak as of the date of the Original Filing and
does not reflect events occurring after the Original Filing, and does not modify
or update those disclosures affected by subsequent events.  Forward
looking statements made in the Original Filing have not been revised to reflect
events, results or developments that have become known to us after the date of
the Original Filing (other than the current restatements described above), and
such forward looking statements should be read in their historical
context.  Unless otherwise stated, the information in this Form 10-Q/A
not affect by such current restatements is unchanged and reflects the
disclosures made at the time of the Original Filing. Accordingly, in conjunction
with reading this amendment to the Original Filing, you should also read all
other filings we have made with the Securities and Exchange Commission since May
20, 2009.









QUARTERLY
REPORT ON FORM 10-Q/A


OF
CHINA BROADBAND, INC.


FOR
THE PERIOD ENDED MARCH 31, 2009





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
            
            
            12Item
      3
            
            Quantitative
      and Qualitative Disclosures About Market Risk
            
            
            20Item
      4.
            
            Controls
      and Procedures
            
            
            20PART II
            -
            OTHER
      INFORMATION
            
            
            22Item
      1.
            
            Legal
      Proceedings
            
            
            22Item
      1A.
            
            Risk
      Factors
            
            
            22Item
      2.
            
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            
            
            22Item
      3.
            
            Defaults
      Upon Senior Securities
            
            
            22Item
      4.
            
            Submission
      of Matters to a Vote of Security Holders
            
            
            22Item
      5.
            
            Other
      Information
            
            
            22Item
      6.
            
            Exhibits
            
            
            22Signatures
            
            
            23





Cautionary
Note Regarding Forward Looking Statements





This
Form 10-Q/A 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/A for the year ended December 31, 2008 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.





References





References to the “PRC” or “China”
are to the People’s Republic of China. Unless otherwise noted, all currency
figures are in U.S. dollars. All references to U.S. dollar amounts herein which
relate to operations or revenues from the PRC have been converted into U.S.
dollars based on the applicable exchange rates.





References
to "yuan" or "RMB" are to the Chinese yuan, which is also known as the renminbi.
Unless otherwise specified, the words “Company,” “we,” “us,” and “our,” refer
collectively to China Broadband, Inc., its wholly owned subsidiary in the Cayman
Islands, China Broadband Cayman, Ltd., and Beijing China Broadband Network
Technology, a wholly foreign owned entity formed under the laws of the PRC,
which is commonly referred to herein as our Wholly Foreign Owned Entity
“WFOE”.




2





PART
I — FINANCIAL INFORMATION




Item
1. Financial Statements.




China
Broadband, Inc. and Subsidiaries CONSOLIDATED
BALANCE SHEETS


March
      31,
              
              
              December
      31,2009
              
              
              2008(Unaudited)(Restated)ASSETSCurrent
      assets:Cash
      and cash equivalents
              
              $
              3,798,798
              
              
              $
              4,425,529Marketable
      equity securities
              
              
              94,125
              
              
              
              254,496Accounts
      receivable
              
              
              192,480
              
              
              
              136,709Inventory
              
              
              836,827
              
              
              
              877,309Prepaid
      expense
              
              
              54,782
              
              
              
              46,380Other
      current assets
              
              
              190,927
              
              
              
              153,277Total
      current assets
              
              
              5,167,939
              
              
              
              5,893,700Property
      and equipment, net
              
              
              8,781,198
              
              
              
              9,299,473Intangible
      assets, net
              
              
              3,880,862
              
              
              
              4,218,758Other
      assets
              
              
              1,254,411
              
              
              
              692,911Total
      assets
              
              $
              19,084,410
              
              
              $
              20,104,842LIABILITIES AND SHAREHOLDERS'
      EQUITYCurrent
      liabilities:Accounts
      payable
              
              $
              1,004,576
              
              
              $
              1,237,251Accrued
      expenses
              
              
              1,341,688
              
              
              
              936,134Deferred
      revenue
              
              
              1,410,863
              
              
              
              1,382,103Payable
      to Shandong Media
              
              
              145,679
              
              
              
              145,679Payable
      to Jinan Parent
              
              
              2,798,984
              
              
              
              2,795,472Warrant
      liabilities
              
              
              920,932
              
              
              
              -Other
      current liabilities
              
              
              72,718
              
              
              
              72,013Total
      current liabilities
              
              
              7,695,440
              
              
              
              6,568,652Convertible
      notes payable
              
              
              4,589,302
              
              
              
              4,564,427Deferred
      tax liability
              
              
              775,937
              
              
              
              790,617Total
      liabilities
              
              
              13,060,679
              
              
              
              11,923,696Commitments
      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, 50,668,310 and
      50,585,455 issued and outstanding
              
              
              50,669
              
              
              
              50,586Additional
      paid-in capital
              
              
              12,718,235
              
              
              
              13,372,358Accumulated
      deficit
              
              
              (13,118,264
              )
              
              
              (12,200,287
              )Accumulated
      other comprehensive income
              
              
              256,497
              
              
              
              320,858Total
      China Broadband shareholders' (deficit) equity
              
              
              (92,863
              )
              
              
              1,543,515Noncontrolling
      interests
              
              
              6,116,594
              
              
              
              6,637,631Total
      shareholders' equity
              
              
              6,023,731
              
              
              
              8,181,146Total
      liabilities and shareholders' equity
              
              $
              19,084,410
              
              
              $
              20,104,842




See
notes to consolidated financial statements.
  3




China
      Broadband, Inc. and SubsidiariesCONSOLIDATED
      STATEMENTS OF OPERATIONSUnaudited
  ThreeMonthsEndedMarch
      31,
              
              
              March
      31,2009
              
              
              2008(Restated)Revenue
              
              $
              1,949,410
              
              
              $
              1,003,266Cost
      of revenue
              
              
              1,173,881
              
              
              
              352,198Gross
      profit
              
              
              775,529
              
              
              
              651,068Selling,
      general and adminstrative expenses
              
              
              717,928
              
              
              
              520,934Professional
      fees
              
              
              110,496
              
              
              
              137,253Depreciation
      and amortization
              
              
              831,307
              
              
              
              727,627Loss
      from operations
              
              
              (884,202
              )
              
              
              (734,746
              )Interest
      & other income / (expense)Interest
      income
              
              
              3,458
              
              
              
              15,592Interest
      expense
              
              
              (87,384
              )
              
              
              (78,542
              )Change
      in fair value of warrant liabilities
              
              
              (613,809
              )
              
              
              -Loss
      on sale of marketable equity securities
              
              
              (20,352
              )
              
              
              -Other
              
              
              (328
              )
              
              
              (13,519
              )Loss
      before income taxes and noncontrolling interest
              
              
              (1,602,617
              )
              
              
              (811,215
              )Income
      tax benefit
              
              
              14,680
              
              
              
              6,433Net
      loss, net of tax
              
              
              (1,587,937
              )
              
              
              (804,782
              )Plus:  Net
      loss attributable to noncontrolling interests
              
              
              245,589
              
              
              
              168,062Net
      loss attributable to China Broadband shareholders
              
              $
              (1,342,348
              )
              
              $
              (636,720
              )Net
      loss per shareBasic
              
              $
              (0.03
              )
              
              $
              (0.01
              )Diluted
              
              $
              (0.03
              )
              
              $
              (0.01
              )Weighted
      average shares outstandingBasic
              
              
              50,586,376
              
              
              
              50,073,094Diluted
              
              
              50,586,376
              
              
              
              50,073,094




See
notes to consolidated financial statements.




4




China
Broadband, Inc. and Subsidiaries


CONSOLIDATED
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE LOSS for
the Three Months Ended March 31, 2009 (Unaudited)




ChinaAccumulated
              
              
              BroadbandAdditional
              
              
              
              
              
              Other
              
              
              Shareholders'Common
              
              
              Par
              
              
              Paid-in
              
              
              Accumulated
              
              
              Comprehensive
              
              
              (Deficit)/
              
              
              Noncontrolling
              
              
              Total
              
              
              ComprehensiveShares
              
              
              Value
              
              
              Capital
              
              
              Deficit
              
              
              Income(loss)
              
              
              Equity
              
              
              Interest
              
              
              Equity
              
              
              LossBalance
      December 31, 2008
              
              
              50,585,455
              
              
              
              50,586
              
              
              
              13,372,359
              
              
              
              (12,200,289
              )
              
              
              320,862
              
              
              
              1,543,518
              
              
              
              6,637,631
              
              
              
              8,181,149Cumulative
      effect of accounting  change for warrants - reclassification of
      warrants to warrant liabilities
              
              
              -
              
              
              
              -
              
              
              
              (731,496
              )
              
              
              424,373
              
              
              
              -
              
              
              
              (307,123
              )
              
              
              -
              
              
              
              (307,123
              )Shandong
      Media valuation adjustment
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (275,448
              )
              
              
              (275,448
              )Shares
      issued as payment for convertible note interest
              
              
              82,855
              
              
              
              83
              
              
              
              62,058
              
              
              
              -
              
              
              
              -
              
              
              
              62,141
              
              
              
              -
              
              
              
              62,141Stock
      option compensation expense
              
              
              -
              
              
              
              -
              
              
              
              15,314
              
              
              
              -
              
              
              
              -
              
              
              
              15,314
              
              
              
              -
              
              
              
              15,314Comprehensive
      loss:Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,342,348
              )
              
              
              -
              
              
              
              (1,342,348
              )
              
              
              (245,589
              )
              
              
              (1,587,937
              )
              
              $
              (1,342,348
              )Foreign
      currency translation adjustments
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              20,795
              
              
              
              20,795
              
              
              
              -
              
              
              
              20,795
              
              
              
              20,795Unrealized
      loss on  marketable equity securities
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (85,160
              )
              
              
              (85,160
              )
              
              
              -
              
              
              
              (85,160
              )
              
              
              (85,160
              )Balance
      March 31, 2009
              
              
              50,668,310
              
              
              $
              50,669
              
              
              $
              12,718,235
              
              
              $
              (13,118,264
              )
              
              $
              256,497
              
              
              $
              (92,863
              )
              
              $
              6,116,594
              
              
              $
              6,023,731
              
              
              $
              (1,406,713
              )




See
notes to consolidated financial statements.




5


China
Broadband, Inc. and Subsidiaries
 CONSOLIDATED
STATEMENTS OF CASH FLOWS (Unaudited)


Three
      Months EndedMarch
      31,
                
                
                March
      31,2009
                
                
                2008(Restated)Cash
      flows from operatingNet
      loss
                
                $
                (1,587,937
                )
                
                $
                (804,782
                )Adjustments
      to reconcile net loss to net cashprovided
      by (used in) operating activitiesStock
      compensation expense
                
                
                77,456
                
                
                
                90,672Depreciation
      and amortization
                
                
                831,307
                
                
                
                727,627Deferred
      income tax
                
                
                (14,680
                )
                
                
                (6,433
                )Noncash
      interest expense - original issue discount
                
                
                24,875
                
                
                
                22,111Loss
      on sale of marketable equity securities
                
                
                20,353
                
                
                
                -Change
      in fair value of warrant liabilities
                
                
                613,809
                
                
                
                -Change
      in assets and liabilities,Accounts
      receivable
                
                
                (55,771
                )
                
                
                38,035Inventory
                
                
                40,482
                
                
                
                (54,872
                )Prepaid
      expenses and other assets
                
                
                (46,052
                )
                
                
                42,036Accounts
      payable and accrued expenses
                
                
                173,586
                
                
                
                45,185Deferred
      revenue
                
                
                28,760
                
                
                
                108,678Other
                
                
                -
                
                
                
                47,363Net
      cash provided by operating activities
                
                
                106,188
                
                
                
                255,620Cash
      flows from investing activities:Investment
      in Shandong Newspaper
                
                
                -
                
                
                
                (300,000
                )Proceeds
      from sale of marketable equity securities
                
                
                54,858
                
                
                
                -Acquisition
      of property and equipment
                
                
                (227,430
                )
                
                
                (739,544
                )Loan
      to Shandong Media shareholder
                
                
                (584,654
                )
                
                
                -Net
      cash used in investing activities
                
                
                (757,226
                )
                
                
                (1,039,544
                )Cash
      flows from financing activitiesProceeds
      from issuance of convertible notes payable
                
                
                -
                
                
                
                4,850,000Issuance
      costs associated with private placement and convertible
    notes
                
                
                -
                
                
                
                (104,500
                )Payable
      to Jinan Parent
                
                
                3,512
                
                
                
                147,368Net
      cash provided by financing activities
                
                
                3,512
                
                
                
                4,892,868Effect
      of exchange rate changes on cash
                
                
                20,795
                
                
                
                135,238Net
      increase (decrease) in cash and cash equivalents
                
                
                (626,731
                )
                
                
                4,244,182Cash
      and cash equivalents at beginning of period
                
                
                4,425,529
                
                
                
                472,670Cash
      and cash equivalents at end of period
                
                $
                3,798,798
                
                
                $
                4,716,852Supplemental Cash Flow
      Information:Cash
      paid for taxes
                
                $
                -
                
                
                $
                -Cash
      paid for interest
                
                $
                368
                
                
                $
                297Value
      assigned to shares as payment for interest expense
                
                $
                62,141
                
                
                $
                56,133Shandong
      Media valuation adjustment
                
                $
                275,448
                
                
                $
                -Convertible
      notes issued as payment for debt issuance costs
                
                $
                -
                
                
                $
                121,250Value
      assigned to shares issued as penalty for non-registration of 7%
      convertible notes
                
                $
                -
                
                
                $
                12,125Cumulative
      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, through its subsidiaries in the People’s
Republic of China (“PRC” or “China”), a cable broadband business based in the
Jinan region of China and, effective as of July 1, 2008 a television programming
guide publication business joint venture in the Shandong Province of
China.  The principal activities of the Company are to provide cable
and wireless broadband services, principally internet services, Internet
Protocol Point wholesale services, related network equipment rental and sales,
and fiber network construction and maintenance through its  indirect
Jinan Broadband subsidiary.  We also operate a print based media and
television programming guide business through our Shandong Newspaper joint
venture, the results of which are included in our financial statements as of
July 2008.  In April 2009, we entered into a letter of intent to
acquire Wanshi Wangjing Media Technologies (Beijing) Co., Ltd., (a/k/a AdNet
Media Technologies (Beijing) Co., Ltd.) ( “AdNet”), whose primary business is
the delivery of multimedia advertising content to internet cafés  in
the PRC.  The Company operates in the media segment.





The
accompanying unaudited consolidated financial statements have been prepared
by the Company in accordance with accounting principles generally accepted in
the United States of America for interim financial reporting.  These
interim financial statements are unaudited and, in the opinion of management,
include all adjustments, consisting of normal recurring adjustments and
accruals, necessary for a fair presentation of the balance sheet, statements of
operations, changes in equity and cash flows for the periods
presented.  The results of operations for the interim period are not
necessarily indicative of the results that may be expected for the full year or
for any future period.







2.
              Restatement


The
accompanying financial statements for the three months ended March 31, 2009 have
been restated as described below:





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:





Additional
                Paid-in
      Capital
              
              
              Accumulated
                Deficit
              
              
              Warrant
                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.




7


3.
            Accounting
      Policy Changes





On
January 1, 2009, the Company adopted SFAS No. 141 (R), Business Combinations,
and SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements.
SFAS No. 141 (R) requires an acquirer to measure the identifiable assets
acquired, the liabilities assumed and any noncontrolling interest in the
acquiree at their fair values on the acquisition date, with goodwill being the
excess value over the net identifiable assets acquired.  Further, it
requires transaction costs to be expensed.  These costs were
previously treated as costs of the acquisition.





SFAS No.
160 requires us to classify noncontrolling interests in a
subsidiary  as part of consolidated net income and to include the
accumulated amount of noncontrolling interests as part of total
equity.  The net loss amounts we have previously reported are now
presented as “Net loss attributable to shareholders”.  The calculation
of earnings per share will continue to be based on income amounts attributable
only to shareholders.  Similarly, in our presentation of total equity
we distinguish between equity amounts attributable to shareholders and amounts
attributable to the noncontrolling interests (previously classified as minority
interest outside of shareholders’ equity).





Effective
January 1, 2009, we adopted the provisions of FASB ASC Topic 815, “Derivatives
and Hedging” (“ASC 815”) (previously EITF 07-5, “Determining Whether an
Instrument (or an Embedded Feature) is Indexed to an Entity’s Own
Stock”).  As a result of adopting ASC 815, warrants to purchase the
Company’s common stock previously treated as equity pursuant to the derivative
treatment exemption were no longer afforded equity treatment as there was a
down-round protection (full-ratchet down round protection).  As a
result, the warrants are not considered indexed to the Company’s own stock, and
as such, all future changes in the fair value of these warrants will be
recognized currently in earnings until such time as the warrants are exercised
or expire.




4.
            Going
      Concern and Management’s Plans




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's independent registered public accounting firm's report of the
financial statements included for the year ended December 31, 2008, contained an
explanatory paragraph regarding the Company's ability to continue as a going
concern.




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




5.
            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.





Our
consolidated VIEs were recorded at fair value on the date we became the primary
beneficiary.  Our VIEs at March 31, 2009 include Jinan Broadband and
Shandong Media.




6.
            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.




8





The
following tables present the fair value hierarchy for those assets and
liabilities measured at fair value on a recurring basis as of March 31, 2009 and
December 31, 2008:




March
      31, 2009
            
            
            TotalFair
      Value Measurements
            
            
            FairLevel
      1
            
            
            Level
      2
            
            
            Level
      3
            
            
            ValueAssetsAvailable-for-sale
      securities
            
            $
            94,125
            
            
            $
            -
            
            
            $
            -
            
            
            $
            94,125LiabilitiesFair
      value of warrants
            
            $
            -
            
            
            $
            -
            
            
            $
            920,932
            
            
            $
            920,932




December
      31, 2008
              
              
              TotalFair
      Value Measurements
              
              
              FairLevel
      1
              
              
              Level
      2
              
              
              Level
      3
              
              
              ValueAssetsAvailable-for-sale
      securities
              
              $
              254,496
              
              
              $
              -
              
              
              $
              -
              
              
              $
              254,496




7.
            Related
      Party Transactions




Amounts
due from Shareholders





During
the three months ended March 31, 2009, the Company advanced approximately
$585,000 to Modern Movie & TV Biweekly Press.  The loan is
unsecured, interest free and is due on December 31, 2009.





Payable
to Jinan Parent





During
the three months ended March 31, 2009, our payable to Jinan Parent increased
approximately $3,500.  At March 31, 2009, approximately $2,799,000
remains due to Jinan Parent.  The advance is unsecured, interest free
and has no fixed repayment terms.




8.
            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 the current year and all prior
periods and determined that the effect of this adjustment was not material to
the 2009 results and 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
and customer relationships that have finite lives.  Our service
agreement, publication rights and operating permits are amortized over 20 years
and our customer relationships are amortized over 10 years.




Balance
      at
              
              
              
              
              
              
              
              
              
              
              
              Balance
      atDecember
      31,
              
              
              
              
              
              
              
              
              Other
              
              
              March
      31,2008
              
              
              Additions
              
              
              Amortization
              
              
              Changes
              
              
              2009Amortized
      intangible assets:Service
      agreement
              
              $
              1,570,482
              
              
              $
              -
              
              
              $
              (21,680
              )
              
              $
              -
              
              
              $
              1,548,802Publication
      rights
              
              
              968,977
              
              
              
              -
              
              
              
              (12,423
              )
              
              
              (101,915
              )
              
              
              854,639Customer
      relationships
              
              
              228,933
              
              
              
              -
              
              
              
              (6,025
              )
              
              
              (24,712
              )
              
              
              198,196Operating
      permits
              
              
              1,450,366
              
              
              
              -
              
              
              
              (18,594
              )
              
              
              (152,547
              )
              
              
              1,279,225Total
      amortized intangible assets
              
              $
              4,218,758
              
              
              $
              -
              
              
              $
              (58,722
              )
              
              $
              (279,174
              )
              
              $
              3,880,862




In
accordance with ASC 250, we recorded amortization expense related to our
intangible assets of $58,722 and $25,731 for the three months ended March 31,
2009 and 2008, respectively.




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




Jinan
              
              
              ShandongBroadband
              
              
              Media
              
              
              Total2009
      (nine months)
              
              $
              65,040
              
              
              $
              99,700
              
              
              $
              164,7402010
              
              
              86,720
              
              
              
              132,934
              
              
              
              219,6542011
              
              
              86,720
              
              
              
              132,934
              
              
              
              219,6542012
              
              
              86,720
              
              
              
              132,934
              
              
              
              219,6542013
              
              
              86,720
              
              
              
              132,934
              
              
              
              219,654Thereafter
              
              
              1,136,882
              
              
              
              1,700,624
              
              
              
              2,837,506Total
      amortization to be recognized
              
              $
              1,548,802
              
              
              $
              2,332,060
              
              
              $
              3,880,862




9.
            Convertible
      Notes





On
January 11, 2008 the Company entered into and consummated the Subscription
Agreement with ten accredited investors with respect to the issuance of an
aggregate of $4,971,250 principal amount of Notes due January 11, 2013, and
Class A Warrants to purchase an aggregate of 6,628,333 shares of common stock of
the Company at $.60 per share expiring on June 11, 2013. During the three months
ended March 31, 2009 and 2008, the Company incurred $87,000 and $78,000 in
interest expense related to these Notes and Warrants, respectively.





Based on
a predetermined presumed value of $.75 per share as set forth in the
Subscription Agreement and related documents during 2008, with the consent of
the Note holders, the Company issued 82,854 and 75,614 shares to the Note
holders in lieu of cash of approximately $62,000 and $57,000 for interest in the
three month periods ended March 31, 2009 and 2008, respectively.  No
assurance can be made that these holders will be willing to accept stock in lieu
of cash payments for interest in future payments.




9





10.
            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.








March
      31,
              
              
              January
      1,2009
              
              
              2009Risk-free
      interest rate
              
              
              1.57
              %
              
              
              1.30
              %Expected
      volatility
              
              
              322.04
              %
              
              
              311.69
              %Expected
      life (in years)
              
              4.2
      years
              
              
              4.4
      yearsExpected
      dividend yield
              
              
              0
              
              
              
              0





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:




AdditionalPaid-in
              
              
              Accumulated
              
              
              WarrantCapital
              
              
              Deficit
              
              
              LiabilityWarrants
              
              $
              (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.


11.
              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, 2009 and 2008:




Three
      Months EndedMarch
      31,2009
              
              
              2008Warrants
              
              
              16,874,800
              
              
              
              16,874,800Options
              
              
              317,500
              
              
              
              167,500





For the
three month periods ending March 31, 2009 and 2008, the number of securities not
included in the diluted EPS because the effect would have been anti-dilutive was
17,192,300 and 17,042,300, respectively.




12.
            Comprehensive
      Loss





Comprehensive
loss for the periods ending March 31, 2009 and 2008 is as follows:




Three
      Months EndedMarch
      31,2009
              
              
              2008Net
      loss attributable to shareholders
              
              $
              (1,342,000
              )
              
              $
              (637,000
              )Other
      comprehensive income (loss):Currency
      translation adjustment
              
              
              21,000
              
              
              
              135,000Unrealized
      loss on marketable equity securities
              
              
              (85,000
              )Comprehensive
      loss
              
              $
              (1,406,000
              )
              
              $
              (502,000
              )
  13.
              Stock
      Based Compensation





In March
2008, the board of directors of the company approved the China Broadband, Inc.
2008 Stock Incentive Plan (the “Plan”), pursuant to which options or other
similar securities may be granted. Qualified or Non-qualified Options to
purchase up to 2,500,000 shares of the Company’s common stock may be issued
under the Plan. The Plan may also be administered by an independent committee of
the board of directors.  Through March 31, 2009, 317,500 options have
been issued under the plan.





The
following table provides the details of the total stock based compensation
during the three month periods ended March 31, 2009 and 2008:




Three
      Months EndedMarch
      31,2009
              
              
              2008Stock
      option amortization
              
              $
              8,000
              
              
              $
              8,000Warrant
      amortization
              
              
              7,000
              
              
              
              14,000Stock
      issued in lieu of interest
              
              
              62,000
              
              
              
              56,000Stock
      issued as non registration penalty
              
              
              -
              
              
              
              12,000$
              77,000
              
              
              $
              90,000




The
Company accounts for its stock option awards pursuant to the provisions of ASC
718, Stock Compensation
and recorded a charge of $8,000 for both three month periods ending March 31,
2009 and 2008 in connection with the issuance of stock options. .





The fair
value of each option award is estimated on the date of grant using the
Black-Scholes option valuation model. The Company recognizes the fair value of
each option as compensation expense ratably using the straight-line attribution
method over the service period, which is generally the vesting period. The
Black-Scholes model incorporates the following assumptions:




·
            Expected
      volatility - the Company estimates the volatility of common stock at the
      date of grant using historical
volatility





·
            Expected
      term - the Company estimates the expected term of options granted based on
      a combination of vesting schedules, term of the option and historical
      experience.




10





·
            Risk-free
      interest rate - the Company estimates the risk-free interest rate using
      the U.S. Treasury yield curve for periods equal to the expected term of
      the options in effect at the time of
grant





·
            Dividends
      - the Company uses an expected dividend yield of zero. The Company intends
      to retain any earnings to fund future operations and, therefore, does not
      anticipate paying any cash dividends in the foreseeable
    future




There
were no stock options issued during the three month period ending March 31,
2009.  As of March 31, 2009, there were 125,000 options exercisable at
a weighted average exercise price of $0.67 with a weighted average remaining
life of 6.6 years.





As of
March 31, 2009 the Company had total unrecognized compensation expense related
to options granted of $53,000 which will be recognized over a remaining service
period of 2 years.


14.
              Warrants


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 at a fixed exercise price and for a
specified period of time.  The following table outlines the warrants
outstanding as of March 31, 2009:




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





On
January 11, 2008 the Company issued warrants in connection with the January 2008
Financing of Notes and Class A Warrants to ten accredited investors and Chardan
Capital as broker.  The Company recorded the value of the Class A
Warrants of $504,661 as a discount to the Notes issued therewith and is
amortizing this discount over the five year life of the Notes.





On
January 11, 2008 the Company issued the 1,131,667 Broker Warrants expiring June
11, 2013 in connection with the January 2008 Financing to Chardan Capital as
broker.  The Company is recognizing the value of the Broker Warrants
of $226,835 as debt issuance costs and is expensing the value over the five year
life of the Convertible Notes.





Pursuant
to an agreement entered into in April 2007, the Company also issued warrants to
a consultant for services provided on March 13, 2008, exercisable at $.60 per
share. The Company incurred an expense of $14,198 during 2008 related to the
issuance of these warrants and had total unrecognized compensation expense
related to these warrants of $7,099, which was recognized in March
2009.





15.
            Income
    Taxes





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





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





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





At March
31, 2009, Company’s management considered that the Company had no uncertain tax
positions that affected its consolidated financial position and results of
operations or cash flow, and will continue to evaluate for the uncertain
position in future. There are no estimated interest costs and penalties provided
in the Company’s financial statements for the three months ended March 31,
2009.





The
Company is subject to a 5% business tax on the business income of our Jinan
Broadband subsidiary and Shandong Media joint venture.





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.




11





16.
            Reclassifications





Certain
prior year information has been reclassified to be comparable with the current
year presentation, principally due to the adoption of ASC 810, Consolidation.





17.
            Subsequent
      Events





Completion of Acquisition of
AdNet





Effective
as of April 7, 2009, China Broadband, through its wholly owned subsidiary China
Broadband, Ltd., a Cayman Islands company (“China Broadband Cayman”) completed
the acquisition (the “Adnet Acquisition”) of Wanshi Wangjing Media Technologies
(Beijing) Co., Ltd., a/k/a Adnet Media Technologies (Beijing) Co., Ltd., a
recently organized PRC based company (“AdNet”) pursuant to a Share Issuance
Agreement (the “AdNet Agreement”) between  the Company, China
Broadband Cayman, AdNet and its 10 shareholders (inclusive of its two
executives, Priscilla Lu and Mr. Wang Yingqi nee Michael
Wang).




Issuance
of Restricted Shares to AdNet Shareholders





Pursuant
to the terms of the AdNet Agreement, among other provisions, China Broadband
issued 11,254,898 shares of its common stock, par value, $.001 per share (the
“Broadband Shares”) to the AdNet shareholders, in exchange for 100% of the
equity ownership of AdNet (the “AdNet Shares”) and consideration of
$100,000.  The acquisition of AdNet resulted in the ownership by AdNet
shareholders of 15% of China Broadband’s common stock on a fully diluted basis
(exclusive of certain notes and warrants).





In
addition, in the event that China Broadband becomes delinquent with its
reporting obligations pursuant to the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), such that the former AdNet shareholders are not
able to sell their Broadband Shares under the exemptions provided under the
Securities Act of 1933, as amended (the “Act”) for greater than 30 days, then
China Broadband will be required to issue 67,777 Additional Shares to the AdNet
shareholders for each 30 day period that the delinquency is not cured, up to an
aggregate maximum of 677,777 Additional Shares.





As part
of the terms of the AdNet Acquisition, and to facilitate our subsidiary’s
ownership and control over AdNet under PRC law, we loaned AdNet $100,000
pursuant to a Loan Agreement and Equity Option Agreement. All of the shares of
AdNet are held by a trustee appointed by the Company to act as directed by the
Company.  No assurance can be made that the combined companies will be
successful or will have sufficient capital to grow.  The foregoing
description is a summary only of the Share Issuance Agreement between China
Broadband, Inc., China Broadband, Ltd., Waanshi Wangjing Media Technologies
(Beijing) Co., Ltd. and its shareholders, dated as of April 7, 2009 (“AdNet
Agreement”) and is qualified in its entirety by reference to the full AdNet
Agreement.





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





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





The
following is a discussion and analysis of our results of operations and
should be read in conjunction with our financial statements and related notes
contained in this Form 10-Q/A.





Overview





We operate, through our indirect
subsidiaries in the PRC, a cable broadband business based in the Jinan region of
China (“Jinan Broadband”) and a television programming guide publication
business joint venture (“Shandong Media”) in the Shandong Province of China.
Accordingly, our principal activities are providing cable and wireless
broadband and print based media and television programming guide services in the
PRC.  In addition, we recently acquired an internet café content provider
and advertising business in the PRC (AdNet) (See “Recent Developments”
below).  We operate in the media segment





Recent
Developments





Completion
of Acquisition of AdNet





Effective
as of April 7, 2009, China Broadband, through its wholly owned subsidiary China
Broadband, Ltd., a Cayman Islands company (“China Broadband Cayman”) completed
the acquisition (the “Adnet Acquisition”) of Wanshi Wangjing Media Technologies
(Beijing) Co., Ltd., a/k/a Adnet Media Technologies (Beijing) Co., Ltd., a
recently organized PRC based company (“AdNet”) pursuant to a Share Issuance
Agreement (the “AdNet Agreement”) between  the Company, China
Broadband Cayman, AdNet and its 10 shareholders (inclusive of its two
executives, Priscilla Lu and Mr. Wang Yingqi nee Michael
Wang).




12




Issuance
of Restricted Shares to AdNet Shareholders





Pursuant
to the terms of the AdNet Agreement, among other provisions, China Broadband
issued 11,254,898 shares of its common stock, par value, $.001 per share (the
“Broadband Shares”) to the AdNet shareholders, in exchange for 100% of the
equity ownership of AdNet (the “AdNet Shares”) and consideration of
$100,000.  The acquisition of AdNet resulted in the ownership by AdNet
shareholders of 15% of China Broadband’s common stock on a fully diluted basis
(exclusive of certain notes and warrants).





In
addition, in the event that China Broadband becomes delinquent with its
reporting obligations pursuant to the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), such that the former AdNet shareholders are not
able to sell their Broadband Shares under the exemptions provided under the
Securities Act of 1933, as amended (the “Act”) for greater than 30 days, then
China Broadband will be required to issue 67,777 Additional Shares to the AdNet
shareholders for each 30 day period that the delinquency is not cured, up to an
aggregate maximum of 677,777 Additional Shares.





As part
of the terms of the AdNet Acquisition, and to facilitate our subsidiary’s
ownership and control over AdNet under PRC law, we loaned AdNet $100,000
pursuant to a Loan Agreement and Equity Option Agreement. All of the shares of
AdNet are held by a trustee appointed by the Company to act as directed by the
Company.  No assurance can be made that the combined companies will be
successful or will have sufficient capital to grow.  The foregoing
description is a summary only of the Share Issuance Agreement between China
Broadband, Inc., China Broadband, Ltd., Waanshi Wangjing Media Technologies
(Beijing) Co., Ltd. and its shareholders, dated as of April 7, 2009 (“AdNet
Agreement”) and is qualified in its entirety by reference to the full AdNet
Agreement.





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





Results of
Operations





China
Broadband’s operating results reflect the operating results of its indirect
subsidiary, Jinan Broadband, and of the Shandong Media joint venture. Through
WFOE, we acquired a 51% interest in Jinan Broadband effective April 1,
2007, and a 50% interest in the Shandong Media joint venture effective July
1, 2008.





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




3
      Months Ended
              
              
              Amount
              
              
              %March
      31,
              
              
              March
      31,
              
              
              Increase
      /
              
              
              Increase
      /2009
              
              
              2008
              
              
              (Decrease)
              
              
              (Decrease)Revenue
              
              $
              1,949,000
              
              
              $
              1,003,000
              
              
              $
              946,000
              
              
              
              94
              %Cost
      of revenue
              
              
              1,174,000
              
              
              
              352,000
              
              
              
              822,000
              
              
              
              234
              %Gross
      profit
              
              
              775,000
              
              
              
              651,000
              
              
              
              124,000
              
              
              
              19
              %Selling,
      general and adminstrative expenses
              
              
              718,000
              
              
              
              521,000
              
              
              
              197,000
              
              
              
              38
              %Professional
      fees
              
              
              111,000
              
              
              
              137,000
              
              
              
              (26,000
              )
              
              
              -19
              %Depreciation
      and amortization
              
              
              831,000
              
              
              
              728,000
              
              
              
              103,000
              
              
              
              14
              %Loss
      from operations
              
              
              (885,000
              )
              
              
              (735,000
              )
              
              
              (150,000
              )
              
              
              20
              %Interest
      & other income / (expense)
              
              
              (718,000
              )
              
              
              (76,000
              )
              
              
              (642,000
              )
              
              
              845
              %Loss
      before income taxes and noncontrolling interests
              
              
              (1,603,000
              )
              
              
              (811,000
              )
              
              
              (792,000
              )
              
              
              98
              %Income
      tax benefit
              
              
              15,000
              
              
              
              6,000
              
              
              
              9,000
              
              
              
              150
              %Net
      loss, net of tax
              
              
              (1,588,000
              )
              
              
              (805,000
              )
              
              
              (783,000
              )
              
              
              97
              %Plus:  Net
      loss attributable to noncontrolling interests
              
              
              246,000
              
              
              
              168,000
              
              
              
              78,000
              
              
              
              46
              %Net
      loss attributable to China Broadband shareholders
              
              $
              (1,342,000
              )
              
              $
              (637,000
              )
              
              $
              (705,000
              )
              
              
              111
              %


Comparison of Three Months
Ended March 31, 2009 and 2008





Revenues





Revenues for the three months ended
March 31, 2009 totaled $1,949,000, as compared to $1,003,000 for the three
months ended March 31, 2008.  The increase in revenue of approximately
$946,000, or 94%, is primarily attributable to the inclusion in our operating
results of our Shandong Media joint venture entered into mid 2008.





Our revenues are generated by our
operating companies in the PRC. Our revenues for the quarter ended March 31,
2009 are exclusive of the Adnet acquisition.





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 $1,085,000, an increase of $82,000, or 8% as compared to revenues
of $1,003,000 for the first quarter of 2008. The increase is attributable to
increases in our internet sales and network leasing sales.





Shandong
Media’s revenue consists primarily of sales of publications and advertising
revenues.  For the three months ended March 31, 2009, revenues from
the Shandong Media joint venture totaled $864,000.  By comparison,
Shandong Media’s revenues were not included in our operating results during the
first quarter of 2008 (For a description of the Shandong Media joint venture,
see “ShandongMedia Joint Venture andShandongNewspaper Cooperation
Agreement”, below).




13




Gross
Profit





Our gross profit for the three months
ended March 31, 2009 was $776,000, as compared to $651,000 for the three months
ended March 31, 2008.The increase in
gross profit of approximately $124,000, or 19%, is comprised of $303,000 from
the inclusion of our Shandong Media joint venture, as offset by a $179,000
decrease attributable to our Jinan Broadband operations.  The decrease
in gross profit attributable to Jinan Broadband was primarily due to increased
costs of revenue, particularly costs of telecom bandwidth.





Gross profit as a percentage of revenue
was 40% for the three months ended March 31, 2009, as compared to 65% for the
three months ended March 31, 2008.





Selling,
General and Administrative Expenses





Our
selling, general and administrative expenses for the three months ended March
31, 2009 increased approximately $197,000 to $718,000, as compared to $521,000
for the three months ended March 31, 2008.  The increase is primarily
attributable to the inclusion of our Shandong Media joint venture entered into
mid 2008.





Salaries and personnel costs are the
major component of selling, general and administrative expenses. During the
first quarter of 2009, salaries and personnel costs accounted for 60% of our
selling, general and administrative expenses.  For the three months
ended March 31, 2009, salaries and personnel costs totaled $430,000, an increase
of $128,000 or 43% as compared to $302,000 for the first quarter of 2008. The
increase in salaries and personnel costs is primarily attributable to the
inclusion of our Shandong Media joint venture entered into mid
2008.





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





Professional
Fees





The following is a list of our
professional fees accrued for the three months ended March 31, 2009 and
2008.




2009
              
              
              2008Accounting
              
              $
              66,000
              
              
              $
              53,000Consulting
              
              $
              11,000
              
              
              $
              47,000Legal
              
              $
              34,000
              
              
              $
              37,000Total
              
              $
              111,000
              
              
              $
              137,000


The professional fees are generally
related to public company reporting and governance expenses as well as costs
related to our acquisitions.





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




2009
              
              
              2008Depreciation
              
              $
              749,000
              
              
              $
              702,000Amortization
              
              $
              82,000
              
              
              $
              26,000Total
              
              $
              831,000
              
              
              $
              728,000


Depreciation expense during 2009
relates to the depreciation on the approximately $14.2 million of property,
plant and equipment, at our Jinan Broadband subsidiary.





The increase in amortization of $56,000
is primarily attributable to the amortization related to our Shandong Media
intangible assets acquired in 2008.





Interest
and Other Income (Expense), net





Interest and other income (expense),
net, of approximately $(718,000) during the three months ended March 31, 2009
consisted primarily of:





·
            interest
      expense related to the 5% Convertible Notes and Warrants issued on January
      11, 2008 in the amount of approximately $87,000,


·
            the
      loss on the sale of marketable equity securities in the amount of
      $20,000,


·
            the
      increase in fair value of warrant liabilities in the amount of
      $614,000.




14




We expect to continue to incur interest
expense in connection with the 5% Convertible Notes issued in January 2008.
Interest on the Notes compounds monthly at the annual rate of five percent (5%).
The Notes mature on January 11, 2013. The outstanding principal amount of the
Notes as of March 31, 2009 was $4,971,250.





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 charge of $614,000
classified as a change in fair value of warrants on our statement of operations
for the 3 months ended March 31, 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, 2009, $225,000 of
our operating losses from Jinan Broadband was allocated to Jinan Parent, as
compared to $168,000 during the first quarter of 2008.





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, 2009,
$21,000 of our operating loss from Shandong Media was allocated to Shandong
Newspaper.  We consolidated the results of Shandong Media effective
July 1, 2008.  Accordingly, there was no loss allocation for the three
months ended March 31, 2008.





Net
Loss Attributable to Shareholders





Net loss
attributable to shareholders for the three months ended March 31, 2009 was
$1,342,000, an increase of $705,000, or 111%, as compared to $637,000 for the
three months ended March 31, 2008.  The increase in net loss
attributable to shareholders is primarily due to the recognition of a $614,000
charge due to the increase in the fair value of warrant liabilities in
2009.  Other changes include:





(i)
an increase in the net loss of Jinan Broadband attributable to us, which
increased by $40,000 as compared to the first quarter of 2008,





(ii)
the increase in net loss attributable to shareholders  is also due to
a net loss of $21,000 from the Shandong Media joint venture,





(iii) in
addition, the increase in net loss attributable to shareholders is due to a
$31,000 net loss at the holding company level, as compared to the first quarter
of 2008.








The following table breaks down the
results of operations for the three months ended March 31, 2009 and 2008 between
our operating companies and our non-operating companies.





Ø
            The
      operating companies include Jinan Broadband and Shandong
    Media


Ø
            2009
      includes operations of our Shandong Media company as compared to no
      inclusion in 2008.





3
      Months Ended
              
              
              3
      Months EndedMarch
      31, 2009
              
              
              March
      31, 2008% of
              
              
              
              
              
              
              
              
              
              
              
              % ofTotal
              
              
              Non-
              
              
              
              
              
              
              
              
              Total
              
              
              Non-Operating
              
              
              Revenue
              
              
              Operating
              
              
              Total
              
              
              Operating
              
              
              Revenue
              
              
              Operating
              
              
              TotalRevenue
              
              $
              1,949,000
              
              
              
              
              
              $
              -
              
              
              $
              1,949,000
              
              
              $
              1,003,000
              
              
              
              
              
              $
              -
              
              
              $
              1,003,000Cost
      of revenue
              
              
              1,174,000
              
              
              
              
              
              
              -
              
              
              
              1,174,000
              
              
              
              352,000
              
              
              
              
              
              
              -
              
              
              
              352,000Gross
      profit
              
              
              775,000
              
              
              
              40
              %
              
              
              -
              
              
              
              775,000
              
              
              
              651,000
              
              
              
              65
              %
              
              
              -
              
              
              
              651,000Selling,
      general and adminstrative expenses
              
              
              525,000
              
              
              
              27
              %
              
              
              193,000
              
              
              
              718,000
              
              
              
              311,000
              
              
              
              31
              %
              
              
              209,000
              
              
              
              520,000Professional
      fees
              
              
              4,000
              
              
              
              0
              %
              
              
              107,000
              
              
              
              111,000
              
              
              
              -
              
              
              
              0
              %
              
              
              137,000
              
              
              
              137,000Depreciation
      and amortization
              
              
              750,000
              
              
              
              38
              %
              
              
              81,000
              
              
              
              831,000
              
              
              
              702,000
              
              
              
              70
              %
              
              
              26,000
              
              
              
              728,000Loss
      from operations
              
              
              (504,000
              )
              
              
              -11
              %
              
              
              (381,000
              )
              
              
              (885,000
              )
              
              
              (362,000
              )
              
              
              -36
              %
              
              
              (372,000
              )
              
              
              (734,000
              )Interest
      & other income / (expense)Interest
      income / (expense), net
              
              
              3,000
              
              
              
              
              
              
              
              (87,000
              )
              
              
              (84,000
              )
              
              
              1,000
              
              
              
              
              
              
              
              (64,000
              )
              
              
              (63,000
              )Change
      in fair value of warrant liabilities
              
              
              -
              
              
              
              
              
              
              
              (614,000
              )
              
              
              (614,000
              )
              
              
              -
              
              
              
              
              
              
              
              -
              
              
              
              -Loss
      on sale of securities
              
              
              -
              
              
              
              
              
              
              
              (20,000
              )
              
              
              (20,000
              )
              
              
              -
              
              
              
              
              
              
              
              -
              
              
              
              -Other
              
              
              -
              
              
              
              
              
              
              
              -
              
              
              
              -
              
              
              
              (2,000
              )
              
              
              
              
              
              
              (12,000
              )
              
              
              (14,000
              )Loss
      before income taxes and noncontrolling interest
              
              
              (501,000
              )
              
              
              
              
              
              
              (1,102,000
              )
              
              
              (1,603,000
              )
              
              
              (363,000
              )
              
              
              
              
              
              
              (448,000
              )
              
              
              (811,000
              )Income
      tax benefit
              
              
              -
              
              
              
              
              
              
              
              15,000
              
              
              
              15,000
              
              
              
              -
              
              
              
              
              
              
              
              6,000
              
              
              
              6,000Net
      loss, net of tax
              
              
              (501,000
              )
              
              
              
              
              
              
              (1,087,000
              )
              
              
              (1,588,000
              )
              
              
              (363,000
              )
              
              
              
              
              
              
              (442,000
              )
              
              
              (805,000
              )Plus:  Net
      loss attributable to noncontrolling interest
              
              
              246,000
              
              
              
              
              
              
              
              -
              
              
              
              246,000
              
              
              
              168,000
              
              
              
              
              
              
              
              -
              
              
              
              168,000Net
      loss attributable to the China Broadband shareholders
              
              $
              (255,000
              )
              
              
              
              
              
              $
              (1,087,000
              )
              
              $
              (1,342,000
              )
              
              $
              (195,000
              )
              
              
              
              
              
              $
              (442,000
              )
              
              $
              (637,000
              )


Liquidity
and Capital Resources





As of March 31, 2009 we had $3,799,000
of cash on hand and a working capital deficit of $2,528,000.  As of
March 31, 2009, we had total current liabilities of $7,695,000.  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).





2008
Convertible Note Financing





On
January 11, 2008 we entered into a subscription agreement with ten accredited
investors with respect to the issuance of an aggregate of $4,971,250 principal
amount of Notes due January 11, 2013, and Class A Warrants to purchase an
aggregate of 6,628,333 shares of common stock of the Company at $.60 per share
expiring on June 11, 2013.





During the three months ended March
31, 2009 the Company incurred $87,000 in interest expense related to these
notes and warrants.  Based on a predetermined presumed value of $.75 per
share as set forth in the Subscription Agreement and related documents with the
consent of the Note holders, the Company issued 82,854 shares to the Note
holders in lieu of cash of approximately $62,000 for interest
accrued.  Additional interest expense of $25,000 was recorded for the
warrants.




15




Settlement
Agreement





In
April 2008, we received 390,000 shares of Cablecom Holdings, Ltd. (the “Cablecom
Holdings Shares”) from Mr. Clive Ng, the Chairman of our board of directors, in
April 2008, pursuant to a settlement agreement by and among the Company and its
subsidiaries, Stephen P. Cherner, Maxim Financial Corporation, Mark L. Baum,
BCGU, LLC, Mark I. Lev, Wellfleet Partners, Inc., Pu Yue, Clive Ng, Chardan
Capital Markets, LLC, Jaguar Acquisition Corporation, and China Cablecom
Holdings, Ltd (“Cablecom Holdings”).  The value of the Cablecom
Holdings shares has since declined substantially, and may continue to fluctuate
and decline further.  During the first quarter of 2009, we sold 94,014
of the Cablecom Holdings shares for total net proceeds of $55,000.  As
of March 31, 2009, we have 224,106 shares remaining.





During the three months ended March 31,
2009 the Company sold 94,014 of its Cablecom Holdings Shares on the open market
and received gross proceeds of $55,000 and recorded a net loss on the sales of
approximately $20,000.





As a result of a significant decline in
the price of the Cablecom Holdings Shares we recorded an unrealized loss of
approximately $85,000 on these shares through other comprehensive income (loss)
for the period ended March 31, 2009.  The fair value of the remaining
224,106 Cablecom shares at March 31, 2009 approximates $94,000.





Cash
Flows





The
following sets forth a summary of the Company’s cash flows for the three months
ended March 31, 2009 and 2008:




Three
      Months EndedMarch
      31,
              
              
              March
      31,2009
              
              
              2008Net
      cash provided by operating activities
              
              $
              106,000
              
              
              $
              256,000Net
      cash used in investing activities
              
              $
              (757,000
              )
              
              $
              (1,040,000
              )Net cash provided by financing activities
              
              $
              4,000
              
              
              $
              4,893,000Effect
      of exchange rate changes on cash
              
              $
              21,000
              
              
              $
              135,000





Operating activities for the three
months ended March 31, 2009 and 2008, after adding back non-cash items, used
cash of approximately $35,000 and $49,000, respectively.  During such
period other changes in working capital provided cash of approximately $141,000
and $305,000, respectively, resulting in cash being provided by operating
activities of $106,000 and $256,000, respectively.




Investing activities for the three
months ended March 31, 2009 and 2008 used cash of $757,000 and $1,040,000,
respectively.  For 2009, this amount consisted of proceeds of $55,000
from the sale of our Cablecom Shares, offset by (i) $227,000 for additions to
property and equipment and (ii) $585,000 loan to our Shandong Media
shareholder.  For 2008 this amount consisted of additions to property
and equipment in the amount of $740,000 and the down payment for the acquisition
of Shandong Newspaper in the amount of $300,000.




Financing activities for the three
months ended March 31, 2009 and 2008 provided cash of $4,000 and $4,893,000,
respectively.  For 2009, the $4,000 was solely due from an increase in
the payable to Jinan Parent.  The advance from Jinan Parent is
unsecured, interest free and has no fixed repayment terms.  For 2008,
this amount consisted of proceeds from the issuance of convertible notes of
$4,850,000, partially offset by $105,000 of payments related to issuance costs
associated with the convertible notes and an increase in the payable to Jinan
Parent in the amount of $147,000.





Foreign
Currency Translation





Our WOFE,
Jinan Broadband subsidiary and Shandong Media joint venture are located in
China.  All of their operations are conducted in the local currency of
the Chinese Yuan, also known as Renminbi or RMB.  The favorable effect
of exchange rates on cash between the Chinese Yuan and the United States dollar,
provided cash of $21,000 and $135,000 during the three months ended March 31,
2009 and 2008, respectively.





Shandong
Media Joint Venture and Shandong Newspaper Cooperation Agreement





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




16




Under the terms of the Shandong
Newspaper Cooperation Agreement and related pledge and trust documents, the
Shandong Newspaper entities mentioned above contributed their entire Shandong
Newspaper Business and transferred certain employees, to Shandong Media in
exchange for a 50% stake in Shandong Media, with the other 50% of Shandong Media
to be owned by our WFOE in the PRC in the second quarter of 2008 with the joint
venture becoming operational in July of 2008.  In exchange therefore,
the Cooperation Agreement provided for total initial consideration from us of
approximately $1.5 million (approximately 10 million RMB) which was contributed
to Shandong Media as working and acquisition capital. As part of the
transaction, and to facilitate our subsidiary’s ownership and control over
Shandong Newspaper under PRC law, through our WFOE in the PRC, we loaned
Shandong Media said funds pursuant to a loan agreement and equity option
agreement, and a majority of the shares of Shandong Newspaper are held by Pu
Yue, our CFO, as trustee on behalf of the Company pursuant to a pledge agreement
and trustee agreement.  The results of the Shandong Newspaper Business
have been consolidated with the Company’s consolidated financial statements as
of July 1, 2008.




During 2009, we will be required to
make additional payments pursuant to the Shandong Newspaper Cooperation
Agreement,. In addition to the initial purchase price of $1.5 million (10
million RMB), the Shandong Newspaper Cooperation Agreement provides for
additional consideration of approximately US $730,000 (as adjusted for current
rates as of March 2009) and US $2,900,000 (between 5 million RMB and 20 million
RMB, respectively) to be paid as a capital contribution to Shandong Media in the
event that certain performance thresholds are met during the first 12 months of
operations after closing the transaction.




Specifically, in the event that audited
annual net profits during the first fiscal year (i.e. calendar 2009) after
closing of the transaction relating to the Shandong Newspaper Cooperation
Agreement:




·
            equals
      or exceeds 16 million RMB, then we will be required to contribute an
      additional 20 million RMB (or, approximately $3,000,000 presuming current
      exchange rates are in effect at such time) to the Shandong Media joint
      venture;




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




·
            is
      less then 4 million RMB, then we will be required to contribute only an
      additional 5 million RMB (approximately US $730,000 presuming current
      exchange rates are in effect at such
time).


The Shandong Newspaper Cooperation
Agreement resulted in the creation of a Variable Interest Entity (“VIE”) as
defined under Financial Accounting Standards Board (“FASB”) Interpretation No.
46R, Consolidation of Variable Interest Entities (“FIN-46R”). The intended
result of the contractual arrangements is that, as of December 31, 2008 the
economic risks and benefits of the Shandong Newspaper Business operations are
being primarily borne by the Company.  The Company has contributed
more capital to date and may be required to make further capital contributions
if Shandong Newspaper meets certain performance targets. The contractual
arrangements in addition to the service agreements the Company has with the
Shandong Newspaper parent companies, provide under the relevant principles of
United States Generally Accepted Accounting Principles (“US GAAP”) for the
consolidation of the results of operations of Shandong Newspaper, with 50% of
the Shandong Newspaper net income included in the accompanying financial
statements of the Company.





Need
for Additional Capital





As
indicated above, management does not believe that the Company has sufficient
capital to sustain its operations beyond 12 months without raising additional
capital. We presently do not have any available credit, bank financing or other
external sources of liquidity. Accordingly, we expect that 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.





Critical Accounting
Policies




Our
discussion and analysis of financial condition and results of operations is
based on our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States of
America requires our management to make judgments, assumptions and estimates
that affect the amounts reported in the consolidated financial statements and
accompanying notes.  Our management evaluates its estimates on an
on-going basis based on historical experience and on various other assumptions
it believes are reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources.




17




Through
WFOE, we acquired a 51% interest in Jinan Broadband effective April 1,
2007, and a 50% interest in the Shandong Media joint venture effective July
1, 2008. Accordingly, our historical experience with operations in China is
limited and may change in the future as we continue to operate the companies.
Actual results may differ from these estimates under different assumptions or
conditions.




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




Revenue
Recognition





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





Accounts
Receivable





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





Inventory





Inventories,
consisting of cables, fiber, connecting material, power supplies and spare parts
are stated at the lower of cost or market value. Cost is determined using the
weighted average method.





Property
and Equipment





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





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





Intangible
Assets





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





Income
Taxes





The
Company is subject to a 5% business tax on the business income of our Jinan
Broadband subsidiary. The Company accounts for income taxes in accordance with
the asset and liability method.  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.  A tax valuation allowance is established, as needed to reduce
net deferred tax assets to the amount expected to be realized.  The
Company also follows applicable guidance for accounting for uncertainty in
income taxes.





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




18





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





Warrant
Liabilities





We
account for derivative instruments and embedded derivative instruments in
accordance with the accounting standard for Accounting for Derivative
Instruments and Hedging Activities, as amended.  The amended standard
requires an entity to recognize all derivatives as either assets or liabilities
in the statement of financial position and measure these instruments at fair
value.  Fair value is estimated using the Black-Scholes Pricing
model.  We also follow accounting standards for the Accounting for
Derivative Financial Instruments Indexed to and Potentially Settled in, a
Company’s Own Stock, which requires freestanding contracts that are settled in a
company’s own stock, including common stock warrants, to be designated as an
equity instrument, asset or a liability.  Under these provisions a
contract designated as an asset or a liability must be carried at fair value,
with any changes in fair value recorded in the results of
operations.  A contract designated as an equity instrument can be
included in equity, with no fair value adjustments required.





The
asset/liability derivatives are valued on a quarterly basis using the
Black-Scholes Pricing model.  Significant assumptions used in the
valuation included exercise dates, fair value for our common stock, volatility
of our common stock and a proxy-free interest rate.  Gains (losses) on
warrants are included in “Changes in fair value of warrant
liabilities”.





Foreign
Currency Translation





The
businesses of the Company’s operating subsidiaries are currently conducted in
and from China in Renminbi.  In this report, all references to
“Renminbi” and “RMB” are to the legal currency of China and all references to
U.S. dollars, dollars, $ and US$ are to the legal currency of the United States.
The Company makes no representation that any Renminbi or U.S. dollar amounts
could have been, or could be, converted into U.S. dollars or Renminbi, as the
case may be, at any particular rate, the rates stated below, or at all. The
Chinese government imposes control over its foreign currency reserves in part
through direct regulation of the conversion of Renminbi into foreign exchange
and through restrictions on foreign trade. The Company uses the U.S. dollar as
its reporting and functional currency.




Translation
adjustments are reported as other comprehensive income or expenses and
accumulated as other comprehensive income in the equity section of the balance
sheet. Financial information is translated into U.S. dollars at prevailing or
current rates respectively, except for revenues and expenses which are
translated at average current rates during the reporting period. Exchange gains
and losses resulting from retained profits are reported as a separate component
of stockholders’ equity.




Recent Accounting
Pronouncements








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




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




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





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




19





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





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





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





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





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





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





Off-Balance Sheet
Arrangements





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





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





Based on
an evaluation under the supervision and with the participation of the Company's
management, the Company's principal executive officer and principal financial
officer have concluded that the Company's disclosure controls and procedures as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934, as amended ("Exchange Act") were ineffective as of March 31, 2009 to
ensure that information required to be disclosed by the Company in reports that
it files or submits under the Exchange Act is (i) recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission rules and forms and (ii) accumulated and communicated
to the Company's management, including its principal executive officer and
principal financial officer, as appropriate to allow timely decisions regarding
required disclosure.




20





A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of our annual or interim financial statements will
not be prevented or detected on a timely basis.  A significant
deficiency is a deficiency, or a combination of deficiencies, in internal
control over financial reporting that is less severe than a material weakness,
yet important enough to merit attention by those responsible for oversight of
our financial reporting.





Our
internal control over financial reporting was not effective as a result of the
following identified material weaknesses:





1)  In
connection with the preparation and audit of our 2009 financial statements and
notes, we were informed by our auditor, UHY LLP (“UHY”) of certain deficiencies
in our internal controls that UHY considered to be material
weaknesses.  These deficiencies related to our financial closing
procedures and errors in classification of warrants.  After
discussions between management, our audit committee and UHY, we concluded that
the Company had not properly adopted FASB ASC Topic 815-40 “Derivatives and
Hedging:  Contracts in Entity’s Own Equity” (“ASC 815”) and as a
result had not reclassified warrants from equity to liabilities as of January 1,
2009.  As a result of the change in accounting, the Company recognized
a $614,000 charge during the three months ended March 31, 2009.





2)  The
Company does not maintain personnel with a sufficient level of accounting
knowledge, experience and training in the selection and application of US GAAP
and related SEC disclosure requirements.





3)  The
Company does not have an accounting policy manual based on US
GAAP.





b.
Changes in Internal Control over Financial Reporting





There
were no changes in the Company’s internal controls over financial reporting
identified in connection with the evaluation required by paragraph (d) of Rule
13a-15 or Rule 15d-15 under the Exchange Act that occurred during the quarter
ended March 31, 2009 that have materially affected or are reasonably likely to
materially affect the Company’s internal controls over financial
reporting.





21




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/A for the
year ended December 31, 2008, which describes the various risks and
uncertainties to which we are or may become subject to.





There
have been no material changes to the risk factors set forth in our Annual Report
on Form 10-K/A for the year ended December 31, 2008.




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





Item
3. Defaults Upon Senior Securities.





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




None.




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.




22


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 18, 2010.




CHINA
      BROADBAND, INCBy:Name:
      Marc UrbachTitle: President (Principal
      Executive Officer)




By:Name:
      Yue PuTitle:
      Vice Chairman (Principal Accounting Officer, Principal Financial
      Officer)




23